The Productivity Commission’s zeal for net-zero

Among those holding the reins of power –  and their supporters –  there appears to be an almost passionate commitment to a goal of eliminating (net) all greenhouse gas emissions by 2050.  So passionate as, it seems, to care very little about the consequences for New Zealanders.  And since some of the easiest and least costly (probably actually net beneficial) ways to make big inroads on New Zealand greenhouse gas emissions run head-on into other passionately-held ideological commitments, those options simply get ignored as well.  None of this seems based on any robust analysis, either of the specific issues facing New Zealand, nor of the way in which the substantial costs of adjustment would be likely to fall most heavily on the poorest in our society.  Some, who should know better, seem to want to pretend that a major coerced reorientation of our economy would actually be net beneficial (in economic terms) to New Zealanders.

We’ve had another display of this sort of attitude today, with the release of the Productivity Commission’s final report into making a transition to a low emissions economy.   There is more than 600 pages of it.    In its evangelical tone –  not much detached analysis here – much of it could have been written by the Green Party.

There is, for example, no sign of any recognition that New Zealand may well benefit from global warming (consistent with previous OECD modelling and IPCC analysis). And yet, according to the the chair of the Commission in his Foreword.

We make that effort as a member of a global community with a shared interest in overcoming this challenge to our collective well-being. We cannot expect to influence others of the need to change if we cannot ourselves demonstrate the willingness and ability to play our part, to offer our assistance and to share the benefits of our experience.

It seems laughable to suppose that the world will be looking to a lead from New Zealand on these issues (if only because the pattern of our gases is so much different).  But even if they were, why would we sacrifice ourselves –  and our own lower income people –  on the altar of some issue which may well pose significant risks in other countries, but if anything is likely to make New Zealand a more pleasant, and productive, climate in which to live?  Mr Sherwin gives us no clues on the answer to that.

The report itself open with this claim on the first page of the Overview.

It is difficult to estimate accurately the economic costs of climate change, due to many uncertainties. Even so, broad estimates of the economic costs of escalating climate risks are daunting. Even at 2°C of warming, the Intergovernmental Panel on Climate Change (IPCC) estimates the annual economic cost at between 0.2% to 2% of global GDP, even if strong measures are taken to adapt to such change.

Deep in the body of the report, the Commission  –  which seems to have commissioned no modelling of the GDP impact of emissions reductions targets itself –  downplays the NZIER modelling results published in the recent official consultative document on a net zero target, which suggested GDP losses for New Zealand of 10-22 per cent if we pursue a proper net-zero by 2050 target.  But even half the potential losses NZIER estimated would be a lot larger than 0.2- 2.0 per cent (benefits) –  and recall the OECD modelling suggesting that the economic costs of climate change itself are concentrated in already warmer countries, not in temperate places like New Zealand.

The zeal to lead the world continues a page or two later

Further, by achieving a successful transition to a low-emissions economy, New Zealand has an opportunity to influence others in pursuing a low emissions economy. That influence can help reduce the risk of other countries failing to pursue mitigation pathways because they either do not know how to, or do not think it can be done while continuing to grow incomes and wellbeing. Such influence is likely to be particularly relevant in areas where New Zealand has expertise and experience (eg, techniques for pastoral GHG mitigation) and by implementing innovative policy solutions (eg, to reduce biogenic methane (CH4)).   New Zealand’s capacity to influence will be the greater if it can point to its own credible and substantial mitigation progress.

So, even though climate change won’t particularly adversely affect New Zealand, we should take a gigantic gamble –  that others might be hesitating about taking –  on the off chance that we can influence the world.   And all premised on the spurious benchmark that a net-zero target can be achieved “while continuing to grow incomes and wellbeing”.  The people who run the Commission really should know better than that: the benchmark shouldn’t be whether people in 2050 are better off economically than we are, but what difference the proposed policy initiatives will make to the outcomes we would have had otherwise.  Anything like a 10 to 22 per cent loss of GDP (relative to baseline) is enormous, and appears to be a risk the Productivity Commission has little interest in engaging with, such is their emotional commitment to the net-zero aspiration (or their political commitment to keeping onside with a new government).

