Ministers told emissions targets difficult to achieve and may be optimistic
First published in Energy and Environment on May 16,
Meeting emissions targets under the Zero Carbon Bill will be difficult to achieve without a very large leap in tree planting, new technologies and a large increase in carbon prices says the Bill’s Regulatory Impact Assessment.
A review of the Assessment (RIA) also believes officials may be making over optimistic assumptions and progress may be even more difficult.
The RIA says a range of economic modelling and analyses suggests NZ’s transition to a low-emissions economy will be challenging but achievable, “if specific assumptions made in the modelling on innovations and transitions across energy, transport and agriculture come to fruition”.
Despite the modelling not looking specifically at the Government’s final decision on biological methane, some of the work did not look at variations of this.
The RIA says under the new law the economy would continue to grow but at a slower rate than expected under the current targets. “NZIER finds that the recommended target option could slow economic growth by 0.07-0.18 percentage points compared to the current 2050 target, which is $5bn to $12bn per year over 2020-2050… these results are highly sensitive to assumptions about the level of forestry sequestration (modelled as 19-23Mt). Modelled costs fall sharply under higher sequestration assumptions.”
The modelling also projects a wide range of emissions prices from $75–885 per tonne of carbon dioxide equivalent by 2050.
The RIA says officials believe the economic impacts reported should be read with caution; as they are likely to overstate the challenges of the target options and underestimate the costs of the ‘do nothing baseline’.
“The recommended target option sets clear emissions reduction goals for all of NZ to reach in 2050 and beyond; however, it does not specify policies or plans. A long-term, low emissions development strategy will also be necessary to signal government policies required to drive the transition, with support arrangements to avoid or ease uneven distributional impacts across regions and society”. Notably the Government is yet to announce whether it will include agriculture in the ETS.
Parts of the RIA are redacted when it comes to costs with officials citing Budget secrecy and says the economic impact work does not take into account the impact of a climate change and the potential for stronger emissions targets to drive faster innovation and to reap wider co-benefits (eg, health or environmental outcomes).
However, there remains the “unlikely risk of NZ incurring the significant costs of the transition unduly (and without any material impact on climate change) if the rest of the world does not act accordingly”.
There is also a risk of undue economic burden on NZ if the assumed future innovation, technological developments and productivity gains do not come to pass.
The peer review of the RIA warned “The extent and nature of uncertainty, on both the upside and the downside, of the economic costs and benefits of differing levels of ambition, is clear. The downside risks that assumptions about achievable levels of afforestation and technological innovations will be met are, however, given less prominence than the upsides”.
The finding that the economic impact under all scenarios is expected to be substantial leaves the case for them dependant on convincing noneconomic arguments.
“The assumption is also made that a high level of ambition in NZ will bring reputational benefits and have a positive influence on other countries’ mitigation efforts; and that this in turn will mitigate climate change to the point that NZ will experience further benefits, in terms of avoided adaptation costs.
“However, little evidence or argument is available to support that assumption. For example, it is emphasised that NZ’s challenge in meeting its climate change obligations is different from that of other countries. This must reduce the likelihood that those other countries will want or need to follow NZ’s example or to take advantage of any NZ technological innovations. This in turn weakens the logic that mitigation action by NZ will reduce the impacts of climate change experienced here. This creates significant uncertainty as to the benefits of the proposed action and it will be important to monitor progress”.
First published in Energy and Environment on May 16, 2019.