a question of trust - tailrisk · research reports were peer reviewed, with the exception of the...

AquestionoftrustSubmissionontheZeroCarbonBillJuly2019

AboutTailriskeconomics

TailriskeconomicsisaWellingtoneconomicsconsultancy.Itspecialisesinthe

economicsoflowprobability,highimpacteventsincludingfinancialcrisesand

naturaldisasters.Tailriskeconomicsalsoprovidesconsultingserviceson:

1.Theeconomicsoffinancialregulation

2.Advancedcapitaladequacymodelling

3.Stresstestingforlargeandsmallfinancialinstitutions

4.Regulatorycomplianceforfinancialinstitutions

5.Generaleconomics.

Tailriskalsoprovideseconomicadviceandanalysisonpublicinterestissuesonaprobonoorreducedratebasis.Thispaperwasproducedinthepublicinterest.

PrincipalIanHarrison(B.C.A.Hons.V.U.W.,MasterofPublicPolicySAISJohns

Hopkins)hasworkedwiththeReserveBankofNewZealand,theWorldBank,theInternationalMonetaryFundandtheBankforInternationalSettlements.InhistimeattheReserveBankIanplayedacentralroleindevelopingananalyticalapproachto

financialsystemriskissues.

Contact:IanHarrison–PrincipalTailriskeconomicse-mail:harrisonian52@gmail.com

Ph:0221753669

Contents PagePartone: Introduction 4Parttwo: SubmissiononmainprovisionsintheBill 8Partthree: TheImpactofclimatechangeonNewZealand 10Partfour: Economicanalysisoftheeffectsofclimate 28

changepolicies

Partfive: Thecaseforearlyaction 39Partsix: Theco-benefitsofclimatechangemitigation 47Partseven: Innovationbenefits? 74Parteight: Defenceandclimatechange 91Partnine: Directinterventionsinthevehiclemarket 97Appendix1 Westpaceconomicreport 100Appendix2 IPCCAustralasianreport 102Appendix3ProductivityCommissionreport:submission 108References 121

AquestionoftrustSubmissionontheZeroCarbonBillPartone:IntroductionThispaperiswrittenasasubmissiontotheSelectCommitteeontheZeroCarbonBill.However,itsmainpurposesare:first,toreviewthequalityoftheofficialanalysisthatcontributedtothesomeofthekeydecisionsreflectedintheBill,andwhichwillhaveaffectedthepublics’understandingoftheissues;andsecond,tofocusonanumberofthemorecriticalissuesthatwillariseastheNewZealandprogressestomeetitstargets.InitsRegulatoryImpactStatement(RIS)theMinistryfortheEnvironment(MfE)givesitsworkahighgrade.TheMinistryandwidergovernmenthaveputsignificantresourceandeffortintodevelopingarobustevidencebasetounderpintheZeroCarbonBillproposals.Thisincluded:consultingscientificexpertsandliterature;commissioningarangeofsophisticatedeconomicimpactanalysesandmodelling;andundertakinganopenandextensivepublicconsultationprocess.Thescientificassessmentofglobalclimatechangeanditsimpacts,bothinternationallyanddomestically,isrobustandcredible,andhasbeensubjecttointernationalpeerreviewandqualityassurance.Ourreviewpresentsaverydifferentpicture.TheMfEhassystematicallymispresentedtheimpactofclimatechangeonNewZealand.Ithaseffectivelysuppressed,andmisrepresented,theIntergovernmentPanelonClimateChange(IPCC)reporting,andother‘unhelpful’analysis,andhasfailedtoundertakeessentialresearch.Noneofitsinternalandcommissionedresearchreportswerepeerreviewed,withtheexceptionofthesecondstageNZIERreport.Whatemergesfromourdiscussionisapersistentpatternofpoorqualityanalysis.TheMfEhasvariously,misrepresented,exaggerated,cherrypicked,suppressedand

fabricated,evidence.WefoundthattheMfEsimplycannotbetrusted.TheMfEmightthinkthatafewwhiteliesandshoddyanalysisisacceptableinagoodcause.Thepublicneedstobejolliedalong,orfrightened.Wedisagree.Ultimatelyitwillcorrodethebroadconsensusneededtoachievefairemissiontargets.IftheMfEandthewidergovernmentcan’tbebetrustedonthesmaller,moretechnicalissues,whyshouldtheybetrustedonthebigquestions?OrganisationofthispaperOurdiscussionofthekeyissuescoversthefollowing:Parttwo:ThemainproposalsintheBillThispartsetsoutoursubmissiononthemainelementsintheBill.

• Broadlywesupporttheclimatechangetargets,althoughthereisroomfordebateabouthowwetreatagriculturalemissions.

• WehavenoissuewiththeClimateCommitteeproposals.• Thecaseforcentralisedadaptationco-ordinationandreportingisoverblown.

Fortherelevantfuturetherewillbelittletoadaptto,andadaptationdoesnotneedamajorcentralisedeffort.

Partthree:TheImpactofclimatechangeonNewZealandThescienceonexpectedchangesinNewZealand’sclimateispresented.Thisshowsthatclaimsthattherewillbefarreachinganddamagingchangesare,forthemostpart,grosslyexaggerated.Theeconomicandsocialconsequencesofthesechangeshavesimilarlybeenexaggerated.Themostlikelyoutcome,assumingsomemoderatesuccessinmitigatingglobalemissions,willpossiblybeasmallpositiveeffect.TheMfEhasmadenoseriousefforttoassesstheoverallimpactofclimatechangeonNewZealandandhasdeliberatelysuppressedevidenceofpositiveeffects. Partfour:EconomicanalysisoftheeffectsofclimatechangepoliciesThispartreviewstheeconomicanalysisthatcontributedtothepublicconsultationprocessandtothedecisionsontheproposalsintheBill.KeyfindingsarethattheMfEfabricatedevidencetomakeitspreferredpolicyoptionslookbetter;andthattheresultsareprimarilydrivenbytheroleofforestsequestrations,andoverseastechnicalinnovation.Thecontributionofforestsequestaionswassuppressedtoreducetheirrole.Theeconomicanalysiswasarushjob,andfutureanalysisneedstoextendthemodelinghorizonwellbeyond2050,integratethebestofthemodelinganalysis,improvetransparency,attendtomodelweakness,andbemorehonest.Independentconsultantsneedtobegenuinelyindependent.

Partfive:Theco-benefitsofclimatechangemitigationAkeyMfEargumentisthatpositive‘co-benefits’willoffsetmuchofthenegativeeconomiccostsofmitigationpolicies.OurreviewoftheMfEco-benefitspaperfoundlittleevidencetosupportthisclaim.InparticularwefoundthatthereareseriousissuesaroundtherobustnessofofficialestimatesofthecostsofairpollutioninNewZealand.Excessdeathsareestimatedat1000peryearbuttheWorldHealthOrganisation’sestimateisonly20.Partsix:innovationandclimatechangeTheMfEalsoarguesthatinnovationinducedbystrongclimatechangeactioncouldgiveNewZealandfirmsacompetitiveadvantage.TheMfE’sconsultant‘sreportlargelyrefutesthisargument.TheMfE’sreviewoftheforeignliteratureclaimedthatitprovidesomesupportforthecompetitiveadvantagehypothesis.OuranalysisfoundthattheMfEoftenmisunderstoodormisrepresentedthepapersandcontraryresultswerelargelyignored.TheliteraturedoesnotsupporttheMfE’sposition.Partseven:ThecaseforearlyandstrongactionThecaseforearlyandstrongactionisbasedon:

• Co-benefitandinnovationbenefits,thatlargelydon’texist.• Claimsthatearlyadoptionprovidesisalowercosttimepath,whichislargely

basedonsomespuriousProductivityCommissionanalysis• NewZealand’sself-appointedroleof‘worldleadership’.

WhileNewZealander’smightbelargelyhappytodoour‘fair-share’,worldleadershipwillhavelesswidespreadsupport.‘Worldleadership’isunlikelytomakemuchofadifferencetoglobaloutcomes,butcouldbeusedtopromoteexpensiveandlargelyineffectualpolicies.Themainbeneficiariesofagloballeadershiprolearethepolicyelitewhowillgettopreenontheworldstage.Thelosersareworkingpeoplewhowillhavetobearthecostofunnecessarilyexpensivepolicies.

Parteight:ReducinglightvehiclesemissionsActionstoreducelightvehicleemissionshavejustbeenannounced,toolateforanfullanalysisoftheproposalstobeincludedinthispaper.Ourinitialassessmentisthatthepoliciesarebadlythoughtout,keyinformationisnotdisclosedandtheconsultationdocumentisoftenlessthanhonest.Thepoliciesappearstobebased,atleastinpart,onsupposedmarketfailures.AMfEreportarguesthatnewelectricvehiclesarenomoreexpensivethaninternalcombustionengine(ICE)andthatvariousbehavioralissuesexplainthelimiteduptakeofnewEVs.TheMfE’scostclaimwasbasedonasinglefakedreport.Itisobviousthat,atpresent,thelackofEVchoice,vehiclecapabilityand,especially,pricearetherealproblems.Thesefactorsarerapidlychanging,butfornowEVsareanextremelyexpensiveway(inexcessof$1000pertonneofC02)toreduceemissions.EVsubsidiesinvolvingtransfersfrom

workingfamiliestothehigherincome‘policyelite’areinequitableandwilldolittletoadvancethenetzeroobjective.Partnine:ClimateChangeandDefenceInthispartwereviewtherecentMinistryofDefencereportonthe‘climatecrisis’.Itisacaseexampleofhowclimatechange‘hysteria’hascorrodedthequalityofanalysisanddecisionmakinginthepublicsector.Wefoundthatthereviewwaswoefullyinept.A‘comprehensive’eightmonthreviewwassupportedbyjustfourreferences,noneofwhichhadmuchtodowithclimatechangeandsecurity.DefencemissedthekeyreferenceontheimpactofclimatechangeinthePacificIslandsthat,amongstotherthings,suggestedthattherewouldbefewercyclonesanddroughts.ThereportappearedtobeacaseofDefence‘singingforthesupper’,goingthroughalargelymeaninglessclimatechangecrisisritualaspartofaplayformoreresources.

Partnine:Actionsweshouldtake.ThebestcourseforNewZealandisaslowandcautiousmitigationpaththatwillnotput‘runsontheboard’quickly.Butgovernmentstendtobeimpatient,andwanttobeseentobedoing‘something’,regardlessofcostorefficacy.Inthispartwepresentsixlowcostoptions.Theyare:

• Immediateactiononimposinghighercarbonpricesontransportfuelswithatimepathforfutureincreases;

• Taxesoninternationalairtravel;• Abanonofficialbusinessclassairtravel;• Virtualattendanceatclimatechangeconferences;• Replacetheofficial7seriesBMW’swithNissanLeafs;• Electrificationofthetuktukfleetby2020.

Someofthesectionsarelengthybecausewehavedoneacomprehensive‘factcheck’ontheMfEdocuments.Ratherthanpresentingourownshortsummariesoftheiranalysis,wehavelettheargumentsspeakforthemselves,andhavecriticallyreviewedmanyofthestudiesthattheMfEsaytheyhavereliedon.

Parttwo:SubmissiononmainprovisionsintheBillTheemissionstargetsWebroadlysupportthetargetssetoutintheBill.Weacceptthatclimatechangeisrealandthatitisaglobalproblemthatrequiresaglobalsolution.NewZealandhassigneduptodoits‘fairshare’,andweshouldmeetthatcommitment.However,wedonotacceptmostoftheargumentsthathavebeenusedtojustifythetargets.NewZealandwillnotbesubjecttosignificantharmfromclimatechangeinthemediumterm(thiscentury);weshouldnotbeagloballeaderinthefightagainstclimatechange;therearenotenormousco-benefitsfrompoliciestoreducegreenhouseemissions;andtherearenotlarge‘firstmover’advantages.

Wedonotneedtoresorttobogusordeludedarguments,orfrightenthepublicwithapocryphalvisionsofimpendingdoom.Doingour'fairshare’istherightthingtodoasaresponsiblememberoftheglobalcommunity.ThatshouldbeenoughtojustifythetargetssetintheBill.TheClimateChangeCommitteeAClimateChangeCommitteealmostcomeswiththeemissiontargetterritoryandwegenerallyagreewiththeapproachtakenontheCommittee’srole.

Muchwilldepend,ofcourse,onhowtheCommissiongoesaboutitswork.Decisionsoncarbonbudgetingneedtobebasedonqualityanalysisandaclearfocusonleastcostemissionmitigation.Whatwillitcostpertonneofemissionsreducedshouldbeatthecentreofthings.TheCommitteeshouldnotbeswayedbytheneedtobeseentobedoing‘something’,whenpatienceisrequired.AndtheCommitteeshouldsticktoitsknitting.ManyproponentsofclimatechangemitigationseethisasanopportunitytoeffectsomekindofmorefundamentalchangeinhowNewZealanderslive.A‘holistic’approachisalmosttheofficialdoctrine.However,muchofthesebroaderagendasareonlyweaklyrelatedtoachievingtheclimatechangetargetsandarepoliticallycontentious.Signinguptotheemissiontargetsdoesnotmeanconsenttoaraftofotheroftendubious,‘holisticallyconnected’initiatives.WewillgetasightonhowtheCommitteemightproceedisintheInterimCommittee’sfirstreportdueon30September2019,whichwillcoverthefollowing:

•Buildingthefoundationsforemissionsbudgetinginthetransportsector.•Identifyingdataandmodellingneedsforthelandusesector.

•Developinganeconomy-widemodelandmethodologyforaneconomy-wideemissionsbudget.

Therearecontributionsontheseissuesinthispaper.Adaptationco-ordinationandreportingThecasefornationaladaptationreportsandacoordinatednationalstrategyisvastlyoverblown.Weareinformedthatacentralisedapproachisimportant,ifnotessentialpart,ofanyadaptationprocess,butwithoutanyrealargumentationofjustification.

Thefirstquestionthatneedstobeansweredhereisadaptationtowhat.ButinitsmanydiscussiondocumentsandreportstheMfEisevasiveonthispoint,becausethebestsciencetellsusnotmuchwillhappenforseveraldecades,andthatsomeoftheeffectswillbepositivenotnegative.Theremaybelocalisedeffects,andsomeimplicationsforlongerterminfrastructureprojects,butforthemostpartacentralisedapproachtolongtermadaptationplanning,atthispointintime,isawasteoftimeandadiversionfromthecentralissueofreducingemissionsattheleastcost.Inmostcasestheanswertothequestion‘whatareyoudoingnowtoplanfortemperatureswhicharetwodegreeswarmer;intensiverainfalleventswhichare10percentmorecommon,in60yearstime’,shouldbe:nothing.Totheextentthatbusinessesneedtoadapttheywilldosowithouttheneedforcentralisedplanningandcontrol.Climateadaptationisjustone(mostlyminor)risk,amongstmanyothers,thatbusinesseshavetocontendwith.Butbusinessesandbureaucracieswillprobablygothoughamostlyvacuousboxtickingexercisetobeseentobepartofthe‘program'.AdaptationreportingandcontrolshouldbedowngradedintheClimateCommitteesworkprogramme.However,ausefulearlytasktheCommitteewouldbesetoutasetclear,quantified,bestassessmentoffutureclimatechangeandtheirlikelyeffects,sopeoplehaveclearingunderstandingofwhatislikelytohappen.

Partthree:ThecostofclimatechangeforNewZealand

Thecostofclimatechangeisdiscussedintwodifferentcontexts,whicharenotalwaysclealydistinguished.First,estimatesareusedtothejustifytheworldtakingaction,andtypicallyassumenofurtheractiontoreduceemissions.

Thesecond,mostrelevantforinthecontextoftheadaptationdiscussion,isthecostofadaptingtoclimatechange,evenifglobalemissionsmitigationissuccessful,orpartiallysuccessful.Herewearetalkingaboutatemperatureincreaseofonedegreeormorelikelytwodegrees,andthecosts(andbenefits)arelowerthanifnoactionistaken.

Thefirststepinanyclimatechangecostassessmentis,obviously,toestablishwhatkindofclimatechangeswearetalkingabout.

TheIPCC(intergovernmentalPanelonClimateChange)hasproducedanumberofrepresentativeemissionspathways(RCPs)reflectingthesuccessofvariousmitigationefforts,onemmissionconcentrations.RCP2.6assumesarapidreductioninemissions,andthewithdrawalofsomeoftheC02presentlyintheatmosphere;twostablisationpathways,RCP4.5(C02stablisesataround500ppminthesecondhalfofthecentury)andRCP6.0(700ppmbyendofcenturyandstillincreasing)representdifferentdegreesofsuccessinreducingemissions;andRCP8.5essentiallyassumesnoclimatechangemitigation(1000ppmandstillincreasingstrongly).

Theseemissionpathwayscanberunthroughclimatemodelstogenerateclimatechangescenariosconsistentwiththepathways.ThedefinitiveanalysisforNewZealandissetoutintheMfEdocument‘ClimateChangeProjectionsforNewZealand:AtmosphereProjectionsBasedonSimulationsfromtheIPCCFifthAssessment2018.’

Becausetheestimatesofclimatechangesinthisdocumentareoftenignored,ormisrepresented,wepresentasummarybelow.ObviouslytheMfEshouldhavepresentedasummaryinitsmorepublicdocuments.Butitdidnotdoso,preferingtotalkinmoregeneraltermsaboutincreasesinextremeweatherevents,leavingtheimpressionthatweareinforsometruelysevereanddamagingchanges.

ThesummaryheadlinefiguresinMfEadaptationreportareshownasarangeofthe2.6and8.5,RCPs,whichisnotparticularlyhelpfulforunderstandingwhatislikelytohappeninNewZealand.TheRCP2.6isnolongeraseriouspossibilityandtheRCP8.5isundulypessimisticaboutthepossibilityofsomeeffectiveinternationalaction.

TheMfE’spositionintheRISisthatthefailureofglobalmitigationeffortsisunlikely.Wehaveextractedthemorerelevantchangesfromthebodyofthereport.Thebaseforthereportedchangesisthe1985-2005average.

Tableone:Summaryofclimatechanges

RCP 4.5 6.0 8.5Temperatureincrease2040

0.8 0.8 1.0

Tempeatureincrease2090

1.4 1.8 3.0

‘Hot’days>25oCAuckland

Wellington

Base20

36-48(2040-2090)

Overallprecipitation

Verysmall(0-5%)changesinmostplaces

Drydays Increasesinmostplacesaveragearound10days–butvariable

Droughts DroughtwasonlyreportedforRCPs2.5and8.5.Ingeneraltheriskofdroughtarehigherinalreadydroughtproneareas.

ModeratelyextremedailyprecipitationDeterminedfromthe99thpercentileonwetdays,

increasesovermostofthecountryexceptforpartsofNorthlandandHawke’sBay.IncreasesaresmallfortheremainderoftheNorthIsland,largerfortheSouthIsland,andlargestofall(20percentormore)inthesouthoftheSouthIsland.

Veryextremeprecipitation

VeryExtreme

Fallswiththedurationofeventsfromabout13percentfor1hourtoabout6-7percentforlongerduration72

precipatationisexpressedasthepercentageincreaseperdegreeincreaseintemperature

-96houreventsthatcanresultinmajorfloods.

Storms Informationonfrequencyislimited.Theremaybeasmallincrease

Highwinds Upby10%ormoreinpartsofthecountry

The‘hotdays’benchmarkof25oCisreflectiveofanofficialbiastotalkinguptheevidence.Elsewhere40oCisthetypicalbenchmarkfortemperatureextremeswhichcouldposeathreattohealth.InNewZealandthebenchmarkmerelyreflectsanincreaseinthenumberofpleasantlywarmsummerdays.Overall,thesummarydoesnotshowasystematicpatternofextremechangesandwewouldnotexpecthemtohaveastrongeconomicimpact.EconomicandsocialimpactsNowthatwehaveabettersenseofthemagnitudeofclimatechangesweexamindiscussionsoftheevidenceontheeconomicandsocialeffectsunderthefollowingheadings.

1. TheMfE’sassessmentsinOurclimateandtheRIS.2. TheAustralasiansectionofthe5thIPCCreport3. Impactsontheagriculturalsector.4. ATreasurycommissionedreportonsomecostsofclimatechangetodate.5. TheMfE’sAdapatationTechnicalWorkingGroup’sreport.6. Theamenityeffectofclimatechange

1.TheMfEonthecostofclimatechange

TheMfEhasnotproducedanoveralleconomicassessmentofthecostsofglobalwarmingforNewZealand.Theyhavesaidthatitwouldbe‘toohardtodo’1,andthattherearenoavailablestudies.

Thisisdisingenuous.TheMfEhascommissionedlengthyreportsonseveralcomplex1InanopedintheDominionlastyearJimRosereportedthatboththeMinisterandtheMinistryhadbeen

issues,andcouldhaveproducedareportonthecostsifitwantedto.Buttheydidn’t,mostlikelybecausetheyknewthatanyhonestandcompetentanalysiswouldnothavegeneratedlargenetcosts,andtheoverallbenefitsmaywellhavebeenpositive.TheMfEdidnotevenattempttosummarise,initspublicdocuments,theNewZealandimpactsreportedintheIPCC’s2014report.TheOECDreportAlltheMfEdidinitsRegulatoryImpactStatement(RIS)wascite,andthenmisrepresent,someresultsfroma2015OECDreportonclimatechangecosts.IntheoverviewsectionoftheRIS,theMfEmadethefollowingstatement:

ThecosttotheNewZealandeconomyofnofurtheractiononclimatechange(byNewZealandandtherestoftheworld)isestimatedbytheOECDasareductioninAustraliaandNewZealand’scombinedGDPgrowthrateof1–2percentperannumby2060.

