Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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Six ways the government has exaggerated the cost of meeting climate targets

This fear mongering does the New Zealand public – and the world – a great disservice.

Fri, 04 Dec 2015

Like every other country currently represented in Paris, New Zealand is attempting to justify why our national emissions reduction pledge is credible and a fair contribution to the global effort against climate change. Good luck with that.

Our government’s argument that the target is fair rests almost entirely on its analysis of the costs and we see those as significantly exaggerated. Speaking on Q+A last Sunday, climate change minister Tim Groser said that meeting the target he’s taking to Paris (to reduce NZ’s net emissions to 11% below our 1990 gross level by 2030) will cost “over $30 billion” by 2030, or $1,350 per household. While other countries are targeting greater cuts, our government claims that achieving our target would cost the same or more than other countries. Our PM is arguing that setting a stronger target in line with the EU’s would be “disastrous for the economy.”

We’d say they’re cooking the books to fit their determination to do as little as they can. Here are the top 6 ways they’re doing that.

1. They have ignored the benefits from acting, as well as the costs of not acting

In recent posts we’ve discussed some of the potential benefits of climate action, as well as the high costs of doing nothing or too little. Both are ignored in the government’s calculations, making its partial analyses just that – only part of the truth. Shoddy methodology for sure, but that’s the politicised process in action.

2. Adding numbers up across a decade to make them look big

Let’s put some context around Mr Groser’s claims. The government-commissioned model predicts a lowering of around $4 billion on New Zealand’s real gross national disposable income (RGNDI) by 2030. The $30 billion figure is presumably referring to the total ‘cost’ over the 2020s (though even then it seems a bit high). Most items of national spending sound scary if you sum them over a decade.

A better way of showing the cost is as a percentage of our total growth until 2030, and here the difference is tiny – within the margin for error. The modelling predicts that RGNDI will rise by about 35% by 2030 in the baseline case where NZ and the world does nothing (more on that later). The predicted costs Minister Groser cites would shave that increase back to about 34% – big deal.

3. Other modelling says it’s cheaper

The Government has chosen to cite the results from Infometrics, which happen to be the highest of the two sets of costs they received. Modelling of the same scenarios by Landcare Research predicted roughly half the cost impact. The Cabinet paper on the target decision stated that the costs from the Infometrics modelling are “probably high-end estimates.” But that didn’t stand in the way of the government’s preference to make the costs seem as high as possible.

4. The baseline case is unrealistic

The cost figures are all expressed relative to a hypothetical baseline scenario, one that assumes no carbon price or other climate policies anywhere in the world. That’s not even true today, so is an entirely unrealistic scenario for comparison. But of course it inflates the cost impact.

Accordingly, most of what the government is portraying as a cost of meeting the target would actually occur anyway, regardless of the target. This is because in the model, the effect of simply putting a price on carbon (in New Zealand and globally) slows the rate of economic growth. The Cabinet paper states that this effect alone constitutes around half of the reported costs.

A more appropriate costs comparison would be to express these relative to the case where New Zealand sets the same target for 2030 as our existing 2020 target: a 5% reduction below 1990 levels. This is in line with the agreed international principle of “no backsliding” – countries can’t make a weaker pledge than they previously have. Realistically, that’s the minimum we could offer without inflicting serious damage on our reputation (and hence economy).

Using this more credible baseline, the cost of the Government’s target is just $51 per household according to the Infometrics model – not the $1350 Government is citing. Even for a much stronger target of 40%, the total cost by 2030 is around $500, still not the $1350 the government is sounding off about. Put this in context, household disposable income is expected to grow by $1000 per year.

(Click to zoom)

5. It assumes virtually no technology change

In his Q+A interview, Mr Groser spoke very optimistically about the potential for upcoming technologies like electric vehicles to have a significant impact on emissions in the coming years: “You’ve got to be a great pessimist not to see [EVs] around the corner in – I’m going to say roughly five years”.

We agree – but here’s another reason why the government’s own cost estimates are ‘greatly pessimistic’. The main scenarios assume virtually zero uptake of technologies like electric vehicles, even at much higher carbon prices. To have done so would have undermined the PM’s warning of “disaster for the economy.”

The Cabinet paper confirms this. It shows that some unpublished model runs have been done with more realistic assumptions about technology. It says: “Factoring in an optimistic rate of technology change (but not radical change) reduces the estimated cost by around 20%.”

6. Potential changes in land use are ignored

The modelling assumes no emissions pricing or other policies to reduce agricultural emissions, and hence these grow unabated (with the taxpayer paying the emissions bill). Not only does this neglect any potential for technologies to reduce methane – which the Prime Minister is so confident about – it presumably assumes no limits are placed on dairy farm expansion for other reasons such as water quality. Such a baseline is an exaggeration in the extreme, but suits the government’s determination to allege high costs of emissions reductions.

Even more striking is the exclusion of forestry from the modelling. On current projections forestry will become a source of emissions as we cut down the swathe of trees planted in the 1990s. However, a carbon price as low as $15 would see widespread tree planting on marginal land, so forestry could again become a major source of emissions reductions. This change in land use would also reduce agricultural emissions – a double whammy for New Zealand’s emissions profile.

What does it all mean?

The government is vastly overstating the costs. A proper consideration of the points above suggests the cost of meeting the government’s 11% target will likely be negligible, and higher targets would be very affordable – before we even consider any benefits.

Of course, there are some things that could increase the expected cost – such as higher carbon prices or lack of access to carbon markets. But even in the worst possible case thegGovernment could conjure up, we are still looking at an economic impact of 1-2% by 2030. Considering the costs of doing nothing, costs of that magnitude are negligible.

Why has the government set out to disingenuously wind up the costs of a climate change response? They’ve instructed their modellers to exclude things that would make it cheaper and easier to achieve the targets, as if to deliberately make it look as difficult as possible. This fear mongering does the New Zealand public – and the world – a great disservice.

Gareth Morgan is a New Zealand economist and commentator who in his previous life was an investment manager. This post first appeared on Gareth's World.

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Six ways the government has exaggerated the cost of meeting climate targets