And, of course, the Commission has a great deal of confidence in the ability and willingness of governments and public servants (people like them), to “get things right”, never once engaging with the generations –  centuries –  of records of government failure, or the limitations of human knowledge.  Thus we are earnestly told that one of the “problems” is

Discounting climate change pushes responses to it into the future. There is a tendency to punt policy choices into the future because of near-term costs and a belief that some disincentives will reduce in the future (eg, cheaper technology or increased cost of inaction). Yet as the future approaches (when action was due to occur), the salience of the short-term costs returns, creating a vicious cycle.

And yet in a country that has almost certainly benefited, probably modestly, from  global warming to date, it is almost certainly beneficial for us not to have taken action generations ago, when the technologies were not there to support such adjustment.

They more or less recognise some of this just a little later, in a rather incoherent paragraph

So, an important theme in this inquiry is that the long-term perspective must be introduced into politics and policymaking, domestically and internationally. Added to the long horizon is deep uncertainty about many aspects of the future. The combination of these two features requires political commitments and durability that spans many generations. Without durable and ambitious policies now, the signals for firms and households to move their production and consumption towards less emissions-intensive options will be weak, at best. The challenge is therefore how best to design the political and governance architecture in a way that effectively signals future policy intentions and provides a commitment to such intentions.

Long horizons and “deep uncertainty about many aspects of the future” in combination are not simply a good recipe for getting (good) “durable and ambitious policies”, or the sort of aspiration the Commission seems to have to make such issues –  with huge economic and social implications –  something bipartisan or even transcending politics.  But politics is about the sphere in which hard choices should be debated.

Ultimately though, laws and institutions will not endure unless underpinned by political consensus. Support across political parties is therefore vital; climate change is the ultimate intergenerational issue, and governments change. So, substantial cross-party support for the core elements of statutory and institutional arrangements will help provide policy permanence regardless of the make-up of the Government.

Even though, on the government’s own modelling, the adjustment costs are very large (and probably uncertain), the distributional consequences are severe, what other countries are doing in largely unknown and subject to change –  oh, and New Zealand itself isn’t particularly adversely affected by climate change.

A big part of the Productivity Commission’s vision of the path forward is afforestation on a huge scale.  At least they recognise –  unlike the NZIER modelling, which assumes the new forests are effective all a net gain –  that if this were to happen it would mostly displace existing uses of land for sheep and beef (although the Commission barely touches on the transitional economic implications of that –  there is, for example, no mention of the exchange rate in the entire report).  And even the Commission knows that this approach has its limits

Expanding forestry can achieve large reductions in net emissions up to 2050. Yet heavy reliance on forestry will create challenges in the longer term because it is not possible to expand without limit the land area under forest. With continued emissions reductions required after 2050 to achieve and maintain net-zero or negative emissions, New Zealand will need to find mitigation options for hard-to-reduce emissions sources.

Which might leave you wondering why we should massively reorient the economy now –  at likely considerable real economic cost –  to achieve an artificial goal of no specific relevance to New Zealand, net-zero by 2050.  The feel-good dimension might be fine for the Green and Labour parties, but we should expect more from the Productivity Commission.

Towards the end of their Overview, the Commission verges on the dishonest. There is a section headed, in big  bold letters

Many benefits from the transition
Investment and job opportunities

They note

An important framing point is to think about the potential cost of transitioning to a low carbon economy as an investment, rather than as a net-cost on the economy and taxpayers. With all nations playing their part, the return in the form of avoiding damaging climate damage is substantial.