Thisisfalse.TheOECDresultsrefertooftheimpactofclimatechangeontheabsolutelevelofeconomicactivity,notareductioninthegrowthrate.Thediffernceisfundamental.ForAustralasia,theunderlyinggrowthinGDPassumedintheOECDreport,is2.6percentperannumover2020-40,and2.1percentover2040-60.By2060theeconomieswillhavegrownby153percent.TheOECD’scentralestimateoftheclimatechangeeffectisabout0.82percent.Sowithclimatechangetheeconomiesgrowby151.8percent.Climatechangedoesnotmakeabigdifference.InamoredetailedsectionoftheRIS,theMfEdoesunderstandsthedifferencebetweentheabsolutelevelofGDPandthegrowthrate.ItisconcerningthattheobviousmisrepresentationoftheOECDresultswasallowedtostandinthemoreaccessibleleveloftheRIS.ThesecondissueistheMfE’srepresentationoftheuncertaintyaroundtheOECD’scentralestimateoftheeconomiccost.Theimpactisdescribedas1-2percent.Theactualreporteduncertaintybandaroundthecentralestimateof0.8percentwas0.3-1.4percent(reflectingdifferenttemperatureincreaseoutcomes).Thereisa2percentimpact,butthisassumesanextreme,6oCtemperatureincrease.Noofficialsourceisforecastingthatoutcome.ThethirdissueisthattheAustralasiannumbersaredominatedbyAustralia,whichasanalreadyhotcountry,willbemoreaffectbyclimatechangethanNewZealand.OneofthetakeoutsfromtheOECDreports,andsimilarstudies,Isthatthenortherncountries,whicharethebestcomparatorsforNewZealand,arenotnegativelyaffectedbyclimatechange.TheTreasuryraisedtheissueofthelegitimacyofthe

2TheresultsareonlypresentedinafigureintheOECDreport,anditisdifficulttoreadthemoffprecisely

MfE’suseofAustralasianresultsfromtheOECDreport,butwithoutsuccessintermsofimprovingtheintergrityoftheRIS3.Finally,theOECD’sheadlinenumbersexcludedthecarbonfertilisationeffect(higherCo2levelsintheatmospherecanincreaseproduction)onagriculturaloutput.TheOECDrathergrudginglymadeapartialallowanceforthis,anditstillhadamaterialimpactontheoverallresults.Thecarbonfertilisationissueisdiscussedfurtherbelow.Evidencepresentedin‘OurClimate’Despitethelackofasolidoverallassessment,OurClimate,whichwasthepublicfaceoftheMfE’sanalysis,triedtoleavetheimpressionthatthecostsarelargeandjustifiedearlyaction.Therewerefourpiecesof‘evidence’.ImpactonGlobalGDPRecentanalysisalsosuggeststhatlimitingglobalwarmingto1.5degreesCelsiusinsteadof2degreesCelsiusbymid-centurycouldleadtoanincreaseinglobalGDPof1.5percentto2percentandavoidsdamagesfromclimatechangegloballyofaround$11trillionto$16trillion.

Wehavereadthe‘recentanalysis’4.ThemethodoloywastoestimateasimplerelationshipbetweenvariationsinannualaveragetemperaturesandannualchangesinGDP,inapanelof165countriesover1960-2010.ItusesthisrelationshiptocalculatethedifferenceinGDPwhenthetemperatureincreasesby1.5degreesand2degrees.

3OIArequestreabove20November2017.TreasueyquestionsondraftofCabinetpaper

Para22:OECD–costsofinaction.a.Wewerealittlepuzzledastowhythefigureof2%reductioninGDPwascited,intermsofthecostsofinaction.IsthistakenfromtheOECD’sanalysisofthemacroconsequencesofclimatechangeimpacts,asdescribedinCh2ofthe2015report?Inthisreport,theOECDnotesthatthecostsofinactionof2%GDPisaglobalaverageloss,butthengoesontosaythatthelossestoOECDeconomiesaremuchless.TheOECDstatesthat“TheeconomiesofOECDcountriesare,onbalance,muchlessaffected,withlossesin2060amountingto-0.2%,-0.3%and-0.6%forOECDEurope,OECDPacific[NZisincludedinthisgroup]andOECDAmerica,respectively,notleastbecausemanyofthesecountrieslikeintemperateclimatezones.”(para2.2.1,p53)b.Wewerealsoalittlepuzzledaboutthelogicofincludingthis2%globalaveragefigure.ThisleadsthereadertothinkthattakingclimateactioninNZwouldavoidussufferinga2%GDPloss(or0.3%lossbasedontheabovepara.)However,asNZproducesonlyasmallproportionofglobalemissions,itispossible(andindeedlikely)thatevenifNZwastoshifttonetzeroemissionstomorrow,wewouldstillsufferthesamemacroimpactsaswewouldifwecontinuedtoemitaswedonow,theimpactsofclimatechangethatNZexperiencesarenotaresultofNZspecificemissions.c.TheseconcernsareinadditiontoourconcernswiththeunderlyingdatathattheOECDreportisbasedon,withregardtotheconflationofNZandAustralia–fortwoexamples,someofthemodelledlossesareattributabletoa)extremeevents(inclheatwavesandtropicalcyclones)andb)impactsintheenergysector(especiallyoil,gasandcoal)wherethereareclearlygreaterimpactsforAustraliathanNZ.4Burke2018

ThereareanumberofproblemsindrawinganyinferencefromthispaperforNewZealand.First,theresultswillbeheavilyinfluencedbyunderdevelopedcountriesinhotareasoftheglobe.Whileitisplausiblethattherewasahistoricalrelationshipbetweentemperatureandshortrunvariationsineconomicactivityinthesecountries,itisabigsteptoclaimthattheseresultsapplytoaslowsecularincreaseintemperatureinallcountries.

Second,theresultssuggestthatforNewZealandtherewillnotbeamaterialimpact.ThepapershowsaninvertedUshapedrelationshipbetweentemperaturechangeandGDPchanges.Thereisaneconomically‘optimal’annualaveragetemperatureof13.1degreeC,wherethereisnoeconomicimpact.NewZealandsitsclosetothisclimaticsweetspot.IftheMfEwantedtocitethispaperthentheyshouldhavehavepresentedthewholestory.

DrawingconclusionsfromrecenteventsOurClimategoesontomakeacasefornegativeimpactsundertheheading‘Impactofclimatechangesofar’.

Wearealreadyfeelingtheeffectsfromachangingclimate.Inthepast100years,seashaverisenaround14to22centimetresinNewZealandports.Morerecently,wehavesufferedcostlydamageanddisruptionfromcoastalerosion,morefrequentandsevereweatherevents(flooding,droughtsandwildfires)anddamagetoinfrastructureandassets.

Whileitistruethatsealevelshaverisen,itcannotsimplybeassumedthatrecentweathereventshavebeenduetoclimatechange,anymorethanitcanbesaidthatunusualcoldsnapsrefutetheglobalwarminghypothesis.However,theTreasuryhasattemptedtofillthisgapbycommissioningapaperthatattemptstoestimatetheimpactofclimatechange,sincepreindustrialtimes,onthelikelihoodofmoreextremeweatheeventsoverthelastdeade.Weconsiderthisreportindetailbelow.

TransportcostsThecostswefacearecontinuingtorise.Asanexample,inthepast10years,thecostofweathereventstoourtransportnetworkhasrisenfromabout$20millionperyeartoover$90millionperyear.5Thesourceofthe$20to$90millionincreaseinthecosttothetransportnetworkwasa2017MfEreport6.ThatdocumentinturnreferencedaMinistryofTransportreportasthesource.Thatdocumentwaswrittenin2009,soitdidnot,andcouldnot,provideevidenceonthecostsoverthe10yearsto2018.Inanyeventstorm

5MinistryfortheEnvironment(2017).

damagetothetransportnetworkishighlyvariablefromyeartoyear,soanincreasefromagivenpointtoanotherpoint10yearslater,provesnothingaboutthetrend.CostofsealevelriseReportsfromtheParliamentaryCommissionerfortheEnvironmentindicatethatthecostofreplacingeverybuildingwithinhalfametre(abovecurrentsealevel)couldbe$3billionandwithin1.5metresasmuchas$19to20billion.

Thevalueofbuildings‘atrisk’isinteresting,butisnottheimportantdata.Weneedtoknowhowmuchitwouldcosttodefendthosebuildings,orwhenitisappropriatetoretreat,thevalueoftheabandonedproperties.InthatrespectthereissomeusefulinformationinareportbyBecaLtd.totheDunedinCityCouncil7(2014).

Theirbroadbrushassessmentofthecostsofdealingwitha0.8metresealevelrise(0.6metresistheprojectedriseby2100)areacapitalcostof$75millionand$3.5millionayearinrunningcosts.Thevalueofbuildingsatriskwasover$1billion.

Unfortunately,thereisnobroadbrushoverviewofthesecostsonanationalscale,thatwouldinformtheclimatechangepolicydebate.However,togetasenseofthescaleoftheproblem,letusassumethatthefuturecostis,say$10billionforcoastalprotectionandlandloss.Thesecostswillbeincurredinthefuture,andinsomecaseswellintothefuture,butsaytheaveragedelayis40years.Usinga6percentdiscountrate,whichisconventionalforthiskindofinvestment,thepresentvalueofthe$10billionis$840million.Witha30yeardelaythecostis$1560million.Thesearenotbignumberscomparedto,say,thecostofimprovingAuckland’stransportinfrastructure.TheAucklandCityraillinkprojectisnowestimatedtocost$4.4billion.

LocalGovernmentNewZealandhasrecentlyreleasedareport8onthereplacementvalueoflocalgovernmentinfrastructuralassetsexposedtovaryingsealevelrises.Themorerelevantnumbersare$2.7billionwitha0.5metrerise,and$5.1billionwithaonemetrerise.Again,thesearejustestimatesofthereplacementassetsatrisk.Theyarenotestimatesoftheeconomiccostsofthesealevelrise.Someoftheassetsmaybeeconomicallydefended,andsomemayberelocated,withamorelimitedmarginalcost,aspartofnormalmaintenanceandreplacementcycles.Necessaryexpenditureswilltakeplaceovermanydecades.

7BecaLtd.20148SimonsonTandHallG.2019‘Vulnerable:thequantumoflocalgovernmentinfrastructureexposedtosealevelrise’LGNZSurveyandsupportbyTonkin&TaylorLtd

Thereisanestimate9ofthecostofadaptationstorisingsealevelfortheEU.Thenumbersarenottoofrightening.

Theannualcostofadaptationhasbeenestimatedat€1.5billioninthe2050s(EU,currentprices,undiscounted),andachievesabenefit-to-costratioof6:1(A1B(I)midscenario).Thebenefit-to-costratiosincreasethroughoutthe21stcentury.However,harddefencesneedongoingmaintenancetooperateefficientlyandtokeepriskataloworacceptablelevel.Asthestockofdikesgrowsthroughoutthe21stcentury,annualmaintenancecostscouldapproachorexceedannualincrementalcosts.

WildfiresTheonlyinformationwehaveonthecostofwildfiresisthefollowingstatementinTheWestpacreport10citedinOurClimate.

ThemostseriousriskfacedbytheForestrysectoristheincreasinglikelihoodofbushfires,asdayswithafireindexof‘veryhigh’and‘extreme’willincreaseinsomeNewZealandlocationsupto400%by2040and700%by2090likethe2017PortHillsfireinChristchurchandthe2015and2016Marlboroughfiresareexpectedtooccurwithincreasingfrequencyandseverity.Overthelast70years,wildfireshavecosttheforestryindustryatleastanestimatedNZ$300millionand40,000hectaresofplantations.

TheassessmentofthehigherincidenceoffireswastakenfromtheAustralasianchapterofthefifthIPCCreport.Theestimatedincreaseswere0-400percentand0-700percentrespectively.

Theaveragecosttotheforestryindustrywas$4.4millionayear,thoughthetotalcostofthefireswillbebiggerthanthisfigure.Eveniftheannualcostswerethreeorfourtimesasbigby2100,thiswouldstillnotbematerialintermsofthelargereconomy.Intermsofinsuredlosses,theonlyfireeventsrecordedbytheNewZealandInsuranceCouncilasdisastereventsinthelast50years,werethe2017PortHillsfirewhichcost$18.3millionandtheTasman2019fires,whichcost$3.9million.

DroughtsThe2013droughtintheNorthIslandcosttheeconomyaround$1.5billion,andclimatechangewillmakedroughtslikethismorelikely.

Droughtsarediscussedin3.below.

Theabovewastheentiretyoftheevidencebaseonthecostsofclimatechangethatwaspresentedtothepublic.

9Brown201210Westpac2017

2.TheFifthIntergovernmentalPanelonclimatereport:Chapter25onAustralasiaSomeoftheinformationandanalysisthatwouldinformanassessmentoftheextentofclimatechange,anditseffects,issetoutinchapter25onAustraliaandNewZealand,intheFifthIntergovernmentalPanelonClimateChangereport.Thisshouldhavebeenthe‘goto’documentfortheMinistryandmanyothercommentators.Itwasobviouslynotwrittenby‘climatechangedeniers’,soitcanbereliedonnottounderstatenegativeclimatechangeeffects.Toassistthereader,andtoavoidaccusationsofcherrypicking,wehavesetout,inappendix2,nearlyalloftheNewZealandmaterialinthereport.Wehaveonlyexcludedsometechnicaldetailthatdoesaddtothesubstanceofwhatisbeingsaid.Wehavecommentedwhereappropriate.3.ImpactonagricultureTheMinistryofPrimaryIndustryreportonclimatechangeimpactsTheIPCCreportingontheimpactsofclimatechangeonland-basedindustryisfragmentary,andmostlyomitshardnumbers.Itdoesnotcometoanoverallconclusion,butleavestheimpressionthattheimpactisnegative.AmorecomprehensiveandbalancedassessmentisintheMinistryofPrimaryIndustry’s2012report‘Impactsofclimatechangeonland-basedsectorsandadaptationoptions:Stakeholderreport'.Themainpurposeofthereportwastolookatadaptationandresilienceissues,ratherthantomakeanoverallassessmentoftheeconomiccostsandbenefits,buttwomajorthemessuggestthattheoverallimpactcouldbepositive.ThefirstisthatCO2fertilisationwillhaveapositiveimpact,andinmanycasesthisimpactwillbematerial.ThesecondisthatNewZealandfarmersareverygoodatadapting,bothtacticallyandmorestrategically,toclimateevents.Thiswouldhelpmitigatesomeoftheadverseimpacts,whichare,inanyevent,lessquantitativelysignificant.

OnCO2fertilisationthereportsaysIncreasedcarbondioxide(CO2)concentrationsaffectallland-basedsectors.Theymean

higherpotentialgrowthofbiomassformanykeycrops,pasturesandtreesinthefuture.Thisisknownas‘CO2fertilisation’.

• HigherCO2concentrationsstimulateplantphotosynthesisandgrowth.

• Pasture,treeandcropvarietiesdonotrespondequallytochangesinCO2concentrations.

TheeffectisstrongerinC3plants(ryegrass,clover,wheat,kale)thanC4plants(maize,

kikuyu).

• PlantsclosetheirstomatatocopewiththeincreasedCO2,transpiringlesswaterinthe

process.CO2fertilisationalsostimulatesmoregrowthperunitofwater,makingplantsless

water-dependent.

Inpre-industrialtimes–beforearound1870–atmosphericCO2concentrationsaveraged

280partspermillion(ppm).Inearly2012,theymeasured390ppm.Bythe2050s,thoselevelscouldclimbtobetweenabout475and565ppm;andbythe2100s,tobetween540and955ppm.TheCO2fertilisationeffectiswelldocumentedfromgreenhouseproduction

systems,wheretheenvironmentiscontrolled.EstimatesoftheneteffectofCO2fertilisationvarywidely.ForNewZealandpastures,

estimatesrangefrom5percentto30percentincreasesinabove-groundbiomassforadoublingofC02.Forpastoralfarming,managementpracticeswillhavetoevolvetomaximizethepotentialbenefitsandtomitigatethedownsides.Seasonalrainfallpatternswillchangetowardsdriersummersandtherewillbemoredroughts.Inthemostproductiveareastheincidenceofshort-termsummerdroughtsareexpectedchangefromaroundoneyearintwentytooneyearinten.

Forsomeotherproductstheimpactsareclearlypositive.

Assumingadequatewaterandsoilnutrientsupply,potentialyieldsoftemperatecerealcropscouldincreasebyasmuchas20percentunderfuturetemperatureandCO2concentrations.

Similarpotentialyieldincreasesareprojectedforforagecrops,likewintercerealsandbrassicas,whichareharvestedinavegetativestateandhavelongerperiodstogrow,thankstotheshorteningofcyclesofadjacentannualcrops.

Forothercropsandlocations,climatechangeeffectsweremorevariable,andsomewereslightlynegative.Withoutadaptation,yieldsofforagecrops,suchassilagemaize,alongwithmoretemperature-sensitivecropslikepotatoesandpeas,arereducedundersomeclimatechangescenarios.

Forhorticulturetheimpactisprobablyneutral.

Themainimpactsonapple,kiwifruit,andgrapegrowerswillbeincreasesinvegetativebiomass,pest/diseaserisksandchangesinplantdevelopment.

Thesectorhasconsiderableadaptivecapacity,inthatgrowerscanrelocateandexpandrelativelyrapidly,asexemplifiedbytherecentspreadofvineyards.

Themostpositiveeffectisonforestry.

WithhigherconcentrationsofatmosphericCO2,radiatapineproductivityisexpectedto

increaseinmostplantationsbyanaverageof19percentby2040,andanaverageof37percentby2090.SouthIslandplantationswillreceiveadditionalbenefitaswarmertemperaturesboostphotosynthesis.Precipitationmightdecreaseinsomeareas,butthiscan,uptoapoint,actuallyimproveproductivity,astreesusewatermoreefficiently.However,wherewaterornutrientsareinshortsupply,productivitywillfall.

TheMfE’sassessmentAllofthepositiveeffectsofCO2fertilisationwereairbrushedoutoftheMinistry’s2017economicassessmentoftheimpactontheagriculturalsector.Itreadsasfollows:

primaryindustriesareparticularlyexposedtotheimpactsofclimatechange.Forexample,theyarestronglylinkedtofreshwateravailability,andclimatechangeisexpectedtoincreasecompetitionforfreshwaterresources(RSNZ,2016).Whiletheseverityofimpactswillvarybysectorandregion,therisksandcostsfromextremeweatherandwildfiresareexpectedtoincreaseacrossalllandbasedsectorsandsupplysectorswillbeaffectedbyimpactswhichinterferewiththeabilitytogetprimaryproductsfromthefarmtoprocessingfacilitiesandthentomarketsorports.Climatechangeimpactsmayaffecttransport(forexampleduetostormsandslipsclosingroutes)andalsotheoperationofprocessingfacilities(forexampleinterruptiontothesupplyofenergyorwaterrequiredforprocessing).

Thisobviouslypresentsamisleadingpictureoftheimplicationsofawarmingclimate.TheMfEknewaboutcarbonfertilisationbutentirelyommittedit,andanyreferencetotheMinistryofPrimaryIndustryreport,fromitsassessment.

4.Estimatesofclimatechange-relatedweathereventcosts11Onestudy,reportedintheRIS,actuallyprovidedsomerelevantquantitativeevidenceontheimpactofclimatechangeonNewZealand.Oddly,itwascommissionedbyTreasuryratherthantheMfE.Treasurywereunabletoexplainwhythey,ratherthantheMfE,commissionedtheresearch.WhetheritwasanattempttobolstersomeflimsyMfEassertionsabouttheimpactofextremeweatheevents,oralternatively,anattempttoexposetheMfE’sexaggerations,wedonotknow.Thebasicideainthispaperisthattheeffectthatanthromophicinfluencesoverthelastcenturyarecurrentlyhavingonextremeweathereventscanbeidentified,and

11NewZealandClimateChangeResearchInstitute11,andNIWA.TheClimateChangeResearchinstituteappears

tobeacollectionofafewVUWaccademicswithnoonlineprescenceotherthanasinglepageontheVUWwebsire

thecostofthatimpactcalculated.Themethodology,whichisdescribedaspreliminaryandindicative,involves,asweunderstandit,usingaparticularclimatemodeltodisentanglethenatural(preindustrial)weathereffectsofactualextremeweatherevents,fromtheman-madeeffectsthathavecausedariseintemperauresofnearly1degreeCoverthelast100years.Forflooding,whichiscausedbyextremerainfallevents,theresultwasthatadditionalinsuredcostsincreasedbyanaverageof$12millionayear,basedon2007-2017events.Thisisaneconomicallyinconsequentialnumber.Toputitincontext,theexpensesoftheNewZealandnon-lifeinsurancesectorareabout$4.5billionayear.The$12milliondoesnotcapturethefulleconomiccostsofthefloods,butitistherelevantnumberforadiscussionoftheeffectsofglobalwarmingontheinsurancesector.Theestimateoftheincreaseindroughtcostsissubstantiallybiggerthanflooding,atanaverageof$72millionayear.Themethologolyisbasedonasinglepaper(Harringtonetal.2016)andtwodroughtswereconsidered.Thefirst,the2012-13drought,isestimatedtohaveaFAR(anestimateoftheproportionofthecostcausedbyclimatechange)of0.2.Giventheeconomiccostofthe2012-13droughtof$1.5billion(estimateprovidedbyTreasury),theexcesscostduetotheanthromorphicinfluenceis$300million.Thereisnorealanalysisofthe2007-8drought,whichhadanestimatedcostof$2.5billion.ItappearsthatthisdroughtwasaffectedbytheelNinoeffect,whichthemodeldoesn’thandlewell.InsteadalowerFARof0.15wasjustassumed,foranexcesscostof$420million.Addingtheexcesscostofthetwoeventsandaveragingover10yearsgeneratestheannualcostof$72million.Oneproblemwiththisanalysisisthatnoattemptismadetoassesstheprobabilityofextremedroughtevents.Theparticulartenyearwindowchosenjusthappenedtohavetwoextremedroughtevents(implyingaoneinfiveyearincidence),butifthe‘true’underlyingfrequencywas,say,onein20yearsthentheaverageannualcostwouldfallbyafactoroffourto$18million.Evenstickingwithanobservedtenyearwindow,the2007-8eventwoulddropoutifthemodelwereupdatedandtheannualaveragecostwoulddropto$30million.Second,thereisnoliteraturereview.ThereisoneinHarrington,whichsuggestedthatevidencethatattributesdroughteventstoclimatechangeislacking.Harrington’scontributionisanewmethodologythatheclaimsestablishestheclimatechange/droughtlink,butithasitslimitations.

