Clarky's Comment - new climate change report

A report commissioned by Westpac and carried out by EY and Vivid Economics has just been released that reinforces the common-sense logic that earlier action on reducing our NZ national net emissions will be less costly to the economy over the period up to 2050 than delaying action now and having to play catch-up with shock policy changes to get back on the Paris Agreement trajectory in 2030.

The report is easy to read and can be accessed here:  EY Vivid Economics Climate Report

While acting now has a modest negative impact on short term economic performance it would not halt New Zealand’s economic growth.

The report notes that agriculture would be negatively affected by a delayed response to inclusion in the ETS, in addition to the exposure it has under either scenario of increased drought and extreme high temperatures.  Agriculture would benefit from a better signalled and longer adjustment period starting in 2020.

The major impact on forestry would be increased fire risk, but as we have seen already in recent years more intense storms will likely require some changes to the way we harvest forests on highly erodible land, or otherwise develop at-risk lowlands below such hillsides, to minimise the damage from soil and debris flows.  Despite this forestry would likely expand under the higher carbon prices projected under either scenario.  The EY-Vivid report models the carbon price reaching $100/NZU by 2050 under the “act soon” scenario and $147/NZU under the delayed “shock” scenario.

Clarky’s view is that land use change from dairy to cropping and horticulture, and dry stock to forestry is inevitable to some degree.  The forces at work both globally and here in NZ to get active on a pathway to meet our Paris Accord commitments and improve our freshwater quality are now strong.  Without land use change NZ would be reliant on imported units that are surplus to some other nation’s Paris Accord needs.  But from whom and at what price these could be purchased is unknown.  The fiscal impost on taxpayers is hardly a gamble that any responsible government would wish to take.  The EY–Vivid report sensibly assumes that imported units are capped at 20% of national gross GHG emissions from 2022. 

Land use change is disruptive for existing landowners, although some progressive farmers and iwi can see the change coming and are getting on with it already.

But for that transition to commence in earnest in the near term will require unambiguous signals from government.  Multi-party agreement on this point and the key signals would serve NZ Inc. well.  The main ones should be:

  1. Rewarding past pollution through grandfathering of Nitrogen Discharge Allowances should be a short term transitional measure only.  Long term grandfathering encourages intensification in the lead up to the implementation date and is a handbrake on land use change.
  2. Agriculture will be phased into the ETS commencing 2020.
  3. The carbon price cap and subsidies to Energy Intensive Trade Exposed (EITE) industries will be quickly phased out, allowing the carbon price to rise within bands prescribed at 5-yearly intervals; such bands being set to reflect the degree of decarbonisation response during the previous 5-year term.