Except that (a) the numbers don’t back this up (say a 2% of GDP global loss from climate change and a 10-22 per cent loss of GDP in New Zealand to get to net zero by 2050 (again, on the government’s own numbers)), and (b) thinking of something as an “investment” doesn’t make it a good call.  There was plenty of stuff the national accountants called “investment” during the Think Big era in the 1980s –  and actually late in any boom –  that was simply wasted resources.

They prattle about much of the investment being undertaken by the private sector, as if again somehow this was a good thing, or a sign of it being well-justified.  Regulation and taxes often force businesses to undertake investment spending that has little or no societal economic benefit.  Skewing the economy to achieve a net-zero target is not obviously different.

As for jobs

A low-emissions economy has the potential to be a major source of jobs growth in the future, with many jobs yet to be defined. The International Labour Organisation (ILO), for example, says that taking action in the energy sector alone to limit global warming to 2°C by the end of century can create around 24 million new jobs by 2030, more than offsetting losses in traditional industries.

But we already have something close to full employment.  We had something closer to full employment in the dark days when New Zealand protected every industry under the sun.  Market economies will generate jobs, and technological change mostly isn’t a threat to overall employment levels (any more than in the Industrial Revolution). The issue is what those jobs pay, and that is largely determined by productivity.  The Commission is curiously, conveniently, silent about the likely overall productivity losses –  those GDP losses NZIER identified will mostly be lost productivity.

I could go on quoting the politicised blather, but here is just one last quote from the Overview

New Zealand can achieve a successful low emissions economy, but there will be tough challenges. Delaying action will compound the transition challenge, making it more costly and disruptive, and limiting viable and cost-effective mitigation options in the future. If New Zealand fails to act, it risks being locked into a high emissions economy and missing potential future economic opportunities.

Mostly this is just rhetoric.  If we face difficult adjustments, including around animal emissions for which there are as yet few decent technological options –  beyond getting rid of the animals (and shifting production to other countries –  might it not make a lot more sense to delay adjustment, take advantage of economic new technologies as they arise, and so on.  After all, despite the rhetoric, neither Donald Trump, Xi Jinping, nor anyone else is looking to us to commit some sort of economic suttee, on the off chance of rising phoenix-like from the ashes.  The Commission, for example, is dead keen on electric cars, but presumably technology in that area will continue to improve, perhaps rapidly, and we might mostly be better off not leaping now, but waiting until the prices come further down.  Individual firms will make their own choices about long-term global market opportunities, and officials at the Productivity Commission are unlikely to be able to give them any useful guidance, about balancing costs and risks, opportunities and threats.

Longstanding readers will know that I had complained that the Commission’s draft report had entirely ignored the role that immigration policy had played in driving up New Zealand’s total GHG emissions in recent decades, and –  in particular – the way in which current immigration policy, if persisted with, will compound the economic difficulty of meeting any sort of low emissions target, let alone net-zero by 2050.  Population growth was treated as an exogenous constant in the draft report.   I made a submission on the draft report, again highlighting the issue and the fairly strong cross-country relationship between population growth and emissions growth (not only in total, not only in transport, but even in agriculture).

The final version of the report represents a very modest improvement.  There is no still no reference to immigration policy, past or present, in the entire document.  There is some more discussion of the contribution of population growth, and a single piece of sensitivity analysis that makes the rather obvious point that a lower population growth rate would lower the carbon price required to meet a net-zero target, but no recognition that in New Zealand – unlike many countries –  trend population growth is very directly influenced by specific policy choices around immigration.       As even the Commission notes, achieving a net zero target by 2050 will be “challenging”. Against that backdrop it seems remiss –  and highly political –  not to even put on the table the question of whether the target rates of non-citizen immigration should be revised down.  If the government and the Commission were serious about mitigating the costs of meeting such a target –  rather than pretending that there are real net economic gains –  they’d be taking a hard look at all the things that compound those costs, without providing much benefit to New Zealanders as a whole.  High rates of immigration –  to a country more remote than almost any other, with no demonstrated productivity gains over decades, and about to be put through the wringer of large structural changes undermining the competitiveness of much of the tradables sector –  look like a clear example.    But touching on such issues would challenge the priors of the elite, and we can’t have that it seems.