WeemphasizethattheseresultsaresensitivetothethresholdatwhichFARwascalculated,anddiscerniblechangestolikelihoodintheextremetailofthedistributioncouldnotbereliablyidentifiedbyusingthemodelensembleavailable.

Third,thereisnodescriptiveanalysisofthehistoricalevidenceoftheextremeevents,whichshouldbeastandardpartofanyanalysis.IfwelookattheNIWAhistoricaldataonsoilmoisturedeficits,theredoesnotappearaveryobvioustrendindroughtconditions.Themodellingresultsneededtobereconciledwiththisdata.

Figureone:NIWAdroughthistory

Fourth,thereisonlyarudimentarytreatmentofconfidenceintervals.Individualweathereventsarecomplexaffairsandtheremustbeawidedegreeofvariabilityinanyattributionanalysis.

Thereisnoforwardlookinganalysis,althoughtheimplicationisthatworseistocome.ButthisdoesnotseemtobeconsistentwiththeIPCCmodels,whichsuggestonlyamoderateincreasein‘extreme’weathereventsevenoverlongtimehorizonsevenassumingmoreextremetempertureincreases.Thereshouldhaveseensomeattempttoexplain,andifpossible,reconcilethesedifferences.

Thepaperalsodiscussesclimateimpactsmorebroadly.BecausenoNZ-basedpeer-reviewedpapersyetexistinvestigatingtheFARassociatedwithstormdamage,hailstorms,wildfire,frostsortornadoes,wehavelefttheseoutfromtheanalysis.OurneglectofsucheventsmeansweignoreatleastNZ$279Minweather-relatedlossesbetweenJuly2007andJune2017.Asanindicativecomparison,iftheFARsassociated

withtheseeventsweresimilartothoseinthetable–around0.3–thentheextraattributablelosseswouldaddanother$84M.Thisexcesscost‘guess’hasyettobedemonstrated,buteveniftheestimateisreasonable,at$8.4millionayear,itisstillnoteconomicallyconsequential.Andevenifwescaleuptheinsurancelossesforothereconomiclosseswedonotgetnumbersthatcomeanywherenearjustifyingthe‘adaptationhysteria’weareseeing.

WiderclimateimpactsThereisalsodiscussionofawiderclimatechangeimpactsresearchprogrammewhichreadsalittlelikearesearchsalespitch.Alloftheidentifiedimpactsarenegative.Notably,thereisnodiscussionofthepositiveeffectsofcarbonfertilisationoranythoughtgiventotheamenityaffectofwarmertemperaturesandmorefinedays.Tohightentheimportanceoftheresearchprogramme,thereportsetsoutthe‘headline’impactsfromtheAustralasianregioninchapter25ofthe2014IPPCreport.ThesearealmostentirelybasedonAustralianimpacts,whicharemuchmoredramaticandnegativethanNewZealand’s.IftheyhadreportedtheNewZealandimpacts,aswehave,itwouldnothavehelpedthesenseofthenecessityformoreresearchthattheyweretryingtobuild.Asitturnsoutthemodellingteamhavebeensuccessfulingettingfurtherfunding.Specifically,a$999932threeyeargrantfromtheEndeavourFund‘todevelopanExtremeWeatherEventReal-timeAttributionMachine’(EWERAM)where,withinadayortwoofanEWEhavingoccurredoverNewZealand,andinresponsetomediaquestionsabouttheroleofclimatechangeinthatevent,ratherthangenericstatements,scientificallydefensibledatawillbeavailabletoinformquantitativestatementsabouttheroleofclimatechangeinboththeseverityandfrequencyoftheevent’.12

Thesalespitch/synopsisreadsasfollows:,…knowingtowhatextentarecentextremeeventwasmademoresevereand/ormorelikelybecauseofclimatechange,willallowNewZealanderstobetteranticipateandprepareforextremeeventstocome,andwillsharpenawarenessofthenecessityforreducinggreenhousegasemissionsthatdriveclimatechange.Wewilldevelopacapabilitywhere,soonafteranextremeweatherevent,thecontributionofclimatechangetothelikelihood

12BoedekerScientificwebsite:accessed10June2019

andseverityofthateventwillbequantifiedinascientificallyrobustwayandwidelycommunicatedtoNewZealandsociety.Howbeingtoldthatafloodeventisestimatedashaving,say,a26.2percentlikeihoodofbeingcausedbyhistoricalclimatechangewillleadtoadeeperunderstandingoftheeffectsofclimatechangeisbeyondus.Theexerciseisobviouslydesignedtoexploitthenewsworthinessofweathereventstodrivetheclimatechangemessage.Itisapublicrelationsploy.Wedoubtthat‘NewZealandsociety‘willbetoldsomethinglikethefollowing:‘TheEWERAMmodel13showsthat26.2percentoftherecentManawatufloodcouldbeattributedtotheglobalwarmingthathasoccurredsince1850.Theconfidenceintervalaroundthisestimateis12.1to40.6percent,sothereisahighprobabilitythatpastclimatechangehadnoinfluenceontheoutcome.Theestimateisbasedonasingleclimatemodel.Othermodelsmaynotshowanyclimatechangeimpact.Basedonpasteventsofasimilarsizethefinancialcostofthefloodattributabletoclimatechangewillbe$3.2millionorabout.003ofonepercentofGDP.’5.ClimateChangeAdaptationtechnicalworkinggroup:AdaptingtoclimatechangeinNewZealandTheMfEmightarguethattheconsultationdocumentandRIAwerejustoverviewsandthatthereismoreextensiveanalysisoftheaffectsofclimatechangeintheClimateChangeAdaptationStockstakereport14.Asthisreportalsoprovidestheunderpinningsforastrongcentralisedapproachtoclimatechangeadaptationwediscussithere.Chaptertwoofthereportcoversfutureclimatechanges,takinginformationfromtheMfEclimateprojectionsreportforNewZealanddiscussedabove.TheTechnicalworkinggroupsaysthatclimatechangeoutcomesareuncertain,andtheirdocumentjustpresentstheICPP’slowandhighemissionsscenariosasrepresentingtherangeofpossibilities.Mostoftheoutcomesareexpressedinqualitativeterms(‘therewillbeanincrease’),orarangeisgiven(temperatureincreasesof0.7-3.7oCby2110.MostlytheharddatarelatestothemostextremeRCR8.5outcome,wheretheParis

13TheEWERAMmodelisnotanattractivehermaphroditesheep.EWERAMisaacronymfortheclimatemodel.14AdaptingtoclimatechangeinNewZealand:StocktakereportfromtheClimateChangeAdaptationTechnicalWorkingGroup

agreementisassumedtocompletelyfail.Thereisnodataatallinthediscussionofincreases‘extreme’weathereventsinthebodyofthereport.Chapterthreeaddressestheimpactsoftheclimatechanges.Thiswasalmostentirelya‘post-itnote’exercise.Itisacollectionofpossibilitieswithfewconnectionstoactualclimateoutcomes,ortowhentheymightoccur,andthereisalmostnoquantificationoftheimpacts.Oneexceptionwasacommentonthefishingindustry.Primaryproductioninopenoceansurfacewaterisprojectedtodeclinebyanaverageofsixpercentfrompresentlevelsby2100underahighglobalemissionsscenario,asaresultofoceanwarmingandacidification.Apossiblesixpercentfallinthefishingindustryproduction,inaworsecasescenario80yearsfromnow,ishardlysomethingthatshouldexercisemindsinthefishingindustry.Thepost-itnoteapproachmightbeusefulforgettingsomepreliminarypossibilitiesupontheboard,butnotveryhelpfulforgettingasenseoftheoverallimpactofadefinedclimatechangescenario.DespitethelackofhardanalysistheWorkingGroupcametosomestrongconclusionsontheoverallimpactofclimatechange.Thefollowingisthefulldiscussionintheirsection3.3.5WhilethepotentialcostsofclimatechangeimpactsforNewZealandarenotknown,wedoknowthatourexposuretotheimpactsofclimatechangeishigh(ouremphasis),particularlyincertainareas(eg,atthecoast,withinthebuiltenvironmentandtoourmajoreconomicsectors),andassuchthecostswillbesignificant(ouremphasis).Forexample,thevalueofassetsthatwillbeaffectedbysea-levelriseisestimatedtobeinthebillionsofdollars,andthecostsofweathereventstothelandtransportnetworkhaveincreasedinthelast10yearsfromabout$20millionperannumtoover$90millionperannum.(Asdiscussedabovetherewasnosuchevidenceonthelatterpoint).TheassociatedcostsofthreeextremeeventsinNewZealandtowhichclimatechangeisassessedtohavemadeacontributionare:•2011floodinginGoldenBay:estimatedcost$16.8million•2012–2013droughtwhichaffectedtheentireNorthIslandandthewestcoastoftheSouthIsland:Itwasoneofthemostsevereexperiencedintheseareasinatleast40years.Theeconomicimpactofthedroughtisestimatedtobeaminimumof$1.5billion(Treasury)•2014floodinginNorthland:estimatedcost$15.1million.Thesourseofthese‘assessments’arenotcited

Theincreasedfrequencyandintensityoflargeextremeeventshasthepotentialtoincreasethescaleofcostssignificantly,especially(thisignorestheevidencethatincreasesextremeweathereventwillbequitemoderate)thatifthecopingcapacitybetweeneventsischallenged.Themuchgreaterfrequencyofsmallereventscouldrepresentanevengreatercumulativecost.Overall,thecoststoNewZealandofclimatechangeimpactsandadaptingtothemareexpectedtobehigherthanthecostsofreducinggreenhousegasemissions(ouremphasis).Thereissimplynothingintheanalysistosupportthisconclusion.HealtheffectsWealsopresenttheassessmentofhealtheffectsinitsentiretytogivethereaderasenseofthesweepingstatements,andlackofsubstancebehindtheclaimsoftheeffectsofclimatechange,thatpervadesthedocument.PublichealthClimatechangeisincreasinglybeingrecognisedasaseriousemergingrisktopublichealthgloballyandinNewZealand.Someofthepotentialimpactswillbedirect,suchasinjuryandillnessfromextremeweathereventsorincreasedheat-relateddeaths(althoughwinter-relateddeathsareexpectedtodecline).Therearealsoindirectrisksincludingincreasedincidencesofexistingandnewdiseases.Climatechangebringschangestodiseasevectorsworldwide.AwarmerandwetterNewZealandmeansthatwewillexperiencediseasesnotcurrentlypresentinNewZealandandpotentiallymorefrequentpandemics.Theseimpactswillleadtointensifiedpressuresonourhealthsystem.Otherindirectrisksincludeincreasingstressandmentalhealthissues,forexample,asaconsequenceofextremeweatherevents,sea-levelriseorlossoflivelihoods.Theonlysupporting‘evidence’fortheseclaimsisapaper,‘ClimateChangeandHealthinNewZealand(2013)’.fromtheNewZealandCollegeofPublicHealthMedicine15.

Wereviewedthisdocumentandfoundthatitwassimilarlyfullofunsupportedstatements.InanextensivesetofreferenceswewereunabletofindanythatprovidedactualevidenceofspecifiedclimatechangeimpactsonhealthinNewZealand.ThedocumentismoreaboutpromotingtheNZCPHMselfappointedmissionthanprovidinganevidencebasedassessmentoftheimplicationsofclimatechangeonhealth.TheNZCPHMhasaresponsibilitytoensurethepublichealthandequityconsequencesofclimatechangeareunderstood,toleadinpreventingandpreparingforthoseconsequences,andtopromotethesubstantialpopulationhealthgainsthatcanbeachievedfromappropriateclimatechangeaction.Climate,health,andequityareinseparable.Addressing15NewZealandCollegeofPublicHealthMedicineisanincorporatedsocietywithoutanyapparentoffical

status.

climatechangeshouldbeanessentialcomponentofhealthpolicy.Similarly,healthandequityoutcomesmustbekeyprioritieswithinclimatechangepolicy.6.TheamenityeffectofclimatechangeThepositiveamenityeffectofclimatechangehasnotbeenconsideredinanyoftheMinistry’sassessments(orgenerallyelsewhere).TheFifthIPCCreport,however,notedthatawarnerclimatehadbeenidentifiedasonereasonforNewZealandmigrationtoAustralia.NewZealandhasrelativelycoolandunreliablesummers.Whilehighersummertemperaturesanddroughtsareanissueforfarmers,theyareaboontoholidaymakers.Thesummerof2017-18wasperhapsaportentofthingstocome.Manypeopleloveditandarelookingforwardtoarepeat.Manypeopletoowillbehappyifthewinterchillisreducedbytwoorthreedegrees.

Withclimatechange,perhapsnotsomanypeoplewillgotoQueenslandandelsewhereinsearchofbetterweather.Itmayalsohaveanimpactoninternalmigration.SouthernerswillnothavetogoAucklandforabitmorewarmth.Auckland’sweatherwillcometothem.

IngeneralawarmerclimatewillbegoodfortourismandcoolerclimatecountieslikeNewZealandwillbenefit.Forananalysisofthiseffect,forexampleseeBigano(2008)

Asurveyofinternationaltourist foundthatNewZealandwascoolerandwetterthantheyexpected,sooneoftheco-benefitsofincreasingtemperatures,andmoredrydaysmightbehappiertourists.

ConclusionsTheMfEhasnotpresentedanysubstantiveevidencethatclimatechangewillhavemajornegativeimpactsonNewZealandthiscentury.Theeffectsaremorelikelytobepositivethannegative.

• Theincreasesinextremeeventsaremuchlessthanoftenclaimedorinsinuated.

• TheevidencepresentedintheIPCCreportdoesnotsupportaconclusionthattheglobalwarmingimpactswouldbestronglynegative,orevennegativeatall,forNewZealand.

• Thepresentvalueofcostsrelatingtosealevelrises,isnotlargeinrelationtotheeconomy.

• Healthcostsaretrivialandaremorelikelytobepositivethannegative.• Mostimportantly,carbonfertilisationwillhaveapositiveimpacton

agriculturalproduction.• Therewillbeamenityor‘wellbeing’benefitsformostfromawarmerclimate

andmorerainfreedays.• Thetourismindustryislikelytobenefit.• Otherthingsbeingequal,thetermsoftradearelikelytoturninNew

Zealand’sfavour,asagriculturalproductioninhotterclimatesisdisproportionatelyaffectedbytemperatureincreases

Partfour:EconomicanalysisoftheeffectsofclimatechangepoliciesTheMfEprimarilyreliedontwosetsofexternaleconomicanalysesbyCMV’s(aconsortiumofthreeconsultancies:Contact,Motu,Vivid)andtheNewZealandInstituteofEconomicResearch(NZIER).CMVanalysisThefirststagepaperanalyseddifferentpathsto2050emissionstargetsunderdifferentassumptions.Itcalculatedtheconsequentemissionprices,andtheimpactonlandusage.ThisanalysiswaspresentedintheOurClimateconsultationpaper.ThisanalysisisnowdatedbecausethescenariosdonotmatchthoseintheBill.Thesecondstagepaper‘ModelingthetransitiontoalowernetemissionsNewZealand:Uncertaintyanalysis’presentsananalysisofthreescenariosthatareimposedonthemodelupuntilto2030.Itthenletsthemodelsruntoachieveaspecified2050emissionstarget,givenarangeofpost2030‘uncertaintyvariants’withdifferentassumptionsthatdriveemissionspricesandcosts.Thepurposeistoexplorewhichofthethreestartingscenariosismostrobusttosubsequentuncertainty.Thethreepre-2030scenariosare:• Policy-driven:Thisincludesainitialhighemissionspriceandagovernmentpolicy

drivenexpansionofpermanentnativeforestryinthelandsector.• Disruptivedecarbonisation:featuresrapidtechnologicalchangethatdisrupts

currenteconomicstructures,withnewtechnologiesandproductscreatingnew

markets,destroyingdemandintraditionalindustriesandacceleratingcapitalturnover.Technologicalchangeoccursrapidly,drivingtheexpansionofEVsandrenewables.

• Stabilisingdecarbonisation;thisscenariofeaturesoptimisticexpectationsregardingthepotentialforrapidtechnologicalchangethatstabilisesexistingindustrystructuresthroughtheemergenceofnewmitigationoptions,suchasmethanevaccinesandnitrogen.

Thisisacomplexmodel,anditisdifficulttojudgewhetheritisdeliveringclearmessagesthatarenotartifactsoftheconstructionofthescenariosorthestructureofparticularsubmodels.However,thepapercomestoanumberofconclusions,someofwhichmightbecontentious.Inparticular:ThePolicy-drivenscenariosdeliverthelowestemissionspricein2050inalluncertaintyvariants,suggestingbenefitstostrongerearlyaction,asshowninFigure1.Thisconclusionhastheappearanceofa‘soundbite’fortheMFEandtheProductivityCommission.Figureonedoesshowthepolicy-drivenscenarioshavelower2050carbonprices,butalowercarbonpriceatonepointoftimeisnotaveryusefulmetric.It‘suggests’verylittle.Whatthepapershouldhavecomparedisthepresentvalueofthecostpathsforthescenariospresentedintheirfigure2(above).WedidaroughPVcalculationandfoundthatthedisruptivetechnologyscenriowasdemonstrablysuperior(thisisobviousfromavisualinspectionofthefigure),whilethedestablisingde-carbonisationandpolicy-drivenscenariosweremoreorlessequivalent.Figuretwo:CMVcarbonpricetracks

Figurethree:CMVemissioncoststracks

Second.Themodellingresultssuggestthataportfolioofmitigationsourcesisbeneficial,withbroadbasedpoliciesprovidingincentivesforlow-costemissionsreductionsacrosstheeconomyAndThescaleofland-usechangeismodestinallfuturestatesoftheworld,butinsomecasesoccursrapidly.Theseconclusionsappearstobesubstantiallydrivenbythewaytheland–usemodeliscalibratedtogenerateforestrysequestations.Itisassumedthatforestryisrelativelyunresponsivetocarbonprices.Onlythepresentvalueofthefirst10yearsofcarboncreditsarecountedwhenassessingthefinancialeffectofthecarboncreditsonland-usedecisions.Becausenewforeststakesometimetoproducecarboncredits,the10yearcut-offignoresmuchoftheeconomicvalueofthecredits.TheassumptionwascarriedoverfromtheorginalMotumodel16,whereitwasjustifiedbythefinancialriskbornbycarbonforesters,becauseoftheuncertainpriceofthecreditsinvestorswouldhavetorepaywhentheyharvestedtheforest.Thisproblemhasnowbeensolvedwiththeannouncementoftheaverageaccountingoption,whichdeliverslowerinitialcarboncreditsbasedonalongtermlevelofcarbonstorage.Theconservativeassumptionwasalsojustifiedonpolicyuncertaintyandpricevolatilitygrounds.

16Kerr et al. (2012).

ThesecondtypeofriskhastodowithpolicyuncertaintyaroundtheETS,andarisesintheyearswhenownersaresellingcredits.Itispossiblethattheschemecouldberemoved(orthevalueofcreditscouldfalldramatically);forestownerswouldthenreceivelittleornoreturnforsequestrationTheseconcernsdidcarrysomeweightbackin2012,butiftheemissionstargetsmeananythingatall,thensurelytherisksmustbemuchlowernow.Theconsultantswereawareofthecalibrationissuebutdidnotadjustthemodel.Ourmethodspotentiallyunderestimatethecarbonreturntoforestryundersuchapolicy.However,therearesomefactorsthatreducethemagnitudeofthiserror:theseincludethediscountingofreturnsaccruinginthefutureandthecontinuedexistenceofrisksassociatedwithpolicychange,aswellasthepossibilitythatunderthenewrulestheliabilityfordeforestationmightexceedtheamountofcreditsearned.Theseareweakexcusesfordoingnothing.Futurereturns,past10years,maybediscountedbuttheywillstillbeasignificant.Therewillcontinuetoberisksbuttheyarelessnowthanin2012.AndtheGovernmentcouldmitigatefuturepricerisksbyenteringintolongertermpurchasecontractswithforestowners.Further,carboncreditsarealreadydiscountedby8percentinthemodel,whichappearstobetheindustryrateforbearingthelongtermriskofproductionforestryoutputprices.Thisisprobablysufficienttoacccountforthecarbonpricerisk.Asecondpricingcalibrationissueisthetreatmentofnativeforestplantings.Policyaspirationsfornativeafforestationcanbeincorporatedthroughtheintroductionofanexogenousparameter.Thisparametercontrolsthepercentageofannualafforestationthatgoestoplantationforestsversuspermanentnativeforests.Weassumethatthepolicyinterventiondoesnotchangetheoverallattractivenessofforestrylanduse,justthecompositionofplanted.Weunderstandthatonethirdofforestswereassumedtobeplantedinnatives.Theeffectofthisassumptionistoreducetheeffectivenessofexoticforestsingeneratingcarbonunitsbecausenativesgrowmoreslowlythanexotics.ThishasadoubledividendfortheMfE.Alargenumberofmorepoliticallyacceptablenativeforestsappear,atnoapparentcost,andforestsequestrationsdonot‘crowdout’theneedfor‘broadbased’mitigationactions.Basicallythemodelhasbeenriggedtogeneratethoseresults.

