The Climate Change Commission says transitioning to a cleaner economy will cost $34 billion over the next 14 years.
The changes it maintains need to be made in the transport, agriculture, energy and waste sectors will shave about 1% off New Zealand’s Gross Domestic Product (GDP) each year. In 2020, that would’ve been $3.2 billion.
To put $34 billion in context, the wage subsidy cost $14 billion.
The Commission can’t put a price on the counterfactual.
In other words, it can’t say what the financial cost would be of not making the changes recommended in its draft advice on how to meet the emissions reductions targets outlined in the Climate Change Response (Zero Carbon) Amendment Act.
Speaking to interest.co.nz, Commission Chairman Rod Carr outlined a few ways the New Zealand economy would be hurt if the changes, which he described as being more seismic than the economic reforms of the 1980s, weren’t made.
Countries we export to could turn down our products - either because of consumer preferences or because of government regulation.
“If Europe imposes emissions reduction programmes and costs on their domestic producers, they’re not going to allow the high-emitting embodied products and services to be delivered into that market, so market access is going to be an issue,” Carr said.
Secondly: “If we’re not on the curve and understanding and applying the new technologies, we’ll simply become less relevant as new low-emissions ways of producing proteins becomes available,” Carr said.
“New Zealand didn’t develop refrigeration, but we were an early adopter and a huge beneficiary when we figured out how to freeze meat and get it to Europe.”
Thirdly, if New Zealand doesn’t make a wholesale shift, the country won’t meet the target it set itself under the Paris Agreement - which the Commission says needs to be upped.
Offshore mitigation, or offsetting our emissions offshore, could cost anywhere between $2 billion to over $10 billion by 2030, Carr said, depending on the extent to which New Zealand falls short of its targets and the price tag put on these emissions.
Summarising the caveat around that $34 billion hit to GDP, Carr said: “We do not estimate the co-benefits of that move in terms of cleaner, greener, healthier, more sustainable society.
“And we do not estimate the costs if we don’t move, and by 2035 we find ourselves in essentially, a dirty, low-tech trajectory where we begin to be excluded from the markets we might want access to, and we haven’t got the technical capabilities to use and deploy the new technologies that have become available.”
Is our economic system fit for the future?
Asked whether the Government needs to increase its appetite for debt, given it’ll need to invest more in the transition using tax revenue that’ll increase at a slower rate every year, Carr said the Government’s approach towards debt had “evolved pretty rapidly” in recent times.
“We’ve essentially created unlimited access to credit in the western world,” he said.
“We do need to keep in mind the fact that when we borrow money… even if we never repaid it (and I suspect a lot of what we’ve borrowed is never going to get repaid) it is still going to stop a future generation from borrowing that money.
“There is an opportunity cost…
“So if we use the debt to finance things a future generation will get value from… then they will inherit the debt and a better world. If we borrow the money to prop up old types of technology and business practices that they are going to need to abandon in the future, then they will inherit the debt as well as the need to adopt those lower emissions strategies in the future. That’s not fair.”
Carr also made the point: “Because GDP is a measure of monetised busyness in our economy, it is a proxy for what is taxable…
“Governments find it harder to levy taxes on bad things that aren’t traded in the economy, like pollution. It’s hard to tax pollution until you put a price on it and require people to pay for it.”
What are some of the things needing to be done?
Looking briefly at the impacts of the Commission’s suggestions on different sectors, Carr said it was possible to cut livestock numbers by around 15% by 2030 without reducing milk/meat output.
He said sheep could be bred for the trait of low biogenic methane emissions.
“There’s about a 10% reduction in methane from sheep meat production if you breed for the trait. We’re only just beginning to do similar research on dairy cows, but there’s no reason to believe - with the right research accelerated - that you shouldn’t be able to get there.”
Carr said the Government needs to fund both researchers and farmers to help advance better practices in this space.
As for phasing out gas when it comes to energy generation, Carr said: “We do need to focus on transition technologies that have end dates. The gas industry has quite appropriately argued they can provide a transition technology. Fine. ‘Sign up for the date by which you’re gone’,” he said.
“If we are in a transition to an end date, we need to not invest in new pipes in the ground so we don’t have stranded assets and our infrastructure can reach the end of its economic life.
“And in addition to that, if that sector can develop carbon capture and storage technology and deploy it at the point of combustion, then do it.”
When it comes to the uptake of electric vehicles (EVs), Carr said a feebate scheme - such as the one the former government unsuccessfully tried to push through - needed to be investigated.
The Commission suggested looking at ways the tax system could be used to encourage take-up of EVs.
Carr suggested, for example, that a change could be made so that businesses can no longer deduct the cost of buying, owning and operating internal combustion engine (ICE) vehicles from their tax bills.
For more on the Commission's draft advice, see this story.