Productivity Commission documents come with this statement

The Productivity Commission aims to provide insightful, well-informed and
accessible advice that leads to the best possible improvement in the wellbeing
of New Zealanders.

Perhaps they think they aim to.  It doesn’t look as though they’ve done so with this report.  On the government’s own numbers –  ignored by the Commission –  the wellbeing of New Zealanders will be jeoparised.  But quite probably their advice will have improved the standing of the Commission with the new government.  Which is not at all the same thing.

This was the chart, from the government’s own modelling, that I included in a recent post

Six times the adverse impact on the bottom quintile as on the top quintile.  Breathtaking…..

 

23 thoughts on “The Productivity Commission’s zeal for net-zero

  1. Michael,

    As a Christian you have been given responsibility for the dominion of the Earth not New Zealand.
    You appear to have forgotten that. <ind you you are not on your Pat Malone on that

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    • As everyone recognises, what the NZ govt does will make no difference to the global climate outcomes, and I expect NZ politicians to look first to the interests of NZers (as I look to my childrens’ interests before those of other people, or those of the world – not exclusively of course).

      The Genesis mandate is, of course, to humankind as a whole.

      But if Jacinda Ardern and James Shaw were to come out and say “look, we are asking you to sacrifice say 10% of your future income, and we are confident that by doing so “the world” will change dramatically (for reasons, x, y, and z), and that it wouldn’t do so otherwise” then we could have a more honest conversation about choices/tradeoffs

      As it is, richer and more productive countries elsewhere are mostly envisaging materially less sacrifice (I here I don’t just mean the US and Aus).

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      • It can be put more strongly. If the reason for acting is to do the right thing then you don’t worry about consequences (Ms Moody would put this in some arcane language). For example consider the British Empire and slavery; slavery was illegal in the UK but they made money fom the trade both by carrying slaves and by carrying goods (sugar, cotton, etc) produced by slaves. The Liverpool dockers refused to handle ships that profited from the slave trade and person cost to themselves; they were well aware that their actions would not eliminate serfdom in Russia or China and would have minimal effect in Africa and the Americas. Another example may be your picking up litter when crossing a public park – it is unlikely to stop all littering but it is the right thing to do. I try to pick up litter even in places where I never intend returning; so NZ can make an effort to tackle climate change even if it is beneficial to us.

        I can accept the idea of NZ trying to do something. However some simple realism would be appreciated instead of ‘politicised blather’.

        Liked by 1 person

      • Interesting angle Bob. I’d have no particular problem with us “doing something” – on realpolitik/foreign trade grounds we have to be seen to – but moral virtue is often about individual choices. I wouldn’t suggest an official trade boycott of China, but am I starting to think personally about whether I should limit my own use of PRC-produced items. It won’t make any difference to the PRC, but it might be the right thing to do for me.

        On the climate issue, I would be more sympathetic were the govt to tackle the easy stuff (in NZ) first, by reducing its contribution to rapid population growth.

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      • I hadn’t thought about this time bound, net-zero target in those arcane terms, Bob – but you are spot on – the Government and the PC are taking a deontological (Kantian) approach to this – that being, it is NZ’s duty to adopt this legislative/policy approach, regardless the consequences on its people – effectively, moral universalism. What they could have done instead was followed Aristotelian philosophy and sought to find the midpoint between excess and deficiency. :-).

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      • You have dodged the theological issue. I am sad.

        NZ like Australia has to do do its share otherwise no country would do anything. Perhaps you should ask your neighbours on this issue. It is clearly the major issue at the Pacific Islands forum.

        I am surprised you take such a selfish stance.