TheCMVmodelisdescribedashighlysensitivetocommodityprices(carboncreditsaddtotheprice),andamorerealisticcarbonsequestationmodelwouldhaveseenmoreforestry,whichwouldhavetoplacedalowercaponcarbonprices.Theotherthreadtotheearlyactionargumentisthatifweleaveforestsequestationlateitwillbedifficulttomeetthe2050targetbecauseitwillrequireforestconversionsthatarepotentiallywellabovehistorialpeaklevels.Thisconcernisoverstated.Itcostsabout$1200-1400ahectaretoplantaforest,sotheactualcapitalinvestmentfor,say,200,000hectaresayear,wouldbe$240million.Manyfarmsmaychangehandsaspartoftheprocess,butthatineconomictermsthisisatransferthatshouldbeabletobehandledbybankingandcapitalmarkets.Therealconcernshouldbethatexoticplantingswilloccurtooearly,andwillprovidelimitedoffsetbenefitspost2050.In‘Thepriceoffeelinggood’wedidsome‘’backoftheenvelope’calculationstoillustratejusthoweconomicallyattractivecarbonfarmingisathighercarbonprices.Therelevantpartsofthediscussionarerepeatedbelow.‘Weassumed:

• Noemissionchargeonfarmingsothereisnoavoidedtaxbenefit.• Establishmentcostsof$1500perhectare.• Nocarbonbenefitsforthefirst5years.Ittakesawhileforgrowthtobematerialso

thisdelayroughlyaccountsforthis.• Theforestisnotharvested,andthereisnogrowthafter35years.Thisisworsecase

scenario.• Arealdiscountrateof5percent,whichisconsistentwiththe7percentnominalrate

oftenusedtoevaluateforestryinvestments.

Theresultsaresetoutintable2.

Tabletwo:Carbonpricesandlandvaluues

Carbonprice$/tone Landvalueperhectare$

25 3650

50 8800

75 14000

100 19300

150 29500

200 39800

300 60500

800 164000

Recentfarmlandsalesindicatethatatypicalperhectarepriceforsheepandbeeffarmsisaround$6000–$8000.Theabovevaluationfiguressuggestthattherecouldbesignificantconversionsfromsheepandbeefoncethepricegetstoaround$75.Formoremarginalorwasteland,conversionsmaybecomeattractiveat$50orlower.Thesefigureswouldbelowerifaccountwastakenoftheharvestvalueoftheforests.

Thesecondfactortoconsideristheimpactofcarbonpricingonfarmprofitability.Assuminggreenhouseemissionsof8tonsahectarefordairy17,at$75pertonnethecostperhectarewouldbe$600,andthetotalcost$94000foranaverage156hectarefarm18.Emissionsof1.5tonnesperhectareforsheepandbeefwouldcost$112.5perhectare,and$74000fora600hectarefarm.Forsheepandbeefthismightbearoundhalfofaverageannualprofits.Once,after5years,whentheforestisgeneratingcarboncredits,theannualincomefromcarbonfarmingwouldbe$765,000.Whiletheincomestreamwillonlylastfor30yearsitwouldbehardtoresist.

Oncewegettohigheremissionprices,conversionsofsheepandbeeffarmsbecomecompelling.At$200asheepandbeeffarmerhasanemissionsbillof$180,000andinmostyearshastopaytowork.Ifheconvertstoforestry,in5yearsorso,hewillhaveanincomeof$2,000,000ayearandcanleadalifeofleisure.Manydairyfarmerswouldalsobetemptedtojointheleisureclass.

PopulationgrowthTheCMVmodellingalsopresentsasensitivityanalysisthattestedtherobustnessoftheoutputstohigherratesofpopulationgrowth.Itisreportedthatreducingtheassumedpopulationgrowthratefrom1.3percentto0.8percentlowersthe2050carbonpricebyonly$14.However,theworlddoesnotstopin2050,andsequestaionresourceswillhavetobesharedwithalargerpopulationbeyondthatdate.Alongertermfocusandabiggerdropinthepopulationgrowthratealsoneedtobeconsidered.A0.5percentfallinthepopultiongrowthrateoverthe30yearsto2050reducesthepopulationbyonly14percentcomparedtothebenchmarklevel.A1percentagepointfallover55yearsto2075reducesthepopulationby42percent.Thiswouldhaveamuchmorepronouncedefefctonthecarbonprice.

17Kerretal.201418LIC2016

TheNZIERmodelling

FirststagemodellingThefirststageoftheNZIERmodelling,whichwasreportedinOurClimate,suggestedthatthecarbonpricesrequiredtomeettheemissiontargetswouldbeveryhighandtheeconomiccostwouldbesignificant.However,theNZIERwasusingaweakeconomicmodelwhichdidnotadequatelydealwiththekeyagriculturalandforestrysectorsandthestandardofreportingwaslow,soitwasoflimitedvalue.Foramoredetaileddiscussionofthemodellingsee‘Thepriceoffeelinggood’

OurmaintakeoutfromthefirststagemodellingwasthatitshowedjusthowfartheMfEwaspreparedtogotomanipulatetheresultstosupportitspreferredoptionofazeroemissionstargetoverthemoremoderatezerocarbontarget.

Thereportedmarginalimpactonthegrowthratewaslowerforthetougherzerototalemissionstargettargetthanthezerocarbontarget.Thisdidn’tmakesense.Thelowercostemissionimprovementswouldoccurfirst,sotheadditionalreductionsunderthetoughertargetshouldhavehadahighercost.

ExplainingthemanipulationThemainexplanationforthisperverseresultwastheNZIER’sarbitraryassumptionsaboutthecontributionsofforestplantingsfordifferenttargets.The50percenttargetscenario(roughlyequivalenttozeronetcarbon)wasassigned25milliontonnesofwhatwasafreegood(moreforestsdidnotreduceagriculturalproduction).The100percentscenariogot50milliontonnes.Therewas,obviously,noreasontorestrictaccesstoafreegoodforthe50percentscenario.Theonlypurposewasto‘fix’theresultstomakethezeroemissionstargetlookbetter.Thesecondpartofthemanipulationwastocomparethepolicyoutcomestowhatwasdescribedasthe‘statusquo’,ratherthanthecurrentlevelofemissions.The‘logic’wasthatthepreviousgovernmenthasalready‘signedup’toa50percentcarbontarget.So50percentisadonedealandtheeconomiccostofachievingthattargetcouldbeignored.itisonlytheadditionalchangesthatmatter.Thisisdisingenuous.Theeconomiccostofachievingthetargetisthetotalcost.Itdoesn’tmatterwhenitwasdecidedtomeetthedifferentcomponentsofthenowcurrenttarget.IttheMFE’sapproachwaslegitimatethenagovernmentcouldannounceaseriesoftargetsforapolicychangeandthenonlycounttheincrementalcostofthelastintheseries.

TheNZIERsecondstagemodellingInitssecondstagemodellingtheNZIERmadeseveraladjusmentstoitsmodel

• Increasingforestrynowreducedtheamountoflandavailableforagriculture.

• Morefavourableinnovationassumptionswereadopted,includingtheassumptionthat80percentofthelightvehiclefleetwouldbeelectricby2050.Itwasassumedthatthiscouldbeachievedatnocost.Morefavourableinnovationreducesthecostofthepolicies.

Forestrysequestionswerestillsetexogenously.Throughaniterativeprocess,wefirstdeterminedthatforaNetZeroallgasestarget,asequestrationlevelof30MtCO2ewasappropriate,givenourinnovationassumptions.Wethenpro-ratedthis30MtCO2esequestrationdownacrosstheotherscenarios,broadlybasedonthesizeoftherequiredgrossemissionsreductiontohitthespecifictarget.Thereisnodiscussionofwhy30MtCo2is‘appropriate’orwhythesequestaionswerepro-rateddownforthelessdemandingtargets.TheNZIERweresimplydirectedtodosobytheMfE.InthePeerReviewoftheNZIERmodellingoneofthecriteriawasthattheNZIERperformedthetestsspecifiedbytheMfE.TheNZIERreportdoeshaveadiscussionofwhyitsmodelproducesmuchhighercarbonpricesthantheCMVmodelling.ThekeyreasonwasthatforestrysequestationswerehigherintheCMVmodel.TheNZIERsaidthatideallyyouwouldwanttolineupwiththeCMVresults,butthatthiswasnotpossiblebecauseofthe‘differentmodellingprocesses’.Thisisaratherlameexcuse.TheinputisexogenoussotheNZIERcouldeasilyhaveroughlyhavelinedupwiththeCMVnumbers.TherealreasonwasthattheMfEdidn’twanttohavetoomuchforestry,becauseofitspoliticalsensitivity,andbecausetheywanttopromotea‘broad’approachtoemissionsmitigation.Similarly,thereisnodiscussionofwhyitwasassumedthat80percentofthelightvehiclefleetwaselectricby2050.ThisassumptioniscriticaltotheanalysisasvehicleemissionsareasignificantpartofNewZealand’soverallcarbonemissions,butthereisnosensitivityanalysisoflessoptimisticassumptions.TheNZIERsequestation‘methodology’allowstheinputstobemanipulatedtodampentheeffectsandcostsofstrongertargets.Thestandardassumptionwas16MtCo2e,but22.6wasusedforBF-50(a50percentreductionforshortlivedemissions)and18.9forBF-75(a25percentreduction).Theimpactofa10MCO2eincreaseinsequestationson2050GDPwasestimatedat$7.2billion,sosettingthesequestationsataconsistent16MCO2ewouldhaveincreasedthelossesby$4.8bilionand$2.1billionrespectively.

NocompetitivenessimpactOncompetitiveimpactstheNZIERsaysthatthesehavebeenignored.AsinStage1itisassumedthatallothercountriestakecomparableactiontoNewZealandinreducingtheiremissions.Ifthisoccurs,thenwewouldnotexpectanymaterialimpactsonNewZealand’sexportcompetitiveness,asourcompetitorswouldalsobefacingthecostsoftheiremissions.Thisismostlywromg.Mostcountriesareoncarbonintensitytargets,whichwillnotimpactinthesamewayastheNewZealandtargets,andmanyofthecommittmentsarelittlemorethanhotair.Intheagriculturalsectorthereislittleevidencethatothercountriesaretakinganysubstantiveactions,sotherewillbesomecompetitivenesseffect.TheresultsTheresultsarepresentedbothintermsofdifferencesfromthe‘statusquo’and,morelegimately,fromthebaseline.Anarrayofresultsarepresented,noneofwhichpreciselymatchtheemissionstargetsintheBill.TheclosestmatchisanaverageofBF-50andBF-75.ThemostrelevantoutputintermsoftheeconomiccostsistheimpactontheaveragerealGNDIperhouseholdintherighthandcolumnoftheNZIER’sresultspresentedbelow.Thiscostisabout$11500perhousehold.Adjustingforsequatationdifferencestakesthistoaround$13000.Bycontrastthecomperablecostcomparedtothe‘statusquo’isaround$6000.InitsreportingoftheresultsintheRIS,theMfEonlyreportsthedifferencefromstatusquoresults.Halfofthecostssimplydisappeared.

Figurefour:NZIERresultstablebaseline

Figurefive:NZIERresultstable‘statusquo’

PeerreviewoftheStagetwomodellingTheMfEcommissionedpeerreviewoftheNZIERsecondstagemodellingmadethefollowingstatement.Someassumptionsintheanalysislikelyresultintheemissionreductioncostsbeingoverestimated,whileotherassumptionsresultinthecostbeingunderestimated.Ononehand,innovationsthatloweremissions–energyefficiencyimprovementsabovelongruntrends,increasedpenetrationofrenewableelectricity,increaseduseofelectricvehicles,andthemethanevaccine–areassumedtocomeatnocost,whichmayresultincostsbeingunderestimated.Ontheotherhand,themodelhaslimitedscopeforproducerstoreducetheemissionsintensityofoutput,whichmayresultincostsbeingoverestimated.Onbalance,thecostsofmeetingemissiontargetsestimatedbythestudyarelikelyinthehighendoftheprobablerange.Therewasnorealbasisformakingthis‘onbalance’assessment.ButitwashelpfultotheMfEindownplayingthesignificanceoftheNZIEReconomiccostassessments.IfthereviewerhadreadtheMfE’scommissionedreportoninnovationbyNewZealandindustry(reportedbelow)inresponsetoenergypriceincreases,theymayhavecometoadifferentview.DownplayingtheresultsIntheRIStheMfEfurthertriestodownplaythesignificanceofthenegativeeconomicresults.Themodelling• presupposesthatNewZealand’sgrowthratewouldbeunaffectediftherestoftheworldactsandNewZealanddoesnot

ItisnotexplainedhowNewZealand’sgrowthratewouldbeaffected.PresumablytheMfEisreferringtosomekindof‘freerider’reputationalimpact.Thisriskcouldbemitigatedbyalessambitioustargetandsomehotairpolicypronouncements.OntheotherhandtherearemorecrediblepotentialcostsIfNewZealandactsambitiouslyandtherestoftheworlddoesnot.Asnotedabovethiscostwasnotaddressedinthemodelling.• doesnottakeintoaccountthepotentialcostofdamageachangingclimatecouldcause

totheeconomyThisisirrelevant.NothingNewZealanddoeswillaffectthe‘damage’achangingclimatewillcausetotheeconomy.Inanyeventthebestevidencesuggestsasmallpositiveimpactintheperodto2050.• doesnotquantifythepotentialupsidesofastrongertarget,includingfasterinnovation

andwiderco-benefits.

Theseupsidesarediscussedinpartssixandseven.Thereareverylimitedupsides.ParliamentaryCommissionerfortheEnvironment’sModellingTheParliamantaryCommissionerfortheEnvironmenthasalsocommissionedsomeeconomicmodelling.ThecontextwastosupporttheCommissioner’spreferedapproachtoemissionsreductions.19

HearguesthatagricultureshouldbeboughtintoETSandthatforestsequestationoffsetsshouldberestrictedtotheagriculturalsector.Theeffectistoestablishtwoemmisionmarketswithdifferentprices.Themodellingisextendedoutto2075,animprovementontheearlierCMVandNZIERwhichstopsin2050.

Underthesplitmarketsmodelthenon-agriculturalemissionspriceincreasesfromtodays$25today,to$350comparedto$203withasinglemarketmodel.Thebiologicalemssionspriceisbetween$48and$141dependingontheemissionstarget.Theseresultsunderstatethedifferenceintheprices.Itisassumedthat20percentofemissionscanbemetwithforeignunitsunderthesplitmodelandonly10percentundertheexistingmodel.Possiblythereasonforimposingthesedifferentassumptionsisthatitmakesthesplitmodellookbetter.ItappearsthattheCommisionerhascheatedalittlehere,whichisdisappointing.Ifyoucan’ttrusttheParliamentaryCommissionerfortheEnvironmentthenyoucanyoutrust?

Thesplitpolicymakeslittledifferencetotheemissionsoutcomes.Residualemissionswillstill6milliontonnesin2075comparedto4.3milliontonnesunderthesplittarget.Thisimprovementwouldbebroughtataheavyprice.Themarginalcostofabatementincreasesfrom$203,possibllytowellover$400.

19ParliamentaryCommisionerfottheEnvironment2019‘Farms,forestsandfossilfuels:Thenextgreatlandscapetransformation?

Partfive:ThecaseforearlyactionSettingtargetsfor2050isonlypartofthestory.Equallyasimportantisthespeedatwhichwegetthere.Onthefaceofweshouldbeproceedingcautiously.

• Oneofthe(few)robustresultsfromtheeconomicmodellingisthatthecostswilldependoninnovation,mostofwhichisoutsideNewZealand’scontrol.Butweknowthatlowcarbonsolutionswillgetcheaper,soinmostcasesitwillnotmakesensetodothingsnowthatwillbemuchlesscostlylateron.Anewelectriccarmaycost$1000-2000pertonneofcarbonsavednow,buthopefully,nothingintwentyyearstime.

• Gettingtoofaroutinfront,increasestheriskofdamagingtradediversion,whichwillbeeconomicallycostly,andmayactuallyleadtoanincreaseinemissionsonaglobalbasis.

However,the‘officialline’isthattherearebenefitstostrongearlyaction.Thereareseveralthreadstotheargument.

1. Itmayactuallylowerthecostoftransitioningtoalowemissionseconomy.2. Itwillenhanceourroleasagloballeaderinthefightagainstclimatechange.3. Wewillsecuretheco-benefitsofclimatechangemitigationearlier.4. Wewillgeta‘firstmover’advantagethroughemissionsmitigation

innovation.1.LowertransitioncostsInitsreporttheProductivityCommissionleveragedoffthesecondstageCMV,analysiswediscussedabove.Theconclusionthatearlyactionwouldreducethecostsoftransitionwasdubious,tosaytheleast,buttheCommissionmakesthemostofit.Itisaformofsocietalinsuranceagainstslowtechnologicalprogressandprovidesoptionsiffasteremissionsreductionsturnouttobeneededtokeepwarmingtoasafelevel;Itdoesnotprovideprotectionagainstslowtechnologicalprogress.Thatinsuranceisprovidedbyforestsequestationthatwilleffectivelyputacaponemissions.Allearlyadoptionwillachieveistodisappatethoseresourcesmakingthepost2050situationmorecostly,iftechnologycontinuestodisappoint.TheCMVanalysisignoredpost2050costs.

yieldoutcomesthatachievelowercumulativeemissionsto2050;Cumulativeemmissionsisnottheprimarytarget,butevenifitwastheCommissiondoesnothaveregardtothecostofachievingthoseloweremissions.Theactualdifferenceincumullativeemissionsbetweenthescenariosareasfollows:Disruptivedecarbonisation1.5-1.6GtCo2ePolicydriven(earlyaction)1.8-1.9Stabilisingdecarbonisation(sloweraction)1.9-2.0Thedifferencebetweenearlyandsloweractionisabout5percent.Thisismostlyachievedbyplantingtreesearlier,sotherewillbelesscapacitytoplanttreeslater.Therewillonlybeasmallimpactongrossemissionsovertime.providethemostprotectionagainsthigh-carboninvestmentsthatlockinemissionsformanyyearsintothefuture;Thisisnotreallyanadditionalargument.Thelockineffectisalreadypickedupbythecumulativeemissionsfiguresshownabove.Itisnotexplainedwhichhigh-carboninvestmentswilllockinemissions,andwhetherthesearesignificant.Presumablytheyarereferringtocars.AtthecurrentEVpricespricesitisstillefficienttopurchaseICEcars,evenwithmuchhigherfuturecarbonprices.promoteanearlystarttoexpandingforestrywhichcanthencontinueatasteadyratethroughouttheperiodto2050,ratherthanfacethechallengeofhavingtoplantatveryrapidratesattheendoftheperiod;Thereisnopointingettinganearlystartonplantingsthatwillhavelittlesequestationvaluepost2050,whensequestationsmaybemuchmorevaluable.Asdiscussedaboveitisnotmuchofachallengetoplanttreesatarapidratepost,say2030.createthespacetodevoteaportionofnewforestrytonativespeciesthatgrowandsequestercarbonmoreslowly,yetwhichwillcontinuetoabsorbCO2wellafter2050.Nativespeciescanalsoprovideculturalandbiodiversitybenefits.

Theoppositeispossibletrue.Ahigherearlycarbonpricewillmakeexoticforestrymoreattactive,crowdingoutnatives.Highercarbonpricesincreasestheopportunitycostofmore‘environmntallyfriendly’nativeplantings.

Thebenefitsnotbuiltintothemodelarealsoveryimportant

• inducemorelow-emissionsinnovationwhich,asthemodellingdemonstrates,iscruciallyimportanttoatransitionwithlowercostsandhigherbenefits;

Itwillnotinducemoretechnicalchangeoverseas,whichiswheremostoftheCMVmodel’sinnovationcomesfrom.NewZealandinnovationdoesnotdrivethemodelresults.

insureagainsthighfutureinternationalcarbonpricesbyreducingtheneedforNewZealandtomakelargefutureoutlaystopurchaseinternationalunitstomeetitsemissions-reductionobligations.Theplanisnottorelyonoverseasunits.Ourbestinsuranceisforestrysequestations.givemoreimpetustomovingawayfrompathdependenceonhigh-emissionstechnologiesandeconomicstructures–particularlywhenearlyhigheremissionspricesarecombinedwithstrongleadershiponpolicydirectionandinstitutionalreformandgovernmentsupportforlow-emissionsinnovationandinvestment.

Thisisnotreallyanargument.Justahopefulmantra.TheWestpacreportTheMfEcitesareportcommisionedbyWestpac,20whichpurportstoshowthatincludingthefarmingsectorintheemissionstradingschemeearly,reducesthecostofgettingtotheemissionstarget.Thisreport,byErnestandYoungandtheVividconsultancyisbrieflyreviwedinappendixone.Themodellingwasnotwelldocumented,buttheresultswerenotcredibleandappearedtohavebeencontrivedtoproducethe‘right’results.2.Globalleadership‘Globalleadeship’isakeydecisioncriterionintheRIS.Whilethereisacaseformeetingourglobalcommitments,andnotbeingafreerider,leadershipisastepup,whichimplies,muchstrongerandearlieraction.ButthecaseforbeingaleadershipisnotreallymadeintheRIS.TheTreasuryongloballeadershipTheTreasury,initsreviewoftheRISmakesthepoint.TheassumptionisalsomadethatahighlevelofambitioninNewZealandwillbringreputationalbenefitsandhaveapositiveinfluenceonothercountries’mitigationefforts;andthatthisinturnwillmitigateclimatechangetothepointthatNewZealandwillexperiencefurtherbenefits,intermsofavoidedadaptationcosts.

20Westpac2018

However,littleevidenceorargumentisavailabletosupportthatassumption.Forexample,itisemphasisedthatNewZealand’schallengeinmeetingitsclimatechangeobligationsisdifferentfromthatofothercountries.ThismustreducethelikelihoodthatthoseothercountrieswillwantorneedtofollowNewZealand’sexampleortotakeadvantageofanyNewZealandtechnologicalinnovations.ThisinturnweakensthelogicthatmitigationactionbyNewZealandwillreducetheimpactsofclimatechangeexperiencedhere.Thiscreatessignificantuncertaintyastothebenefitsoftheproposedactionanditwillbeimportanttomonitorprogress.ArgumentsforgloballeadershipintheRISTheonlyargumentsadvancedintheRISarethefollowing.InfluenceonsmallemittersHowever,smallemitterscollectivelyaccountforaboutathirdofglobalemissionsand,together,canhaveasignificantimpact..

