Goverment's Zero Carbon Bill will shut the door on New Zealand opportunities

Dr Eric Crampton
25 October, 2019

I don’t know if anyone ever really believed manufacturing televisions in New Zealand made sense. Controls in place until New Zealand’s reforms prohibited importing fully assembled televisions, to encourage manufacture and assembly in New Zealand. But it resulted in nonsense practices guaranteed to make televisions more expensive.

Alan Gibbs famously found it profitable to have Japanese television manufacturer JVC disassemble televisions and ship the parts to New Zealand for reassembly.

If what you cared about most in the world was making sure that Kiwi families could afford televisions, banning or severely restricting trade was hardly the right solution.

So why does the government’s proposed Zero Carbon bill, meant to address the biggest environmental challenge of our time, shackle New Zealand into only pursuing those carbon emission reductions achievable here at home?

The Environment Select Committee reported back this week on the government’s Climate Change Response (Zero Carbon) Amendment Bill. The Bill aims to put New Zealand on track for net zero carbon emissions by 2050, requiring the government to prepare mitigation and adaptation plans, and setting up an independent Climate Change Commission to monitor progress.

But, without amendments, the Bill will not do nearly as much good as it could. New Zealand will do less in the fight against climate change than we should, or spend much more than is necessary for the amount of greenhouse gas mitigation that we are able to achieve, or a bit of both.

The Bill requires that New Zealand’s emissions budgets be met, “as far as possible”, through domestic measures.

There is obviously a lot more that can be done domestically to help reduce greenhouse gas emissions. New Zealand’s Emissions Trading Scheme can, should, and likely will be strengthened. The ETS should be comprehensive across all sectors. As carbon prices increase, households and businesses will adjust in the same way that they do with any other change in relative prices.

But as carbon budgets become tighter, domestic low-hanging emission-reduction fruit start being eaten up. Each subsequent tonne of emission reductions becomes more expensive than the one that came before it.

And while spending massive amounts per tonne abated can be worthwhile if it is the only and best way of avoiding catastrophic climate change, it makes far less sense if there are cheaper opportunities out there to reduce emissions. Does it make sense for New Zealanders, collectively, to invest a lot of costly effort in the next million tonnes of emission reductions in New Zealand if, for the same kind of commitment, we could back projects abroad that did twice as much good, or ten times as much good?

In 2016, Giving What We Can, a charity evaluating the charitable effectiveness, found that protecting Amazon rainforests can mitigate greenhouse gas emissions at a cost equivalent to a little over NZD $2 per tonne. The current ETS price is $25.

If that assessment is right, then every dollar spent in emission reductions here at home could do about ten times as much good if invested in protecting Amazon rain forests. Forcing our emission reduction efforts to be focused here at home can start looking a lot like New Zealand’s old import controls on televisions – a really expensive way of not doing very much good.

It’s likely that only the best motives lay behind the decision to focus on domestic reductions. There have been a lot of dodgy emission reduction schemes out there, and it would be a mistake to allow potentially dodgy carbon credits to contaminate New Zealand’s ETS. But is that not the kind of thing that an independent Climate Change Commission could assess? And remember that the international community is also working on this problem: the coming 25th International Climate Conference in Santiago this December will be looking at rules for carbon accounting across borders.

The costs of prohibiting trade could wind up being very high indeed. In a 2018 report commissioned by the Ministry for the Environment, the New Zealand Institute for Economic Research concluded that blocking access to international mitigation opportunities would, by 2050, reduce GDP by 5%, reduce wages by 8%, and reduce employment by nearly 2%.

New Zealand could even conceivably go further than net zero, at lower cost than achieving net zero on a domestic-only programme, if it were possible to back successful greenhouse gas abatement projects abroad.

There are other problems with the Bill as well. As NZ Initiative Research Fellow Matt Burgess reported to the Select Committee earlier this year, testing whether measures taken under the Bill are effective and efficient is really important if we want to do the most good we can – but nothing in the Bill requires that policies meet that test. As the cost per tonne of different measures can vary considerably, the test matters.

When 99.83% of global emissions occur outside of New Zealand, it seems rather implausible that the best opportunities to reduce the global burden are found here at home. Just as we found that trade let Kiwis get better televisions at lower cost, trade can let Kiwis do more good than would be possible under the Bill as currently written.

Parliament should not shut the door on those opportunities.

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