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      • I usually stay clear of theological debates here. But in this case, it is also because “dominion for the earth” wouldn’t be the only relevant theological/biblical consideration: the concern for the poor, the hungry, the prisoner (“the least of these thy brethren”) matters in my thinking (and thus I push back against policies that might lop 10% off future GDP even as NZ political debate deals with homelessness, poverty, imprisonment rates etc etc, all starting from an income per capita position well behind, say, Australia’s.

        Add in the sheer uncertainties, including about both technological innovation and adaptive capabilities, and I’m not convinced there are any unambiguous answers about what should be done, even at a global level, let alone a national one (whether from a Christian perspective or any other).

        I certainly don’t see my cautious stance as selfish – I’m of an age/stage where it probably doesn’t make a great deal of difference to me. And the limitations of knowledge/tendencies of politicians to get carried away with “causes” etc, make it reasonable that as a Christian voter and policy analyst in NZ I’d suggest a focus first on fellow countrymen.

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      • Sorry Michael but in essence you are saying I am only worried about New Zealand and I don’t care about my neighbours whether they be biblical or secular. That is selfishness personified.

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      • I’m not sure we are going to advance this discussion far in brief comments, but……

        I’m not saying I’m only worried about NZ(ers), although I am more worried about my fellow NZers than I am about people abroad (and more worried about my family than about other NZers). Those seem like both natural, and desirable, impulses, even if they can be run to extremes.

        I favour NZ having participated in World War Two, which was mainly to the benefit of other people. I wouldn’t however have favoured NZ unilaterally declaring war on Germany if no one else was doing so – moral act as, in some sense, it might have been.

        I admire acts of moral courage by individuals, but am wary of things that purport to fit that bill when done by politicians without adequate and serious scrutiny and reflection. Virtue-signalling at the expense of your poorer neighbours isn’t anything much of a moral virtue. And, for better or worse, that is what an aggressive emissions target adopted by NZ is semi-isolation is.

        If you judge that as inappropriate selfishness, than I think the term has become about as devoid of substantive meaning as racism – there is a real thing, but the word is now used for almost anything the user disapproves of.

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  2. Yes, breathtaking.

    The real elephant in the room is of course, population growth (in people, cows and visitors) as you pointed out. But without it, as John Key recently mused, what else is there?

    Then I read this;

    https://www.bloomberg.com/news/features/2018-08-29/miami-s-other-water-problem

    Perhaps freshwater is the commodity market to be in today and in the future – and what are we doing – over allocating on a first-come-first-served basis, not charging for its extraction, failing to get our act together on storage and doing nothing to prevent our aquifers going down the same route as elsewhere.

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    • Yes, with pretty abundant fresh water (per capita), properly priced, there is no obvious reason why we couldn’t support real top tier first world incomes (and the attendant social supports most will want to provide) for a small population. Natural increase only after 1913 and we might now be a country of 2.5 million (the small northern European countries with only modest immigration are about twice their pre WWI populations). Iceland has 40% of our land area, and less than 10% of our population (and materially higher incomes and productivity) – like us, much of their land isn’t usable for much other than tramping and sightseeing.

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      • I do so wish we had a biocapacity as opposed to a productivity commission. Sort the following chart by biocapacity deficit or reserve (fifth column) and those markets (in deficit) and the food products we ought to be addressing in future make for an interesting thought process. I do wonder whether brown rice, nuts and legumes as a ‘combined package’ (i.e., a complete protein diet in the absence of animal proteins) is where the world will head. Seems to me this is where we ought to be taking our agriculture, and packaging up those combined products in various value-add, finished goods for the mass populations/markets already in biocapacity deficit. Perhaps that’s the future of being a food basket for the world?

        For example, imagine if Shane Jones turned his attention to nut producing trees :-).
        https://thisnzlife.co.nz/8-nuts-need-grow/

        I just think dairy/cows are so backwards looking in a world running low on freshwater. I’d imagine we’d be better future-proofing our economy by putting our agricultural R&D and scientific know-how in to developing genetic varieties of these alternate protein crops to make them suited to growing in NZ conditions – as opposed to putting all our effort to the task of finding plants/grasses that ruminants can eat in order to reduce their GHG output.