TheMfEdoesnotsaywhatitmeansbysmallemitters,butitappearsthatitincludesallcountriesexcepttheEU,theUS,Japan,China,IndiaandRussia(thebig6),whichaccountfornear70percentoftotalemissions.However,someofthe‘small’emittersintheremaining30percentareactuallyprettybig(Brazil,Canadaetc.)Ifwedefine‘small’emittersascountrieswithCo2emissionsoflessthan,say,100milliontonnes,thenthesecountriesaccountedforabout4.5percentofglobalcarbonemissionsin2017.Restrictingthe‘small’grouptothosewithemissionsoflessthan50milliontonnes,reducesthesharetolessthan3percent.Sobeingan‘inspiration’tosmallercountrieswillnotmakemuchofadifference.

Inbetweenthebigsixandthe‘small’(lessthan100milliontonnes)countries,areagroupof22countrieswithcombinedemissionsof7.8billiontonnesin2017,upfrom6.3billiontonnesin2005.Someofthesearedeveopedcountries(Australia,Canada,Taiwan)withmoderateemissionsgrowthsince2005,butthereweremanydevelopingandsomerichercountries(Saudiarabia,UAE)thatincreasedtheiremissionsbyover50percent.TheprospectofNewZealandinfluencingthesecountriesmustbeclosetonil.

Tablethree:CO2emissions,milliontonnes

Countries 1990 2005 2017 GDPpercapitaPPP$US

China 2397 6263 10877 India 605 1211 2454 EU 4409 4249 3548 US 5086 5972 5107

Japan 1149 1276 1320 Russia 2380 1734 1765 Indonesia 162 360 511 13200Iran 207 468 671 17700Malaysia 59 183 259 30900SaudiArabia 166 399 639 56000UAE 57 122 203 89000Turkey 150 245 421 28000 NewZealand 24 37 37 40000

Sources:IMF,EDGARdatabase

AtoningforapoorrecordThesecondargumentisthatwehavebeen‘backsliding’,withtheinferencethataleadershiprolewouldsomehowcompensateforthis.Despiteanoverwhelminglyrenewableelectricitysystemandasizeableforestrysectorbyinternationalstandards,NewZealandhasamongthehighestpercapitaGHGemissionsintheworld.(NZproductivitycommission2018).TheProductivityCommissioncomparisonusedgross,notnetemissions,soitexcludedtheforestrysector.Thefairercomparisonwouldbeouremissionsfootprint,whichwouldexcludeouremissionsintensiveagriculturalexports(andincludingemissionsembeddedinimports,whicharelessemissionsintensive).Comparativeinternationaldataarehardtocomeby,butourguessisthatwearenotastandoutonafootprintbasis.InthisrespectthereisausefulfigureintheUKClimateCommittee’s2019reportonincreasingtheUKsclimatemitigationambitionstonetzero.Thefallinconsumptionemissionsisnotasimpressiveasthefallinterritorialemissions,suggesting,perhaps,thattheUK’spolicesmayhavegeneratedsomecarbonleakage.

Figuresix:UKemissions

TheUKClimateCommitteeon‘fairshares’TheUKClimateCommitteemadeanumberof‘fairshare’argumentsinitsreport.Theseincluded:theUK’shighincome;itsdevelopedinstitutionalframework;anditshistoricalcontributiontoglobalcarbonemissions.TheUKhasabout1percentoftheworld’spopulation,butisestimatedtoberesponsiblefor2-3percentofcumulativehistoricalemissions.NewZealanddoesnothaveasmuchofanindustrialemissionslegacy,andhistoricalmethaneemissionswillhavelargelydissipated.However,ourdeforestationlegacymaybedisproportionatetothepopulationsresponsibleforit.WhenMāoriarrived,about1250–1300AD,theyburntlargetractsofforest,mainlyonthecoastsandeasternsidesofthetwomainislands.BythetimeEuropeansettlementbegan,around1840,some6.7millionhectaresofforesthadbeendestroyedandwasreplacedbyshortgrassland,shrublandandfernland.Between1840and2000,another8millionhectareswerecleared,mostlylowlandoreasilyaccessibleconifer–broadleafforest21TheParliamentaryCommissionerfortheEnvironmentTheParliamentaryCommissionerfortheEnvironmentmakesamorefocusedargumentongloballeadership.Hemakesacasedoingmoreinagriculture,notjustinresearchbutbyincludingagricultureintheemissionsscheme,presumablyatanearlydate.

‘moreislikelytobeexpectedofNewZealandintheonefieldwhereitisanacknowledgedleader.Toshowrealleadership,anygainsmadeinresearchwillhavetobecomplementedbyrealemissionsreductionsfromtheagriculturalsector.

21NewZealandEncyclopediaon-line

BeingabletoincludeagricultureinanytargetsandcarbonbudgetswillbeimportantevidenceoftheseriousnessofNewZealand’scontributiontoaglobalproblem.Isisareasonableargument,andperhapourleadershipambitionsshouldstopthere.Anincreasedresearchcontribution,andworkonthenon-trivialproblemofreliablyandeconomicallymeasuringemissionsatthefarmlevelcouldbeourspecialcontribution.NewZealandnotanaturalcandidatetoleadtheworldItisgenerallyacceptedthattherichcountriesshouldtaketheleadinreducinggreenhouseemissions.However,NewZealandisnotreallyarichcountry,sittingonthemarginofbeinguppermiddle-income.By2050itislikely,wewillhavefurtherslippeddownthepercapitaincomeleaguetable.ACountrylikeMalaysia,whichhavedonenothingonclimatechangemitigation,willprobablybericherthanus.ThisweakensthecaseforNewZealandbearingadisproportionateshareofthemitigationburden,particularlyiftheresultistopushusmorefirmlyintomiddle-incometerritory.ManyothercountriesarenotdoingasmuchasNewZealandAsanexample,considerthecaseofSingapore.Asahigh-incomecountry,whichisdirectlyintheclimatechangefiringline,wemightexpectasenseofurgencyandsubstantiveactions.SowhatisSingaporedoing?First,itsigneduptoafairlysoft‘developingcountry’Parisagreementtarget,promisingthattheiremissionswillpeakin2030.Toourknowledgetheyhavemadenocommitmentsbeyondthatdate.Intermsofwhattheyareactuallydoing,themainpolicytoolisanewcarbontaxofS$5pertonnes,affectingthirtytofortylargecompanies,from2019. Singaporewillreviewthecarbontaxrateby2023,withplanstoincreaseittobetween$10and$15pertonneofGHGemissionsby2030. Inaddition:

• 2018wasdeclaredtheyearofclimateaction• SingaporewillhostaspecialASEANMinisterialmeetingonClimatechange• Therewillbesomefinancingsubsidies.

BeinglefthighanddryIntheRIStheMfErecognisesthatthereisariskthattheworldwillnotmeetitsPariscommitments.TheworldhascommittedundertheParisAgreementtoresourcingandfinancingtheglobaltransitiontolowemissions.However,thereremainstheunlikelyriskofNewZealand

incurringthesignificantcostsofthetransitionunduly(andwithoutanymaterialimpactonclimatechange)iftherestoftheworlddoesnotactaccordinglyThisriskmaybemitigatedthroughconcertedinternationalengagementandcooperationinarangeofbilateral,regionalandmultilateralfora,inwhichNewZealandmayholdotherstoaccountbycommunicatingitsambitioustargetandongoingeffortstoreduceemissionsathome.WewonderwhatrepresentationshavebeenmadetotheSingaporeantogetthemtomendtheirways.NewZealand’sinfluenceisnaivelyoverstatedandincreasesourrisks.Theplanapparentlyistochargeonregardlessofevidencethatothercountriesarenotdoingtheirshare,inthehopethatwithanevermoredeterminedNewZealandeffortwewillchangetheirminds.

Partsix:Theco-benefitsofclimatechangemitigationTheco-benefitsofclimatechangemitigationareanimportantpartoftheMfERISassessment.Itisclaimedthattheco-benefitsarelarge,anditisimpliedthattheyoffsetmuchoftheadversedirecteconomiceffectsofemissionmitigationmeasures.MfE’sdiscussionofco-benefitsappearsinseveralpapers.Thereareshorterdiscussionsinthe‘Ourclimate’andintheRIS;andasectiononco-benefitsinthedocument‘ZeroCarbonBillEconomicAnalysis:Asynthesisofeconomicimpacts.Thedetailed,comprehensiveanalysisispresentedin‘Theco-benefitsofemissionsreduction:Ananalysis’MFE2018.Thesynthesisdocumentpurportstocapturethekeytakeoutsfromthemainco-benefitdocument.Itidentifies

fivekeyareaswherewiderco-benefitsareforeseentobesubstantialwithactiontoreduceemissionsandwherethereissufficientevidencetosupportsuchclaims.Theyare:1.Betterhomeinsulationcouldimprovehealth.2.Shiftingroadfreighttorailcouldreducecongestionandmaintenancecosts.3.Shiftingtopublictransportcouldreducecongestionandimproveroadsafety.4.Morewalkingandcyclingcouldreducecongestionandimprovehealth.5.Moreforestrycouldimprovewaterqualityandbiodiversity.

Theevidencesupportingthisclaimissetoutinthemainco-benefitspaper.

Themainco-benefitreport‘Theco-benefitsofemissionsreductionAnanalysis’isalengthydocumentthatcoversalmosteveryconceivableco-benefitfrompossiblepoliciesthatmighthaveanemissionsreducingeffect.Tobefairtotheauthorsofthatreportwehavereviewedthecompletedocumentandsetoutasmuchoftheirargumentsasspacepermits.Onthemotivationforemphasingco-benefitsThereviewbeginswiththerationaleforthefocusonco-benefits.Itispartiallypolitical.AccordingtoIPCC(2014):Climatepolicyintersectswithothersocietalgoalscreatingthepossibilityofco-benefitsoradverseside-effects.Theseintersections,ifwell-managed,canstrengthenthebasisforundertakingclimateaction.Bain(2016)showsthatco-benefitscanhelpmotivateaction,particularlyincommunitiesthatdidnotseeclimatechangeactionasimportant.Thiscanbeparticularlysuccessfuliftheactionscanbelinkedtoeconomicdevelopmentorthecreationofamorecaringcommunity.AndRecognisingco-benefitscanhelptakeamoreholisticviewofpolicyactions.Theyhelplinkemissionsreductionstootherpolicyagendas,highlightingwheretheremightbecomplementaryoutcomes(orclashes).Co-benefitscanhighlightpoliciesthatmaynotbeimportantforthesolepurposeofreducingemissionsbutratherfortheirholisticimpactonwell-being.Thismightbefineiftheco-benefitassessmentsarehonest,competentandrealistic.Thereisnothingtostoptheseco-benefitsbeingtakenintoaccountinastandardcostbenefitanalysisofparticularinitiatives.Theproblemwiththis‘co-benefitaspoliticaldriver’approachisthatitintertwinesissuesthatarelargelyseparable,makingitmoredifficulttounderstandthecostsandbenefitsofspecificclimate

changeinitiatives.Theriskisthataminorclimatechangeimpactcanbeenlistedtoprovidesupportforpolicyactionsthatontheirownmeritsdonotmakemuchsense.Andthisiswhattendstooccurinthereviewpaper.The‘successmetric’becomestheratioofco-benefitstothevalueoftheemissionsreduced.Thelesseffectivethepolicyinreducingemissions,thehighertheco-benefittoemissionsratio,foragivenlevelofco-benefits,andthebetterthepolicyintervention.Badpolicybecomesgoodpolicy.

StructureofthereportThereportproceedsbylookingatpossibleemissionreductionpoliciesandthenforeachpolicyobjective,itdescribes:•theintermediatepathways(ie,howtheactionstoreduceemissionswillleadtootherimpacts)•theactualco-benefits•thescaleofthoseco-benefits,bothinabsolutetermsandrelativetotheemissionsreductions•thestrengthofevidenceofco-benefits.TheInitiatives

StrongeremissionspricingThereviewmakestheargumentthatemissiontaxescouldhavepositiveeffects.Astrong,long-termemissionspricesignalcouldnotonlycontributetotheotherpolicyobjectivesdiscussedlaterinthisreport,butcouldalsoraiserevenuetoreducethedistortionaryimpactsofotherformsoftaxation.Theconcepthasastronggroundingineconomictheory,provideditisrevenue-neutral,andthereforeseemslikelytohaveapositivethoughsmallimpact.Thisiscorrectaslongastheemissionspriceislinkedtotheexternalcostsofemissions.Otherwise,itcouldimposeaconsumptiontaxdistortion.EnergyefficiencyIntermediatepathwaysAppropriateinsulationandventilationofhomesisamajorfactorinreducingcold,andhousesthatarecoldarealsomorelikelytobedamp(Gillespie-Bennettetal,2013).Insulationcanimprovetemperaturesandreducedampness,particularlyreducingexposuretoextremelylowtemperaturesinwinter.Asaresultofinsulation,self-reportsofwheezing,

takingdaysoffschoolorworkandvisitstotheGPorhospitalwerereduced(Howden-Chapmanetal,2007).Betterdomesticinsulationgenerallydoesnotreduceenergyuse.Asthereportadmits,peopletendtoincreasetheirheatingtemperaturewithbetterinsulation.Further,thegreatmajorityofexistinghousesalreadyhaveceilinginsulationandfurtherimprovinginsulationtendstobegrosslyuneconomic.Also,NewZealandhomesaremostlyheatedwithrenewables,soevenifenergyuseisreducedtherewillbelittlenetimpactonemissions.Businessenergyefficiencyimprovementsbringobviousandimmediatebenefitstoprofit,whicharecapturedbystandardeconomicanalysis.However,thereisevidenceofpotentialknock-onbenefitsaswell,withbusinessesthathavemadeenergyefficiencyimprovementsbecomingmorelikelytoincreaseemploymentinthefuture(Metzetal,2007).WewereunabletoaccesstheMetzreference,whichwasacontributiontothe2007IPCCreport.However,theredoesnotappeartobeanyobviouscausallinkbetweenenergyefficiencyimprovementsandemploymentgrowth.ProbablytheMetzpaperwasjustpickingupacorrelation,notcausation.Itmightalsobepickingupaninefficientuseoflabourinenergyefficiencyprojects.Energyefficiency,ifappliedattimesofpeakdemand,canalsoreducepressureontheelectricitydistributionnetwork,reducingtheneedforadditionalinvestment(thisconceptisdiscussedindetailunderthedemandmanagementsectionbelow).Thisisanargumentforefficientpeaktimepricingratherthanaco-benefitassuch.Co-benefitsThepotentialhealthco-benefitsofimprovedhomeinsulationaresignificant.NewZealandhasoneofthehighestratesofasthmaintheworld,withoneinsixadultsaffected,atatotalestimatedcostof$800millionperannum.Thisislikelytobelinkedtoourpoorstandardofhousing;one-thirdofNewZealandhomesremainuninsulated(Holt&Beasley,2001;Gillespieetal,2013).Asnotedabovethelinkbetweenemissionsandhomeinsulationismisconceived.Inanyeventthecasuallinkbetweenasthmaandhousinginsulationisunproven.ThebestanalysisonthematterwasastudythatcitedintheHealthyHomesRIS,whichlookedatearlychildhoodwheezing.Itfoundthattherewasnodifferenceintheinsulationofthehomesofchildrenwithwheezingandacontrolgroupwherethechildrendidnothavewheezingsymptoms.

Onthenumberofuninsulatedhouses,theHoltandBeasleypaperisobviouslyoutofdate,andthereferencetoonethirdofuninsulatedhousesinGillespieetalwasanunsupportedassertion,whichwasalmostcertainlyanexaggeration.The2015HouseConditionSurveyshowed830,000housesinNewZealandhavesub-optimalroofinsulationand/orsub-floorinsulation(White&Jones,2017).The‘suboptimal’referenceistothefactthatnotallhousesmeetthecurrentnewhouseinsulationstandard.Retrofittingceilinginsulationtothecurrentstandardincreasestheeffectivenessoftheinsulationbyonlyaround8percent22Toppinguptomeetingthecurrentstandardhasalowbenefit/costratioandisnotan‘optimal’intervention.Thoselivinginthepoorestqualityhousingcouldseetheirrespiratoryproblemsfallbyonethirdiftheirhousingimproved(Gillespie-Bennettetal,2013).Thisisanothergeneral,unsubstantiatedassertion,whichhaslittletodowithemissionsreductions.Therearealsoanestimated1600additionaldeathseachwinterthatmaybeattributedtotheimpactofcold(Davieetal,2007).Everycountryhasexcesswinterdeaths,partiallyduetothehigherincidenceofchestinfectionsinthoseperiods.Aco-benefitofawarmingclimateisthatexcesswinterdeathsmayfall.Scaleofco-benefitsThebenefit-costratioofinsulatingpreviouslyuninsulatedhousesisestimatedat4:1generallyandevenhigherforat-riskgroups(childrenandtheelderly).Thebulkofthisbenefitcomesfromthehealthgains,ratherthanemissionsreductions,asmostpeoplechoosetomaintain(orevenincrease)energyuseandhaveawarmerhouse(Grimesetal,2012).Onaverageacrossallnewlyinsulatedhomes,therelativehealthco-benefitsarefarhigherthantheemissionsreductionsbenefits.Thecostbenefitanalysisof4:1intheGrimesstudyofthewarm-upNewZealandinsulationprogramwasoverstatedandthetruefigureisalmostcertainlylessthan1.

• Onlyhalfofthecostsofinsulationwerecounted,becausethelabourcostelementwasignored.Thisisnotlegitimate.

• TheNZIER23reviewedtheanalysisandconcludedthatthevalueofalifesavedwasoverstatedbyafactorofthree.

22CabinetpaperforHealthyHomes23EconomicAnalysisofthehealthyhomesinitiative.

• Mostofthebenefitswerefromavoideddeaths.Butthelowerdeathratewasentirelyconcentratedamongstoccupantswhowhereover65andwhohadpreviouslybeenhospitalisedforacardiovascularcondition(lessthan3percentofthestudypopulation).Therewasnolifesavingbenefitfortherestofthepopulation.Thepolicyconclusionthatshouldhavebeendrawnfromthestudyisthatinsulationshouldhavebeenrestrictedtohouseswithalreadysickelderlyoccupants.

• TheWarmupNewZealandstudywasnotacontrolledrandomisedtrial,soitispossiblethatthelifesavingbenefitcouldbeexplainedbydifferencesinthebehavioralcharacteristicsofinsulatingandnon-insulatinghouseholds.

EnergyefficiencyConceptConsulting(2017)hasestimatedpotentialpresentvaluebenefitsof$480millionfroma$140millioninvestmentinenergyefficiency.Ofthosebenefits,$60millionareemissionsreductions,$100millioncomesfromlowerspendingongeneratingpowerand$280millioncomesfromlowerinvestmentonelectricitydistributionandgenerationinfrastructure.Thisispredicatedontheenergyefficienciesbeingrealisedduringpeaktimes,therebyreducingthepressureontheelectricitydistributioninfrastructure(seethedemandmanagementsectionbelow).TheConceptConsultingreportisapitch,bytheEnergyEfficiencyAuthorityforthecaseforpromotingenergyefficiency.Thepositiveoutcomesdependonanumberofassumptions,includingthecostsofmakingtherequiredchanges,whicharenotwelldocumented.Wecouldnotassesstherobustnessofthe$60millionemissionsreductionestimate.Again,whileenergyefficiencymightbeaworthyobjectiveoneconomicsgrounds,ithasalimitedroleinreducingemissionswhentheenergyisgeneratedwithrenewables.StrengthofevidenceTheevidenceofhealthco-benefitsfromimprovedinsulationisstrong,asisthepotentialforinfrastructuresavings,althoughthisispredicatedontheefficienciesbeingrealisedatpeaktime.Inourviewtheevidenceonhealthco-benefitsisweakandwillbecomeincreasingirrelevantaselectricitygenerationbecomesincreasinglyrenewable.RenewableelectricityThissectionlooksattheco-benefitsfromactionstoincreasetheproportionofelectricitygeneratedbyrenewablesources.Theremaybesomehealthandpossiblyemploymentcobenefitsfromthis.

IntermediatepathwaysApossibleco-benefitofrenewableelectricitygenerationdisplacingfossilfuelelectricitygenerationisreducedairpollution.However,thisdependsonthetypeofrenewablegenerationandthetypeoffossilfuelitisdisplacing.Thereareairqualityimpactsfromgeothermalandbiomass-basedelectricitygeneration(eventhoughtheyarerenewable),sowecannotmakeanydefinitivestatementshere.Foremployment,thelabourintensityofrenewableenergyjobsinPolandhasbeenestimatedat10timeshigherthanthatoftraditionalcoalpower(Metzetal,2007).ThiscalculationisheavilybasedonlocaleconomiccharacteristicsandcannotbereadilygeneralisedtotheNewZealandcontextwithoutfurtherwork.Theideathatmoreemploymentinaparticularsectorisinherentlydesirableisbasedonthe‘circulareconomy’premisethattheamountoflabourusedisabenefitratherthanacost.Inthisviewoftheworldtimehasnoopportunitycost.Butgenerallyitiseconomicallycostlytoemploy10peopletodotheworkofone.HealthCo-benefitsfromemissionsreductionsHighhealthco-benefitsfromemissionsreductionsisacriticalpartoftheMfEnarrativeandweexamineMfE’sevidenceatlength.Airpollutionfromhumanactivityisestimatedtocausearound1000prematuredeathsperyear.Thetotalcostofdeathsrelatedtoairpollutionisestimatedat$4.28billionperyear(Kuscheletal,2012).Acostof$4.28billionperyearisabignumberandifasignificantpartofthatcanbereducedbyemissionreductioninitiativesitprovidessupporttotheco-benefitnarrative.Thesourceonthehealthcostfigureisthe‘UpdatedhealthandairpollutioninNewZealand’(HAPINZ)study(2012).However,theMfEnotesthatthe$4.28billionislikelytobeanoverestimate.

• ThemethodologyisdifferentfromotherestimatescreatedfortheGlobalBurdenofDiseasestudy(MinistryofHealth,2016).Usingalike-for-likemethodologyreducestheestimateforairpollutiondeathsfrom1000to570.

• TheHAPINZupdatestudyvaluedadeathat$3.5million,whichwasthefigureusedtovaluethecostoftrafficaccidentdeaths.ThepreviousHAPINZstudyusedafigureof$750,000.Becauseairqualityprimarilycausesdeathsinoldage,itwasassumedthatonly5yearsoflifewouldbelost.TheUpdate,ontheotherhand,assumedthatalldeathsshouldbevaluedequally,regardlessofage.Thesocialcostofadeathat20yearsofage,withthelossof60futureyearsoflife,isthesameasadeathat85withthelossof,say,2yearsoflife.

ThisisnotajudgmentweshareandwedidnotseeanyconvincingargumentsintheUpdatetojustifyit.TheMfEwasalso,apparently,uncomfortablewithit.Usingthepreviousmethodologyreducesthevalueofthebenefitsbyafactorof4.5.

Adjustingforthenumberandvalueofliveslostreducedtheannualcosttoaround$550million.TheMfEwasawarethat$550millionwasthemorecredibletotalestimateandshouldnothaverepeatlycitedthe$4.28billionestimatethroughtheirreview.Thenextissueistheamountofairpollutionattributabletoemissionsthatcontributetoclimatechange.IntheHAPINZreport22percentofemissionswereattributabletomotorvehiclesand10percenttoindustrialprocesses.Thebiggestsourceisdomesticemissions,butthisisalmostentirelyfromrenewablewood,whichisnotthetargetofclimateemissionspolicy.Soatmostonlyathirdofemissionscostscanbeidentifiedasanemissionsreductionco-benefit.Thiswouldbringdowntheannualcosttoabout$180million.TheMfEtriedtoduckthisissuebyrepeatedlyclaimingthatitis‘difficult’toattributeemissionstotheirsource.TheinformationisreadilyavailableinrecentMfEandStatisticsNewZealandreports.Therealreasonforignoringthisinformation,webelieve,isthattheMfEdidn’twanttodilutethe‘bigheadlinenumber’effect.ImpactofemmisionsonexcessdeathsThemostimportantissueistheyawinggapbetweentheHAPINZairpollutiondeathestimatesandthosereportedbytheWorldHealthOrganizationintheirpaper‘Ambientairpollution:Aglobalassessmentofexposuresandburdenofdisease’2016.ThestudyfoundthatNewZealandhadtheequalfirstbestairqualityintheworld,andthatthenumberofdeathsfromallhumansourcesin2012was20.Thedeathrateper100,000peoplewas0.5comparedtotheHAPINZestimateofabout25.TheMfEmusthavebeenawareofthisdivergenceandshouldnothaveusedtheHAPINZresultsunlessitwasconfidentthattheunderlyingsciencewasrobust.LookingattheHAPINZanalysisweidentifiedanumberofissues.

• Deathsareestimatedtoincreaseby7percentper10mg.M3increaseinairparticulates.Buthospitaladmissionsforillnessclassesrelatedtopollution,increasedbylessthan1percent.Thisdifferenceshouldhaveraisedsomequestionsaboutthereliabilityofthemortalityresults.

• TheHAPINZestimatewasbasedonasingleNewZealandstudy(Hales2010).

TheHalesanalysiswasnotbasedonactualmeasuresofairpollution.Insteadairpollutionwasmodelledfromestimatesofsourceemissions,usingamodelcalibratedfromjustChristchurch’smeasuredandmodelledlevelsofpollution.Thismighthavebiasedtheresults.Christchurchisnota‘normal’NewZealandcityfromapollutionperspective.Itisadmitted,byHales,thatthisapproachwill,attheleast,havenarrowedtheconfidenceinterval,aroundthecentralestimate,butthequestionofbiaswasnotaddressed.

• Themodelledemissionsbycityortownarenotuseddirectly.Rathertheyareaggregatedintofourgroups,suppressingvariability,andfurthernarrowingtheconfidenceinterval.Astheconfidenceintervalwasalready1.03-1.10aroundthecentralof1.07,itispossiblethatamorerobustapproachwouldnothaveshownastatisticallysignificantrelationshipbetweenmortalityandpollutionlevels.

• TheHalesstudywasnotindependentlyreviewedfortheHAPINZreport.Thesection(appendix3)onhealthoutcomesandtheexposure–responserelationshipswaspreparedbyHales.Thisbreachedabasicrulefortheuseofscienceinpolicydevelopment.

• Finally,itwasjustassumedthattherewasnothresholdeffect.Thatis,eventhesmallestamountofairpollutionwasassumedtohaveamortalityeffect.Theexplanationwasthat‘thisisinlinewithcurrentthinkingforexposuresintherangetypicallyexperiencedinNewZealand’,andtworeferences(Schwartzetal.2002,Schwartzetal,2008)werecitedinsupport.Theabsenceofathresholdmighthavebeeninlinewiththereportauthors’ownthinking,butthisisnotanargument.The2008SchwatzpaperwasaresponsetoadecisionbytheU.S.EnvironmentalProtectionAgency(EPA)nottotightentheannualaveragestandardforparticles(15μg/m)24.TheEPAarguedthatthereisnoconvincingevidenceforeffectsbelowthatlevel(U.S.EPA2006).Schwatzpresentsastudythatcomestoacontraryview.Butthatisonlyoneopinion,andlookingatthestudy,theconfidenceintervalsforthelowexposurelevelsprevalentinNewZealandwerebroad(notsignificantlydifferentfromzero)suggestingthattheUSEPAwasright,atleastforNewZealand.

Ina2015report25theParliamentaryCommisionerfortheEnvironmentraisedsomequestionsabouttherobustnessoftheNewZealandcostofairpollutionestimates,thoughwithoutgoingasdeeplyaswedidintotheunderlyinganalysis.Sheposedthe

24TheNewZealandavergeisunder10,withChristchurchat17theonlysignificanturbanareaexceeding

thatlimit.25ParliamentaryCommissionerfortheEnvironment.2015.ThestateofairqualityinNewZealandCommentarybytheParliamentaryCommissionerfortheEnvironmentonthe2014AirDomainReport.

question:why,withsimilarairqualityAustralianprematuredeathestimateswereonlyfiftypercentlargerthanNewZealand’sdespitetheAustralianpopulationbeingfivetimeslarger.TheCommissioner’sreportwasignored.

Toconclude,theNewZealandevidenceisnotveryrobust,whichsuggeststhattheairpollutionco-benefitissignificantlylowerthan$180million.OntheWHOfiguresitwouldbelessthan$10million.ThisisalongwayfromtheMfE’sheadlinenumberof$4.28billion.

ElectricvehiclesTheshifttoelectricvehicleswillhavealargeimpactonreducingemissions,buttherewillalsobeco-benefitsforhealthofacomparablescale.Asdemonstatedabovethehealthbenefitsarerelativelysmall,andwillbeasmallfractionoftheemissionreductionbenefits.Electricvehiclesalsohavelowerlevelsofnoisethanthestandardinternalcombustionengine.NoisepollutionisthemostfrequentcomplainttolocalcouncilsundertheResourceManagementAct.

Thisdoesnotmeanthatnoisefrommotorvehiclesisafrequentcomplaint.EnergysecurityTheremayalsobebenefitsfromincreasedfuelsecurityfromashifttoelectricvehicles.Currently,NewZealandimportsmostofitstransportfuel,buttheelectricitytopowerelectricvehicleswouldbeprovidedlocally.ThiscouldpotentiallyinsulatetheNewZealandeconomyfromthecostsofaspikeinoilprices.However,itisconcludedthattheneteffectisspeculaltivebecauserenewableenergydepenencyraisesitsownsecurityissues.NoisepollutionisestimatedtocosttheEuropeanUnionabout€40billioneachyear,roughly0.4percentofitsGDP(denBoer&Schroten,2007).NoestimatesareavailableforNewZealand.AconsultantsreportcommissionedbytheProductivityCommissionhasproducedaNewZealandfigure,butitwasrelativelysmall.ThecostsindenBoer&Schroten,studywerelargelydrivenbyanestimateofEuropewidedeathsduetoheartattackscausedbytrafficnoise,of50,000.Withoutgettingintothedetail,wefoundthestudytobedubious.Electriccarswillstillmakeroadnoise(somecountriesarerequiringthemtogenerateanartificialenginenoiseforsafetyreasons)sowewouldn’texpecttheretobemuchofanimpactongenuinelyharmfulnoisepollution.

Boyracers,willfinditmoredifficulttoraisearacketwithanEV,buttheboyracer‘problem’islocalised,andwhilebeingannoyingprobablydoesn’timposeamaterialhealthrisktothegeneralpopulation.TheywillstillhaveboomboxeswhichwilloperteinanEV.StrengthofevidenceThestrengthofevidenceismoderate.Thequalityofairpollutiondataandtheresultinghealthimpactsarereasonable,butitisdifficulttoattributethesetodifferentsources.Fuelsecurity,noiseandwaterpollutionbenefitsaremorespeculative.FreighttorailPuttingmorefreightontotherailnetworkwouldreducetheamountoftrucksontheroad,leavinggreaterspaceforotherroadusers.Thiswouldbeparticularlyvaluableincongestedareasofthenetwork;forexample,duringpeaktraveltimesincities.Roaduserscurrentlydonotpayforthecongestioncoststheycreate,andfreightcarriersarenoexception.Freightuserspayfortheaveragecostsoftheirwearandtearonroadsthroughroadusercharges(RUCs).However,thisdoesnotaccountforthemarginalwearandteargenerated,asincreaseinroadfreightcompoundstheproblem.Thereisnoanalysisofthecontributionlongdistancefreightcouldmakestopeaktraveltimes.Freightstillhastobeshiftedfromthefreightyardtothefinaldestination,sotheremaynotbeanybenefit,letaloneamaterialbenefit.Ifroadfreightisnotpayingitsfairshareofroadmaintenancethenthisisanargumentforadjustingroadusercharges.Carryingfreightbyroadalsoincreasetheriskandcostofaccidents.Trucksaregenerallysaferthanpassengervehicles,butaccidentsinvolvingtruckshavefarhigherratesofdeathandseriousinjury(EY,2016).ThecostsofaccidentsarenotfullyinternalisedintoACClevies,particularlyinthecaseofdeath.IfthelaterpointiscorrectitcanreadilybeaddressedbyadjustingtheACClevy,orwherethisisnotappropriatetheroaduserchange.Co-benefitsTrafficcongestioncostshouseholdsandbusinessesinAucklandanestimated$0.9-$1.3billioneveryyearinlosttimeandeconomicactivity(NewZealandInstituteofEconomicResearch,2017).Carbonemissionsarenotreallytheissuehere.Therewouldbethesameproblemwithelectriccarsorhydrogenfueledtrucks.Indeedelectriccarscouldexacerbate

congestionproblemsbecausetheyhavealowmarginalrunningcost,whichwillencouragemoreusage.Around23percentofthe$4billionspentannuallyonourroadsgoesonmaintenance.Roadfreightislikelytocausethebulkofwearandtearonthemainroutestheytraverse.Theroadtollin2017was380deathsandinjurynumbershaverangedfrom11,000to13,000peryearoverthepastfewyears.Thesocialcostperlifesavedis$4.14million(MinistryofTransport,2017).ThesearejustmoreexamplesoftheMfEjustsprayingstatisticsaroundwithlittleregardtotheissue,whichishowparticularrailfreightproposalswillhelp.Scaleofco-benefitsThedegreetowhichitispossibletoswitchfromroadfreighttorailinNewZealandisnotfullyknown.However,ErnstandYoung(2016)givesanideaoftherelativescaleofco-benefitsbasedonthecurrentlevelsoffreightuseintherailnetwork.Thelargestbenefitfromthecurrentrailfreightservicecomesinreducedcongestionontheroads,valuedatbetween$200-208millionperyear.Nextcomesmaintenancebenefitsof$77-80million,followedbysafetybenefitsof$56-61million.Thetotalemissionsreductionbenefitisaround$6millionThatnumbercouldincreaseslightlywithincreasedelectrification,buttheseotherco-benefitsarelikelytocontinuetodominate.Thisinformationismostlyirrelevant.Itisnotaquestionofclosingdowntheexistingnetwork,butofassessingthevalueofchangesatthemargin.StrengthofevidenceThestrengthofevidenceismoderate.Itiscleartheco-benefitsarelargecomparedtotheemissionsreductionsbenefits,althoughthescopeforincreasedtransportoffreightbyrailisunclear.Norelevantevidenceispresentedforthevalueofeithertheemissionreductionsortheco-benefits.PublictransportWhileincreasingtheuseofelectricvehiclesisoftenthefocusofemissionsreductionsinNewZealand’stransportsector,thepotentialforco-benefitsarefarhigherthroughincreasinguseofbothpublicandactivetransport.IntermediatepathwaysIncreaseduseofpublictransportmeansfewervehiclekilometrestravelledinprivatecars.Switchingmodesfromprivatecarstopublictransportreducescongestionandsavesconsiderablespaceincities.Publictransportisabletohold27timesmorepassengersper

squaremetreofroadoccupied,includingparking(Litman,2015).Thiswillalsoreducecostsassociatedwithbuildinginfrastructureandcreatebenefitsintimesaved.Againthisisamainlyacongestionissuenotaclimatechangemitigationissue.ElectriccarsarejustascongestingasICEcars.Publictransportissaferthanaprivatevehicle.Theriskofbeingkilledorinjuredasapassengerinabusisseventimeslowerthanfordrivingacarandfourtimeslowerforbeingapassengerinacarperkilometretravelled(MinistryofTransport,2015).Publictransportusesfuelmoreefficientlythanprivatetransport,whichreducesairpollutionThereisevidenceoverseasthatincreaseduseofpublictransportoverprivatevehiclesincreasesexercise,resultinginhealthbenefits(Martinetal,2015).Mostpublictransportisasubstitutefortripstowork.Tripstoworkhavealowerdeathrateforcartravelthanopenroadtravel,sotheMOTfiguresarenotdirectlyapplicable.Publictransportusealsorequiressomewalking,whichismorethanfivetimesriskierthantravellingbycar.TheMartinstudylookedattheeffectonbodymassindexes(BMI)fromswitchingfromprivatevehicleusetopublictransportandactivetransport.WhiletherewasafallintheBMIwhenacombinationofactiveandpublictransportwereconsidered(theheadlinereportingintheabstract),therewasnostatisticallysignificantimpactfromtheswitchfromprivatetransporttopublictransport.TheMfEshouldhavereadtheentirestudy.Co-benefitsThemajorco-benefitsofaswitchtopublictransportarereducedcongestion,bettersafetyandimprovedairqualityrespectively.TrafficcongestioncostshouseholdsandbusinessesinAucklandanestimated$0.9-$1.3billioneveryyearinlosttimeandeconomicactivity(NZIER,2017).Theroadtollin2017was380deathsandinjurynumbershaverangedfrom11,000to13,000peryearoverthepastfewyears.Thesocialcostperlifesavedis$4.14million(MinistryofTransport,2017).Noneoftheaboveinformationisrelevanttoaconsiderationofthemarginalbenefitsandcostsofswitchestopublictransport.Scaleofco-benefitsThescopeforincreaseduseofpublictransportasaresultofcosteffectiveinvestmentinNewZealandisnotknown.However,ErnstandYoung(2016)estimatesthetotalvalueoftheexistingpassengerrailnetworkinAucklandandWellingtonisbetween$1.132-1.183billion,ofwhich,reduced

congestiongeneratesalmostallthebenefits.Safetybenefitsfromamodeswitcharelikelytobesmallcomparedtothecongestionimpacts.ThesafetybenefitsoftheAucklandandWellingtonrailnetworkswerelessthanonepercentofthetotalbenefits.Thebenefitsofemissionsreductionswerealsolessthanonepercentofthetotal(ouremphasis).Thissupportsourpointthatpublictransportisacongestion,notaclimatemitigationissue.Andtorepeat,thevalueofthenetworkisnotrelevanttothecostsandbenefitsofchangesatthemargin.StrengthofevidenceThestrengthofevidenceismoderate.Thecongestionbenefitsofpublictransportarelarge,butthepotentialforcost-effectiveinvestmentstoincreasepublictransportusearenotknown.Ifthescaleofcost-effectivepublictransportinitiativesisnotknownthenthereisnobasisforarguingthattherewillbelargeco-benefits.ActivetransportOneoftheMfE’sbiggestpitchesisforactive(walking,cycling)transport.Mostlythisisanargumentthatactivetransportwillmakepeoplehealthier.Thismightbetrue,butwhetherpeoplecanbeinducedtodoit,andwhetherthevariousproposalstoencourageactivetransportmakeeconomicsense,isadifferentstory.Mostlythisisnotaclimateemissionstory.Therealisticreductionintheleveloftransportemissionsisverysmall(onepercent),andinanycasewillfallwiththeelectrificationofcartransport,and/orthewidespreadadoptionofelectricscooters(whichhavenohealthbenefitsandsignificantcosts).Butwegetalengthyargumentforthecaseforactivetransport(andbyimplicationmoreinvestment),whichwediscusshere.Increaseduseofactivetransportmeansfewervehiclekilometrestravelledinprivatecars.Switchingmodesfromprivatecarstoactivetransportsavesconsiderablespaceincities.Cyclingtakesup1/18thofthespaceofcars,includingroadsandparking(Litman,2015).Asaresult,theincreaseduseofactivetransportreducescongestion,whichinturnreducescostsassociatedwithbuildinginfrastructureandcreatesbenefitsintimesaved.Increaseinactivetransport(e.g.,walkingandcycling)willleadtoincreaseinexerciseoverall.TheLitmanstudyisapitchfor‘optimal’urbandevelopmentcomparedtourbansprawl.Thereisnodirectanalysisofactivetransportassuch,butsomesmallassociationbetweenmorecompactcitiesandhealthoutcomesarereported.

Activetransportisunlikelytobeoffsetbyincreasedcalorieintakeorreductionsinotherformsofexercise.Asaresult,thosepeoplewhouseactivetransportare76percentmorelikelytomeettheminimumrecommendedguidelinesforexercise(Shawetal,2017).Thismightbetrue,butthisdoesnottellusanythingaboutthelikelihoodthatthosewhodonotuseactivetransportcanbeinducedtodoso.TheShawstudyalsoshowedthatpeopleusingpublictransportwerenomorelikelytomeettheminimumexerciserecommendationsthanthosewhouseprivatetransport.Theheathrisksofactivetransportisacknowledgedbutlargelywaivedaway.…theGovernmenthassignaledincreasedinvestmentinsafercyclingandwalkinginfrastructuretomitigatethis.Therateatwhichcyclistsarekilledorinjureddecreasesasoverallcyclingnumbersrise,partlybecauseofdecreaseduseofcars(whichendangercyclists)butalsobecauseof‘safetyinnumbers’.Asmorecycliststaketotheroad,theyaremorenoticedbydriversandhencebecomesafer(Macmillanetal,2014).The‘safetyinnumbershypothesis’mightbelogicallypossible,butMacMillandoesnotpresentanyevidencetosupportthisconjecture,andhowlikelyitisthata‘safetythreshold’willbereached.Overall,thebenefitsofactivetransportremainpositive.Longitudinalstudies(ie,overtime)haveshown‘all-causemortality’was30to40percentlowerinpeoplewhocycledcomparedtothosewhodidnotuseactivetransport(Haines,2012).Hainesreferencestwostudiestosupportthisclaim.WeconsidertheminourdiscussionoftheMacMillanstudy.Thereisastronglinkwithdemandmanagement,asdenserurbanformandinvestmentininfrastructureiskeytoencouragingtheuseofpublicandactivetransport(WHO2009).TheurbanformofNewZealandcitieswillnotchangemateriallyovertherelevanttimeframe.AsystematicreviewintheUnitedKingdomfound(despiteavarietyofmethodsused)overwhelminglypositivebenefit-costratiosforinvestmentinactivetransportinterventions,withanaveragebenefit-costratioof5:1(Cavill,2008).ThemainpurposeoftheCavillpaperwastoassessthequalityofpapersreportingbenefit/costratiosforactivetransportmeasures.Itfoundthatthequalitywasgenerallylow,withalackoftransparencyonthemethodologies.Inparticular,manyreliedonoptimisticassumptionsabouttheuptakeofactivetransport.Thebenefitcostratioswereallovertheplace,withtheratiosrangingfrom-0.4to32.5,witha

medianof5.1.Thismedianfiguredoesn’tmeananythingintheabsenceofacarefulconsiderationoftheindividualresults.TheMfEshouldnothaveusedit.Co-benefitsThelargestco-benefitofactivetransportappearstobemorepeoplegettingtheirrecommended‘dose’ofexercise.AroundhalfofNewZealanderscurrentlydonotmeettherecommendedlevelsofexercise(MinistryofHealth,2016).AccordingtotheGlobalBurdenofDiseasestudy,lowlevelsofphysicalactivitycaused1079prematuredeaths(3%ofthetotal)andthelossof14,000disabilityadjustedlifeyearsinNewZealandduring2016(1.32%ofthetotal).TheMinistryofHealthestimatestellusthatinsufficientexerciseisnotamajorcauseoflossesdisabilityadjustedlifeyears,butthefigureoverstatesthepotentialforactivetransporttomakeadifference.DALY’saredisproportionatelybornebytheelderly,whodonotwork.Therearemanyotherformsofexercisethatmaybemoreeffectiveforthetargetgroupsthancyclingtowork.Cyclelanesareunlikelytobeahealthinterventionpriority,ifhealthpromotionalfundingwasallocatedrationally.Alarge-scaleswitchtoactivetransportcouldpotentiallyavertalmostallofthesenegativeimpacts.Acompleteshiftinmodesisunlikely,butevenbringingotherNewZealandcitiesuptothelevelsofpublicandactivetransportseeninWellington(27.5%oftripsbywalkingand1.3%bybike)wouldcreateconsiderablebenefitsforbothhealthandcongestion(Shawetal2018).Itmight,butwishingitwereso,doesn’tmakeitso.Macmillanetal(2014)gofurthershowingbestpracticeinvestmentsinAuckland’scyclinginfrastructurecouldgiveahighreturnoninvestment(between6and25timestheinvestmentrequired)andresultsinlevelsofcyclingseeninEurope(40%oftripsby2050).Scaleofco-benefitsTheabsolutescaleofbenefitsdependsonthescaleofthemodeshift.Givencurrentlevelsofinvestmentinactivetransport,Macmillanetal(2014)estimatethebusinessasusualmodesharesforcyclingandlightvehiclesatfivepercentand75percentrespectivelyin2050.Thatscaleofmodeshiftwouldcost$630millionininfrastructureinvestment,butwouldgenerateconsiderablenetbenefitsoverall,totalingover$13billionby2050(abenefit-costratioof24:1).Improvedexerciselevelswillreducemortality;4000livessavedatavalueof$12.4billion.Reductionsinairpollutionareworthanother$78millionoverthattime,butthisismorethanoffsetbyhigherlevelsofcyclistinjuriesandfatalitieswithacostof$1.45billion.