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  3. You have a problem taking on Climate Change; in the absense of other beliefs the environment is now the national religion. As an atheist I can feel the appeal myself; if God (who doesn’t exist) did exist the one certainty is he (or she) created the universe including NZ whereas whether God left a message in one holy book or another is a matter of debate. The common feature of all religions is no compromise.

    You have bravely taken on an issue where you have very little chance of converting the true believers.

    Is it worth while pointing out that ‘net zero’ is insufficient? The emissions have already been made; the oceans are slowly warming and according to climate change theory even with net zero the climate will continue to warm until various feedback mechanisms (eg methane stored in permafrost) will kick in and everything will get far worse and do so quite quickly.

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  4. One issue that would make the zero-emission target much easier to achieve is if NZ learnt how to destigmatise density. This could benefit the poor by helping to build rather than constrain cities -a key factor in causing the housing crisis. It would improve the return on public transport investment -so help the economy and it would reduce dependence on the internal combustion engine (although the transition to an electric car fleet will have the same effect) so help our cities move towards the zero-emission target.

    View story at Medium.com

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  5. Reblogged this on Utopia – you are standing in it! and commented:
    It looks like a zero carbon economy is very much like the case for a universal basic income. The best way to talk yourself out of it is to simply read the material put out by its advocates.

    In the case of universal basic income, a huge tax rise is required without making any one for whom the modern welfare state was designed to protect better off.

    In the case of a zero carbon economy, the costs are enormous relative to any reasonable estimate of the costs of runaway climate change to New Zealand. Indeed the unreasonable and wild estimates are still less than the cost of a zero carbon economy.

    Liked by 1 person

    • “In the case of universal basic income, a huge tax rise is required”.

      Not so sure it’s that bad/simple. Yes, the government would need more revenue on the one hand, but there is a lot of revenue (based on the intent of existing rules) that should be collected, but never gets collected as a result of loophole exploitation, a.k.a. tax minimision/avoidance schemes. Then there is straight out fraudulent, tax evasion as well.

      On top of that, there are administrative and health/well-being cost savings to be made depending on the implementation of a UBI. I suspect there is an almost immeasurable societal benefit in individuals and families having day-to-day financial certainty and hence, a modicum of security.

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  6. the report says that “Even at 2°C of warming, the Intergovernmental Panel on Climate Change (IPCC) estimates the annual economic cost at between 0.2% to 2% of global GDP, even if strong measures are taken to adapt to such change (IPCC, 2014)”

    That could be misconstrued as the reduction in economic growth rather than the level of GDP. A reduction of 0.2% to 2% of global GDP as a level effect between now and 2100 is tiny. Somewhere between a month and a years annual growth lost between now and 2100.

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  7. In the entire report, there’s only one mention of ‘Nuclear’, one of ‘lignite’ (300 years of transport-fuel-equivalent under Southland alone if MBIE can be trusted), and zilch about social and cultural effects. Nor anything about the effects on cities. It’s disappointing, verging on negligent, to not explore these and other consequences. You have hit the nail on the head with your treatise here. I hope it gets a wide audience, for all our sakes.

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  8. I have to wonder if there is some herd mentality at play here. Facts and reasoned arguments on this issue (and several others) seem to be being discarded by some of our most senior economist civil servants across the public sector in order to virtue signal how on board they are with all things Green. At the very time we need them to bring the economic realities before the Government, the costs not just the wished for benefits of specific policies, so at least the public can better judge whether the sacrifices are worthwhile.
    (Hopefully after the Government clearly ignored MBIE warnings about the costs to the economy of the offshore drilling ban they haven’t decided obsequiousness serves them, if not the country, better.)

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