TheMfEhavemisreportedtheMacMillanstudy.The$630millioncostandthe$13billionnetbenefitsrelatetoambitioustargetsthatachieveCopenhagen(40percent)sharesofcycling,nottoacyclingshareoffivepercent.Inrelativeterms,thehealthimpactsofanyincreaseinactivetransportarelikelytooutweightheemissionsreductionsbenefitssignificantly.IntheMacmillanetal(2014)studymentionedabove,thehealthbenefitsoutweighedtheclimatebenefitsbyafactorofalmost12to1.Giventhesmallemissionsreductioneffects,therecouldbeaco-benefittoemissionsratioofmorethanone,foractivetransportproposals.Butthisdoesnottellusanythingabouttheoverallbenefittocostratio,whichiswhatshouldmatter.Fromtheevidencescannedandreviewed,wehavenotfoundstudiesthatlookatthebenefitsofactivetransportonreducedcongestion.In-housecalculationssuggestthecongestionbenefitscouldconservativelybeatleastfourtimesthehealthbenefits.IftheMfEwishestociteitsin-housecalculationsthenitshouldreleasethedetail.StrengthofevidenceThestrengthofevidenceisstrong.Here,aselsewhere,thereisalackofclarityaboutthestrengthofevidencemetric.Isittheevidenceontheleveloftheco-benefits,whichtheMfEneedstosupportitscasethatco-benefitsoffsetsomeoftheeconomiccostsofclimatechange.Orisittheevidenceontheratioofco-benefitstoemissionreductionbenefits(whichisirrelevanttoansweringthelevelofbenefitsquestion).TheMacmillanstudyTakenatfacevaluetheMacmillanstudylooksimpressive.Aninvestmentof$640milliongeneratesbenefitsofabout$14billionandnetbenefitsofover$12billion.Oninspection,however,thisoutcomeprovestobeextraordinarilyflimsy.ThereportdiscussesanumberofbicyclelaneinvestmentscenariosforAuckland.Thebiggestinvestmentof$640millionistheone(mis)reportedbytheMFEabove.Itassumes‘internationalbestpractice’ofbuildingseparatedbicyclepathsonarterialrouteswilldeliverCopenhagenlevels(thehighestinthedevelopedworld)ofbicycletrips(40percentcomparedtoaboutonepercentnow)by2051.Theactivetransportuptakeisjustassumed(anexerciseinwishfulthinking)toflowfrom‘internationalbestpractice’.Thereisnoevidencetosupportit,norisanyconsiderationgiventohowAucklandisdifferenttoCopenhagenThemodeliscomplicated,withmanyinputs,mostofwhicharecalibrated(largelyjustmade-up),butthecriticalvariabledrivingthehighbenefitstocostratioisthe

numberoflives‘saved’throughthehealthbenefitsofcycling.Wefocusonthisbenefit,butmanyoftheothercostandbenefitsinthestudyappearedtobebiasedtogeneratepositiveresults.Onthehealthbenefitsthemodeliscalibratedhavingregardtotwostudiesonthedifferenceindeathratesofpeoplewhocycletoworkandthosewhodon’t.Thefirst26wasastudyonwomeninShanghaiagedbetween40and70.Itshowedthatcyclistshadalowerdeathrate,buttheeffectwasnotquitestatisticallysignificant.ThesecondisaDanishstudy27of20-93yearolds.Itreportsthatcyclingtoworkreducesmortalityratesby28percent,afteraccountingforanumberofcovariates,includingotherexercise.Inotherwords,evenifyoudootherexercise,(includingleisuretimecycling),cyclingtoworkwillreduceyourexpectedmortalityrateby28percent.Thislookstogoodtobetrue.IfitweretruewewouldexpectDenmarktoshineininternationallifeexpectancytables.Butitdoesnot.Itisranked27thbytheWHO,belowNewZealandatNewZealandat17.Wemightalsoexpectdoctorstobespecifically‘prescribing’cyclingtowork,evenforpatientswhoaregettingplentyofotherexercise.TherelookstobesomethingamisswiththeAndersenstudy,butwearenotcloseenoughtothedetailtosuggestwhatmightbedrivingtheirstrongresult.However,thereisaUKstudy28,whichismorerelevanttoNewZealand(alowrateofcycleuse),whichproducedasimilarresult.Therewasahealthbenefit(afortypercentreductioninmortality)tocyclingtowork,butnobenefitfromwalking.Oninspectionitseemsclearthatthework/cyclistswereadifferentpopulationtotherestofthepopulation.90percentweregettingtheirrecommendeddoseofexercise,comparedtoonly50percentofthewalkingandautomobilecommuters.Thecyclistswerenotjustgettingtheirexercisefromcyclingtowork(anaverageofonlyjust30milesaweek),butwereprobablygenerallymorehealthconscious,inwaysthatwerenotbeingsystematicallypickedupbythemodel.This,ratherthancyclingtoworkassuch,wasprobablythekeydriverofthemortalityresults.

26Mathewset.al.200727Andersenet.al.2000

28Andersenetal.2017‘Associationbetweenactivecommutingandincidentcardiovasculardisease,cancer,andmortality:prospectivecohortstudy’BMJ2017;357

Otherstudiesseemtogeneratelesssignificantresults.Forexample,a2013review29paperonthehealthbenefitsofactivetransportreportedthefollowing.Twenty-fourstudiesfrom12countrieswereincluded,ofwhichsixwerestudiesconductedwithchildren.Fivestudiesevaluatedactivetravelinterventions.Nineteenwereprospectivecohortstudieswhichdidnotevaluatetheimpactofaspecificintervention.Nostudieswereidentifiedwithobesityasanoutcomeinadults;oneoffiveprospectivecohortstudiesinchildrenfoundanassociationbetweenobesityandactivetravel.Smallpositiveeffectsonotherhealthoutcomeswerefoundinfiveinterventionstudies,butthesewereallatriskofselectionbias.Modestbenefitsforotherhealthoutcomeswereidentifiedinfiveprospectivestudies.

Overalltheresultsmighthavebeenpositivebutwerenottransformational.

DespitethecentralityoftheDanishstudyresultstotheoverallcostbenefitresults,thereisnodiscussioninMacmillanofitsplausibility,itsrelevancetoAucklandorofotherlesspositivestudies.MacmillanandtheMfEappeartohavecherry-pickedtheevidence.EffectivenessofcyclingpromotionprogrammesAnobviousomissionintheMfE’sanalysis,andintheMacmillanstudy,isanymentionofanyevidenceontheeffectivenessofcyclingpromotioninvestments.Ifpeople,whocurrentlydonotgetenoughexercise,donotrespondtotheimprovedcyclingenvironmentorcyclingpromotions,thentherewillbenohealthbenefits.Ifyoubuildit,theymightnotcome.Thereisasubstantialliteraturehere,andwediscusssomerelevantpapers.Thefirst30isareviewof12studiesfrom12countries.Sevenofthestudiesrelatedtoindividualorgroupbasedinterventionstoencouragecycling.Thesewereeffectiveinonlythreeoftheinterventions.Themorerelevantaretheenvironmentinterventions(cyclelanesetc.),whichshowedonlysmallimprovements.Nowherewerethereanytransformationaleffectsfromthesesortsofinvestments.Thepapersummarisedthefollowingstudies.TheEnglishCCT(CyclingCitiesandTowns)programmeaimedtoincreasecyclingthroughcapitalandrevenueinvestments.Changesincyclecommutingbetween

29SaundersLE1,GreenJM,PetticrewMP,SteinbachR,RobertsH2013‘Whatarethehealthbenefitsofactive

travel?Asystematicreviewoftrialsandcohortstudies’.

30GlennStewart,NanaKwameAnokye,SubhashPokhrel2015Whatinterventionsincreasecommutercycling?AsystematicreviewBMJvol5issue82015

2001and2011intheCCTswerecomparedwithchangesinmatchedtowns.Theanalysisindicatedthatcyclingtoworkintheinterventiontownsincreasedby0.69percentagepoints.InIreland,theDepartmentofTransportsetatargetofincreasingcyclingfrom2%ofjourneysin2009to10%by2020.Therewerearangeofinterventions,includingfinancialincentives(tax-freeloanstopurchasecycles);infrastructurechange(trafficcalming,cyclelanesincludingsegregatedlanes),promotionaleventssuchasBikeweek(familyrides,removingtrafficfromstreets,repairclinicsandpromotiontalks),andasharedbikescheme.Censusdataindicatedthatcyclemodalsharefellfrom6%in1996to4%in2002and2006,buthadrisento5%in2011.However,itiswasnotclearastowhatextentthepost2008financialcrisisinIrelandmighthaveaffectedtheresults,aspeoplemighthavetakenupcyclingoutoffinancialnecessity.

OneUSstudyassessedtheeffectsoftransport/cycleinfrastructureoncyclecommuting.CyclecommutermodalshareincreasedincentralMinnesota(from2.8%to3.3%,attheUniversityofMinnesotaandMinneapolis(from0.788%to0.841%),comparedwiththesuburbswherethecyclecommutesharefellfrom0.335%to0.279%.OtherstudiesADanishstudy31showedthateffortstoencouragecyclingtoschoolfoundthatinfrastructuralchangesnearschoolsandschoolcyclingpromotionsmadenodifferencetocommutercyclingrates.Asummary32ofstudiesofDutchandDanishexperiencesinencouragingmodalchangestowardscyclingfoundincreasesofbetween2-9percentagepoints.Seetheirtable4below

31LarsØstergaardJanToftegaardStøckel,andLarsBoAndersenEffectivenessandimplementationof

interventionstoincreasecommutercyclingtoschool:aquasi-experimentalstudy32Interventionsinbicycleinfrastructure,lessonsfromDutchandDanishcasesKeesvanGoeverdena*,ThomasSickNielsenb,HenrikHarderc,RobvanNesTransportationResearchProcedia10(2015)403–412

Figureseven:Modalshiftsinactivetransport

ClosertohomeChapmanetal.33comparedactivetransportoutcomesintwoNewZealandcitiesthathadactivetransportinterventions,withtwothatdidnot.TheyfoundthatRelativetothecontrolcities,theoddsoftripsbeingbyactivemodes(walkingorcycling)increasedby37%(95%CI8%to73%)intheinterventioncitiesbetweenbaselineandpostintervention.Thenetproportionoftripsmadebyactivemodesincreasedbyabout30%.Intermsofphysicalactivitylevels,therewaslittleevidenceofanoverallchange.Therewasnoactualincreaseinactivetravel.Thedeclineobservedinpreceedingyearswasmerelyarrested.ElectricityforheatTheshifttoelectricityforheatwillhavesomeimpactonreducingemissionsbutwillalsohaveco-benefitsforhealth,particularlywhereitresultsinreducedburningofwoodandcoalinurbanareas.Thisisassessmentismostlymisdirected.Reducingtheburningofwoodisnotpartofthezerocarbonprocess.DemandmanagementWhiledemandmanagementdoesnotprovidelargeco-benefitsbasedonavailableevidence,itdoesenableotherco-benefits(suchaspublicandactivetransport)andcanpreventadditionalcostsfromemissionsreductionspolicies.

33ChapmanR,Howden-ChapmanP,KeallM,etal.2014‘Increasingactivetravel:aims,methodsandbaselinemeasuresofaquasi-experimentalstudy.’BMCPublicHealth;14:935.

UrbanformThewaywedesignourcitieshasanimpactoncarbonemissionsandqualityoflife.Thequalityandformofurbanareascaneitherfacilitateorhinderpublictransport.Forexample,thedensityandmixofimmediatelandusesandstreetnetworkdesigncansupportthefeasibilityofpublictransportbyincreasingthenumberofpeoplelivingwithinpublictransportcatchments.Urbansprawlincreasespercapitalanduseby60to80percentandmotorvehicletravelby20to60percent(Litman,2015).Thisleaveslesslandavailableforotheruses.Asalreadynotedurbanformisnotreallyaclimatemitigationissue,asurbanformwillnotchangemateriallyovertherelevanttimehorizon.Overlongerhorizonselectriccarsmeanthatmoreprivatecommutingwillnothaveanemissionsimpact.Promotingpublictransportshouldnotbeagoalinitself.Mostpeoplepreferprivatetransport.Publictransportonlyhasvaluewhenitdealswithcongestionproblemsinaneconomicallyefficientmanner.Mobilityforthosewhocannotdrivemaybehandledmoreefficientlybyprivatelyprovidedautonomouselectriccars,orvans,inthenottoodistantfuture.Realtimecongestionpricingwouldhelpdealwiththecongestionissue.Alessdenseurbanformusesmoreland,butthatisbecauselandisbeingputtoitshighestusevalue.ThecompacturbanformphilosophyhashelpedcausetheeconomicallyandsociallydisastrousriseincitypropertypricesinNewZealand,andhashelpedincreasetransportemissionsfromlongdistancecommutesaspeoplearedriventooutlyingtownswheretheycanstillbuyanaffordablehouse.Co-benefitsUrbansprawlcreatesbenefitsaswellascosts,butthebenefitsaregenerallyinternalised,whereasalargeproportionofthecostsfallonotherpeople.InternationalevidencesuggeststhatsprawlincreasescostsperpersonbyUS$4556,ofwhichUS$1988(44%)isexternal,fallingonotherpeople(Litman,2015).Therefore,denseurbanplanningcanproducesomecobenefitsaswell.Litmanignoresconsumersurplusfromconsumer‘sprawl’,overstatestheexternalcosts,andignoresexternalcosts(e.g.noise)generatedbydenserenvironments.Anemphasison‘proximityplanning’canreduceemissionsbymakingpublicandactivetransportmorefeasibleforpeople,atacostaslowas$2pertonneofCO2-esaved(WHO,2012).ThefullsummaryintheWHOreportisasfollows:Morecompactlandusethatintegratesurbanresidentialandcommercialareasenhancestheclimateandhealthco-benefitsoftransportstrategies.Emphasison“proximityplanning”

makeswalking,cyclingandpublictransporttojobs,schoolsandservicesmorefeasible.Forexample,onestudyofSantiago,ChileprojectedthatrelocatingschoolsclosertohomescouldreduceGHGsby12%overa20-yearperiodatacostofonlyUS$2pertonneofCO2reduced.SchoolsinNewZealandarealreadycloselylocatedaspossibletothecommunitiestheyserve.Wheretheyarenot,movingthemwouldbeveryexpensive.Aroundone-tenthofthebesthorticulturelandinNewZealandhasbeenlosttohousinginthepastdecade,contributingtotheincreasedcostoffruitandvegetables(Hutching,2016).Thecostofthisissuehasnotbeenquantified,sotherearenoestimatesofthesizeofco-benefitsforthefoodsystem.TherewasnoevidenceintheHutchingsarticleontheimpactonfruitandvegetableprices.ItisunlikelythatputtinglandtoitshighestvalueuseinurbanhousingandshiftinghorticulturalelsewherewillaffectNewZealandfruitandvegetableprices.Itmightjustslightlyreduceexports.CarboncaptureandstorageTheco-benefitsforCarboncaptureandstorage(CCS)aresimilartothoseofshiftingtoalternativefuels,atbestpotentiallyallowingforasmallreductioninairpollution.IndustrialProcessesandProductUse(IPPU)Noco-benefitshavebeenidentifiedfromreducingIPPUemissions.AgricultureImprovedfarmpracticesImprovedfarmpracticesmakemoreefficientuseofresources,whichinthecontextofemissionsreductionusuallytranslatesintoreducinginputswithoutreducingproduction(oratleastwithoutreducingprofitability).Thisishardtoarguewith.LivestocknumbersThefinalemissionsmitigationavailabletofarmersisreducinglivestocknumbers.Inconjunctionwithimprovedfarmmanagementpractices,itmaybepossibletoreducelivestocknumbersslightlywithoutimpactingonproductionorprofitability.However,beyondthispoint,reducedlivestocknumberswouldcomeatsomecost.True.Iftherewasreducedconsumptionofredmeat,however,wemightexpecttoseesomehealthbenefits.Forexample,a30percentdropintheconsumptionofsaturatedfatintheUnitedKingdomisexpectedtoreduceheartdiseaseby15percent(Watts,2010).

ThereductioninredmeatconsumptioninNewZealandwouldresultinmoreexports.Thelevelofemissionswouldnotfall.Thisisa(controversial)healthargumentratherthanaNewZealandemissionsargument.Theremayalsobesomebenefitsofdiversifyinglanduseawayfromdairyingandmeatproduction,whicharecurrentlytwoofNewZealand’stopexports.Withsyntheticfactorymeatandmilkthreateningtodominatethecommoditymarketincomingyears,diversificationoflandusecouldreducethepotentialofapriceshockhittingtheNewZealandeconomy,similartowhennylonbegantodisplacewoolinthe1960s.Thescaleofsuchpotentialco-benefitsisspeculativeanddifficulttoestimate.Thediversificationargumentmaynotbeabadidea,butanyresponseisbestlefttothemarket.InNewZealand,redmeatconsumptionabovetherecommendedlevel(leadingtoheartdisease,strokeandcoloncancer)hasresultedinanestimated4078prematuredeathseachyear(Springmannetal,2016).WefoundnoreferencetoNewZealandprematuredeathsinthestudy,whichreportedtheresultsofaregionalglobalhealthmodel.WastesectoremissionsFromtheevidencescannedforthisreport,nospecificco-benefitshavebeenidentifiedfromreducingwasteemissions,otherthanthedirectfinancialbenefitsofreducingwastetolandfill,freeingupresourcesforreuseandtheabilitytouselandforotheruses.Theremay,however,beanetfinancialcostinreducingwastetolandfillsifuneconomicinvestmentsarepursued.Anemissionsreductionfocus,atallcosts,makestheseoutcomesmorelikely.Wenote,however,thestudybyBlickandComendant(2018)whoinvestigatedtheemissionsreductionopportunitiesoftransitioningtoacirculareconomyinAuckland.Theyestimatetheemissionsreductionsinthewastesectorfromacirculareconomycouldtotal1395kilo-tonnesofCO2-ein2030.TheemissionssavingintheBlickandComendantreportwasbasedonthreemajorsavings(therestweretrivial).

• A50percentsavinginfoodwaste.Goofluckwiththat.EvenifthiswerepossibleitwouldnotreduceNewZealand’sagriculturalemissionsmuchbecauselowerdomesticdemandwouldresultinhigherexports.

• Emissionreductionsfromelectriccarsreliedonsomeoptimisticuptakeassumptions.

• Carsharingmightreducethecapitalcostofthevehiclefleetbut,initself,itdoesnotreducetransportemissions.Ajourneyisajourneywhetherthecarisownedorrented.

LandUse,Land-UseChangeandForestry(LULUCF)Land-usechangetoforestrycanhaverealbenefitsforbiodiversityandwaterquality,aswellassoakingupcarbon.Thevalueofco-benefitswilldependontheexacttypeandlocationofthetreesplanted,andaredifficulttogeneraliseatanationallevel.However,Yao&Velarde(2014)giveanideaoftherelativevaluesforonecatchment(Ohiwa).Theyestimatedtheecosystemvalueofeachhectareofplantationforestrywas$5600peryear.Thereareco-benefitsfromforestry,butthebenefitsintheOhiwastudyaregrosslyoverstated.

Wereviewedtheanalysisinthereport‘EcosystemServicesintheŌhiwaCatchment’.Theestimateoftheeconsystemvalueofimprovedwaterqualityis,putbluntly,nonsense.Thisrequiressomeexplanation.Thepurposeofthereportwastocalculatetheecosystemvalues(includingmarketableoutputsandpostiveandnegativeenvironmentalimpacts)foralllandbasedactivityinthecatchment.

Themostimportantpositiveforforestswasthevalueofreducednitrogenleaching.Heretheysetupannotional‘cap-and-tradescheme’.Itisassumedthatforestsleach3kg.perhectare,buttheforestownerisallocatedacapof10kgs.Sotheyhave7kg.tosellatapriceof$400/kg.Thisgeneratesanincomeof$2800,whichis‘waterquality’benefit.

Thesourceofthe$400estimatewasashortpowerpointconferencepresentation.34Undertheheading‘Likelyincentivesbelowtheline’therewasabulletpoint.$400/kg?Itisnotclearwhatpointthepresenterwasmakinghere,butitcertainlydidnotproviderobustevidenceforthe$400/kgestimatethatdrovetheOhiwacatchmentresults.

Theseriouserrorhereisthatthe$400/kgisnotremotelyneartothenitrogenleachingpricethatwouldemergeinarealmarket.At$400/kgadairyfarmerwithanoperatingincomeoflessthan$1700ahectarewouldpayaleachingchargeof$12,000ahectare.Sheepandbeeffarmerswillpay$3200onanincomeof$156.

34 Barns, S. (2014). Lake Rotorua: Incentivising land use change In NZARES Conference

Theonlyrationalresponsewouldbeimmediatelyconvertedtoforestrytocollectthe$2800leachingincome.Ofcoursetherewouldbenoonelefttobuytheemissionunits,andthepricewouldcollapsetozero,orclosetoit.

Theotherkeydriveristheassumptionthatforesterswouldbegenerouslyallocatedacapof10kg,ofwhich7kgs,amountstoagift.Thisisatransfer,notarepresentationoftheeconomicvalueoftheemissionright.

Againthispoints,atleast,tocarelessnessbytheMinistry.Iftheyaretociteastudythentheyshouldreaditandensurethattheresultsarerobust.

Thereareco-benefitsfromincreasedafforestation,buttheyare,onaverage,nowherenearthe$5600reportedintheOhiwastudy.

MfE’sconclusionIntheconclusionthereisadiscussiononthesignificanceoftheco-benefits.Itisdifficulttocomparethesizeofco-benefitsfordifferentpolicies,giventheyhavebeenestimatedwithvastlydifferentmethodologies.Thebestmethodwehaveofcomparingistherelativesizeofco-benefitscomparedwithemissionsreductionsbenefits.Theareaswithrelativelylargeco-benefitsaremorelikelytohavesignificantlydifferentbenefitcostratiosforinvestmentiftheco-benefitsareincluded.Itisnotdifficulttocompare(andaggregate)thesizetheco-benefitsiftheyarequantitiedindollarterms.TheproblemisthattheMfEhasnotseriouslyattemptedtodoso,tosupportitsargumentthatthesebenefitsarelarge.Ifpreciseestimatesarelacking,thenroughestimateshouldhavebeenattempted.Ifevenroughestimatearelackingthen,obviouslytherenobasisforcalculatingthetheratioofco-benefitstoemissionreductionbenefits.Basedonthisratioapproach(seetheirtable1below),energyefficency,freighttorail,publictransportandactivetransportareidentifiedasthemostlikelycandidateswhereco-benefitsarelikelytobeimportant.Thereisnoactualcalculationoftheratios.Forestryiscountedashavingahighco-benefittoemissionsbenefitratio.ThisisassesmentappearstobebasedontheflawedOhiwaestimate,butisobviouslywrong.Forestryhasverystrongemissionsbenefits,whichwill,onaveragebebiggerthantheco-benefits.

Figureeight:MFEsummaryofco-benefits

This‘ratioofco-benefitstoemissionsbenefits’argumentsimplydoesn’tmakesense.Considertwoclimatechangeinvestmentproposalswiththefollowingcharacteristics.Tablefour:Economicandco-benfitratioinvestmentassessmentsProposal Netfinancial

benefit$’mEmissionbenefits$m

Otherexternalbenefits$m

Ratioofco-benefitstoemissionbenefits$m

Neteconomicbenefits$m

A --3000 6 300 50 -2650B -100 125 25 0.2 +50UndertheMfEapproachInvestmentA(roughlymodelledontheAucklandraillinkproject35)witharatioofco-benefitstoemissionsbenefitsof50,lookstobeamuchbetterbetthaninvestmentBwitharatioof0.2.The‘logic’behindthisapproachisthatthelesseffectivetheemissionmitigation,thehighertheratioandthemoreattractivetheproposal.Possibly,therealmotivationbehindthis‘methodology’isthatitputssomerecentandprospectivegovernmentpolicyinitiativesinagoodlight.Energyefficiencywas

35The$6millionemissionbenefitfortheAucklandraillinkwasoverstated.Itdidnotcounttheemissions

costoftheconstructionworks(cementetc).Theneteffectisprobablyanincreaseinemissions.

partofthe‘healthyhomes’policy;thegovernmenthasrecentlyannouncedabiginvestmentinrail.Nodoubtmorepublicandactivetransportinitiativeswillfollow.Co-costsTheeconomicanalysisassumesthatemissionsareabatedatleastcost.However,inthis‘holistic’worldwhereallsortsofunpriced‘benefits’arebundledtogether,analyticalrigourtendstofadeandthereisanenhancedriskof‘co-costs’.Aco-costoccurswhenanemissionreductioneffectisusedtopartiallyjustifydirectinterventionsandprojectswhosecostsexceedthebenefits.Theemissionreductioneffectshouldbepickedupinacostbenefitanalysisthroughacarbonshadowprice,orwillbealreadycapturedbytheemissiontradingregimewhenitisfullyoperative.However,whatislikelytohappeninmanycases,isthattherewon’tbearobustassessmentandthattheemissionsreductionimpact,howeversmall,willbeusedtojustifysomebodiespetproject.

Partseven:Innovationbenefits?TheMfE’scaseforstrongandearlyactionalsoplacesaheavyweightoninnovation.Itwil,wearetold,reducethecostofemissionreductionsandprovidingwiderbenefitsfortheeconomy.NewZealandbusinesswillgeta‘firstmover’advantageovertherestoftheworld.TheMfE’sargumentsarebasedontwopapers.Thefirst,bySensePartners,examinedtheimplicationsofclimatetargetsforcompetivenessleakageandinnovation.ThesecondwastheMfE’sownreviewoftheoverseasliterature.Inthispartwereviewbothpapersindepth.SensePartners:‘CountervailingForces:ClimateTargetsandImplicationsforCompetitiveness,LeakageandInnovation’InternationalevidenceThereportstartswithareviewoftheinternationalliterature,whichgenerallypaintsapoitivepictureoftheimpactofenvironmentalpoliciesoninnovation.

OverseasevidenceprovidesqualifiedsupportforsignificantadjustmentandpotentialforpositiveimpactsthroughincreasedinnovationandevenproductivityimprovementsTheOECD(Albrizioetal,2011)hasanalysedenvironmentalpolicystringencyacrosscountriesandfoundthatitisgenerallyassociatedwithincreasedproductivity.Indeed,thisfindingisavariantonagrowingbodyofempiricalresearchwhichrefutespresumptionsthatenvironmentalpolicycausesproductivitylossesandproductiontorelocate.

AsweshallseeinourassessmentofMFE’sreviewoftheoverseasliterature,whichcoversthesameground,butinmoredepth,thisoptimismissomewhatoverstated.Also,theSensereportdidnotconsideragriculturalinnovation,notingthatnoothercountryhas,orisconsidering,includingagriculturalemissionsintheiremissionspricingschemes.(withtheexceptionofKazakstan,wheretheETSinclusionisdescribedasbeing‘onice’).NewZealandempericalevidenceThekeycontributionofthepaperissomeNewZealandempericalanalysisthatpointstoalessfavourableconclusiononthereponseofinnovationtohigherenergyprices. ToquantifytheimpactsofenergypriceincreasesSenseusedasimplemodeloftheempiricalrelationshipbetweensectoralenergypricesandsectoraloutputs.Theythenestimatedtheimpactofanincreaseinenergypricesonvalueaddedover1,2and15yearsafteraninitialshock.Asidefromtheminingsector,anincreaseinenergypricesdecreasedvalueaddedineverysector.Theimpactoftheenergypriceswaspersistent.even15yearsaftertheshockthereislittleevidenceofareboundinoutputconsistentwithinnovationinresponsetotheshockandInseveralcases,thereductionsinvalueaddedareroughlyproportionaltothechangeinenergycosts..TheevidenceleadstothefollowingassessmentNewZealandfirmshave,forsometime,beenpoorperformersinproductivitygrowthandinnovation,asdiscussedinthenextsection,whichbegsthequestionastowhyclimatepolicywouldchangethis.Itisalsonotablethatsectorswhichhavehighleakageriskhave,typically,notexperiencedstrongproductivitygrowthinthepast.Indeed,mostoftheseindustries–inparticularsteel,cementandaluminium–arenotindustriesinwhichNewZealandhasanycomparativeadvantageorpre-existingdistinctivestockofknowledge.NewZealand’sproductivityandinnovationmalaiseisalsolikelytolimitinnovationaimedatreducingemissions.Forexample,althoughresearchindicatesthatenvironmentalpolicy

stringencydrivesproductivitygrowth,atleastforatime,thisisnotthecaseforeconomiesthatarebehindthepacerelativetoglobalbestpractice(Albrizioetal,2017). Moregenerallythereisaconcernfromsomeeconomiststhatinnovationtargetedatreducingemissionswillreducetheamountofresourceavailabletootherinnovationefforts.Whatdatathereis,suchasonproductivitygrowth,castssomedoubtoverwhetherinnovationandadaptationbyNewZealandfirmswillbesufficienttoovercomepotentiallywidecostdifferentials.Topresumethatclimatepolicycouldmakethedifferencewouldbeakindofexceptionalismandaseriousleapoffaith(ouremphasis).Thesearestrongwordscomingfromaconsultant.Theyaregenerallyreluctanttobitethehandthatfeedsthem.Thetakeouthereisclear.ThereisnosupportinthisreportfortheMfE’s‘innovationbonus’claimsforNewZealand.TheMfEsimplyignoredtheadvice.MfE‘EmissionspricingimpactoninnovationandcompetitivenessAreviewoftheinternationalliterature’

ThisMfEreportreviewedjusttheinternationalliteratureontheimpactsofemissionspricingoninnovationandcompetitiveness.Itconcludedthat

• Emissionspricingatcurrentlevelsreducesemissions,butdoesnotweakentheoveralleconomicperformanceofmostbusinesses.

• Whilesomeemissions-intensiveandtrade-exposedsectorsshowpotentialforemissionsleakageandnegativeeconomicimpactswithemissionspricing,thesenegativeimpactsaresmall.

ItisnotclearwhytheMfEreviewwasconducted.SensePartnershadalreadyreviewedtheinternationalliteratureandcametoasimilarlygenerallyupbeatconclusion,onlytofindthattheydidn’tapplytoNewZealand.AttheendofitslengthyreviewtheMfEimplicitlyconcedes,albeitreluctantly,thattheoverseasevidencemaybeoflimitedrelevancetoNewZealand.

• ComparedtotheEU,someNewZealandsectorswouldbemoretrade-exposed.• whiletheinternationalevidencesuggestsemissionspricingcanreduceemissions,

whilenotweakeningoveralleconomicperformanceofmostbusinesses,thisisatcurrentinternationalprices.Itremainsspeculative)astowhetherthesetrendswillholdatmuchhigheremissionsprices(eg,over$200/tCO2-e)thatmaybeneededforatransitiontoalow-emissionseconomyinNewZealandregulation.

However,thiscautiondoesnotfinditswaytothepostiveinnovationstorythatprevadestheMFEandothernarratives.Itappearstherealpurposeofthereviewwastoprovideacloakofsupportfortheinnovationstory.ButwhenweworkourwaythroughtheevidencewefindthecloakissomewhatthreadbareandthattheMinistryhasoverstatedthepositivesideoftheevidence,andmostlyignoredanythingnegative.The‘pollutionhaven’and‘Porter’hyprothesesTheMfEdiscussionissetup asacontestbetweentwoeconomictheories–the‘pollutionhaven’hypothesisandthe‘Porter’hypothesis.The‘pollutionhaven’hypothesisstateshigheremissionpricesunderstrongerclimateactionincreasescompliancecosts,divertsscarceresourcesawayfromproductiveactivities,andthereforereducescompetitivenessofregulatedbusinesses.Theseimpactsmayshiftemissions-intensiveproductionoffshoretowardcountrieswithlowabatementcostseventuallyandcausepolicy-inducedemissionsleakage.Incontrast,the‘Porter’hypothesisarguesstrongerclimateaction,especiallyhigheremissionspricingthatdrawsonthepowerofmarkets,canhaveanetpositiveeconomicimpactonthecompetitivenessofregulatedbusinesses.Suchpoliciespromotecost-cuttingresourceefficiencyimprovementsandfosterpolicy-inducedinnovationinnewlow-emissionstechnologiesthatmayhelpbusinessesgraspfirst-moveradvantages. Ex-postanalysesThereisareviewofex-postanalyses,(primarilyoftheEuropeanUnionemissiontradingscheme),whichconcludesthatcarbonpricingdidimpactonemissionsandencouragedinnovation.ThekeypapercitedisDechezlepretre(2018)whichwasthefirstcomprehensive,European-wideanalysisoftheEUETS.Wediscusswhatthispaperactuallyfoundbelow.QualitaivesurveysThereisalsoadiscussionofqualitativesurveys.Forexample,Loscheletal(2010)surveyed120Germanbusinesses,andonlysixpercentindicatedthattheexplicitobjectiveofemissionsabatementwasthekeyfactorforreducingemissions.Thissurveyindicatedthatemissionsreductionsweredrivenlargelybyfactorsthatledtoresourceefficiencyimprovements,includingswitchingtolessemissions-intensiveproductionprocesses(eg,switchingfromcoaltogas).Allthiswasshowingisthatthefallinnaturalgaspriceshadamajorimpactonenergyuse.

Anothersimilarsurveyfound94percentofSwedishbusinessesregulatedundertheEUETSindicatedtheywouldnotreducetheirproductionvolumetoabateemissions,insteadtheyplacedgreateremphasisonimprovementsinresourceefficiency(Sandoff&Schadd,2009).Thisisnotreallyasurprise,theemissionspricesverylowandwouldnotbeexpectedtohaveamaterialimpactonoutput.AnditisconcludedIfresourceefficiencyimprovementsoccurasaresultofemissionspricing,itisreasonabletoconcludethattheimprovementsarelikelytobetheresultofpolicy-inducedinnovation.

However,wecannotdrawmanyconclusionsfromthesestudies.Theyarejustsurveys,andsomerespondentsmayhavebeenconcernedtosaythe‘rightthing’.Alsowecannotjustassumethatallofthefirms’actionswereeconomicallyefficientSomemayhavebeenjustvirtuesignalling.Inothercases,theincreasedfocusonenergyefficiencymayhaveledfirmstoidentifythethelowhangingfruitandmakeeconomicallyefficientchanges.Thismaynottellusmuchabouttheresponsesoftradeexposedindustries,whenthegoinggetstougher,andwhentheeasygainshavealreadybeenhavemade.ImpactoncompetitivenessUntilmorerecently,researchhasgenerallyconcludedthatemissionspricinghasnosignificantimpactoncompetitiveness.Arlinghaus(2015,p.23),inreviewingawidesetofpapersconcludedthat“moststudiesreviewed[…]failtomeasureanyeconomicallymeaningfulcompetitivenesseffectsasaconsequenceofthese[emissionspricing]policies.”Morerecentstudiesappeartosuggestevenstrongerfindingsthannosignificantimpactontheeconomyfromemissionspricing.Thesepapers,indeed,provideevidencethatcountersconventionalwisdomandindicatessomesupportforthePorterhypothesis,(ouremphasis)whereinnovationnotonlysoftenscompetitivenessimpacts,butmayprovidenetpositiveeconomicimpacts.Again,theproblemwiththesestudiesisthattheyareanalysisinglowemmissionprices,anddonotdistinguishtradeexposedindustries.Mostoftheexposedindustrieshadfreeallocations,andsmallfirmswerenotexposed.Thelatest,mostcomprehensiveanduseful,studyisthe2018OECDDechezlepretrestudynotedabove.HeretheMFEisunbeatabouttheresults EvidencepotentiallysupportingthePorterhypothesisisalsoobserved…fromhisanalysis,Dechezlepretre(2018)concludesthattheEUETSnotonlyhadnonegativeimpactoneconomicperformanceofregulatedbusinesses,butalsoledtoastatisticallysignificant

increaseinrevenuesofbetween7to18percent,andfixedassetsby6to10percent(seetable1).Furtheranalysisneedstobeundertakentounderstandthemechanismsbehindtheresults,butfreeallowancesandthepass-throughofcostsarelikelytoexplainonlyasmallpercentageofthesepositivefindings.AcloselookattheDechezlepretreresultsdoesnotsupporttheMFE’sconclusions.OnemissionsreductionsDechelzepretrefound:

• Emissionreductionswereonlystatisticallysignificantinthesecondphase(from2012).

• Therewasanemissionsreductioneffectonlyforthelargestfirms(fourthquartile).

• Smallerfirmsactuallyincreasedtheiremissionsrelativetotheircontrolgroup.

• Bysectortherewasastatisticallysignificanteffectonlyforthechemicalindustry

ThelargeandsmallerfirmeffectsarerelevanttoNewZealand,withourpreponderanceofsmallfirms.Comparitiveeconomicperformancewasmeasuredbytheimpactonfirmrevenueandprofits.

• EUETSfirmsincreasedemploymentandprofitscomparedtothenon-ETScontrolfirms,butthisdifferencewasnotstatisticallysignificant.

• Returnsonassets(i.e.profitsscaledbyassets)didnotexperienceanystatisticallysignificantchangecomparedtothecontrolgroup.

• Smallerfirmssawnostatisticallysignificantchangeintheirprofitsandastatisticallysignificantdecreaseintheirreturnonassets,afindingwhichiscompatiblewithlargerfirmsbeingmoreabletopass-throughthecostsofcarbonemissionsontotheircustomers.Smallfirmshadtowearafallintheirreturnontheirinvestment.

• Apostiveeffectontheelectricitysectordrovessomeoftheresults.Thissectorgotabigpublicsubsidyfromtheallocationoffreeemissionunits,whilepricesweredrivenbythemarginalcostseffectoftheemissionprice.

• Companiesoperatinginsectorsatriskofcarbonleakageexperienceddifficultiescomparedtofirmsnotjudgedatrisk.After2005,theirassetsdecreasedbyaround17%,employmentwentdownbyaround13%andprofitsalsodecreasedinabsoluteterms(butnotwhendividedbyassets,whichdecreasedevenmore).

ThemostreasonableinterpretationofDechelzepretreisthatitprovidesevidencethatrefutes,ratherthansupportsthePorterhypotheses.GettingbacktotheMfEreview.Finally,Yamazaki(2017)alsofindspositiveeconomicimpactswheretherevenue-neutralBCcarbontaxgeneratedastatisticallysignificanttwopercentincreaseinaggregateemploymentintheCanadianprovince.Thissuggestsdoubledividendsareachievableinthesensethatthecarbontaxcanreduceemissions,thefirstdividend,andtherevenuescanbeusedtoreducetheeffectsofmoredistortingeffectsinthetaxsystem,theseconddividend.Thestudyalsofoundthatemploymentinthetradeexposedchemicalsindustryfellby37percent,andthatthebiggestincreasewasinthehealthcareservicessector(anincreaseof18percent).Itwasunlikelythatanyofthehealthsectorincreasewasdrivenbyacarbontaxof$C10/t.Morelikelyitwasdrivenbyexogenouspolicychangesthatwerenotcapturedbythemodel.Thestudyalsoalsofoundthatwagesfellby1.6percent.ItseemsthattheCanadianstudyresults,whichshouldbetakenwithagrainofsaltatleasttothesizeofsomeoftheeffects,refutesthePorterhypotheses.Thetradeexposesectorwasadverselyaffected.KahnandMansur(2013)alsoexaminedvariationsinenergypricesandclimatepoliciesamongadjacentUnitedStatescountiesbetween1998and2009.Theyfoundevidencethatenergyintensivesectorstendtolocateinlowelectricitypriceareas,andthatemission-intensivesectorsseekoutlow-policystringencyareas;thusreducingemploymentinhigh-policystringencyareas.Fowlieetal(2016)foundemissionspricinghastwonegativeeffectsinthePortland,UnitedStatescementindustry.Inparticular,theauthorsfoundemissionspricingexacerbates‘marketpower’distortions,andemissionsleakageoffsetsdomesticemissionreductions.SomoreevidenceagainstthePorterhypothesis. Ontheotherhand,AldyandPizer(2015)foundstatisticalevidencethatwhilehigherenergypricesledtosmallreductionsinoutputinUnitedStatesmanufacturingbusinesses,theydidnotobserveanincreaseinnetimports.Thishighlightedthattheproductiondeclinemayberesultofadeclineindomesticconsumptiononly.Thisresultsuggestsconsumersofenergy-intensivemanufacturedproductsdonotconsumemoreimportedproductsinresponsetohigherenergyprices,butinsteadeconomisetheirconsumptionofhigherpricedmanufacturedproducts.

Thislookstobeanoddresult,whichisworthacloserlook.TheabstractoftheAldyandPizerpaperreads.Inordertoevaluatethishypothesis,weundertakeatwo-stepempiricalanalysis.First,weusehistoric(sic)energypricesasaproxyforclimatechangemitigationpolicy.Weestimatehowproductionandnetimportschangeinresponsetoenergypricesusinga35-yearpanelofapproximately450U.S.manufacturingindustries. Second,wetaketheseestimatedrelationshipsandusethemtosimulatetheimpactsofchangesinenergypricesresultingfromadomesticclimatechangemitigationpolicythateffectivelyimposesa$15pertoncarbonprice.Wefindthatthehigherenergypricesassociatedwiththiscarbonpricewouldleadtoaproductiondeclineofasmuchas5percentamongkeyenergy-intensivesectors(e.g.,ironandsteel,aluminum,cement,etc.).Wealsofind,however,thatthisenergypriceincreasewouldtranslateintoasmaller-than-one-percentincreaseinnetimports,reflectingeitheralackofsubstitutabilitywithforeigngoodsoralackofadditionalglobalcapacityoverthehorizonweexamine(onetothreeyearsviavariouslaggedmodels).Theapproximatelyeight-tenthsofapercentshiftinenergy-intensiveproductionoverseasisourestimatedadversecompetitivenesseffect. Theweaknessinthisstudyisthatthehistoricialestimationmodeldidnotassesstheeffectofdifferencesinenergypricesbetweencountries.Energypricespricechangeswilltendtobecorrelatedworldwideandcorrelatedpriceincreaseswouldnot,inthemselves,beexpectedtoimpactonimportintensity.Sotheydon’tfindmuchofatradeeffect.Theexplanationthatimportsofcommoditiessuchareironandsteelaluminiumandcementarenotsubstituresfordomesticproductionorthatthereisalackofglobalcapacityareobviousywrong.ThisisanothercaseoftheMfEseizingonanapparentlypositivestudy,withoutapplyinganyqualitycontroltest.TheagriculturalsectorTheonlystudyexaminedinthereviewwasRiversandSchaufele(2014),whoinvestigatedtheimpactoftheBritishColumbiancarbontaxonthecompetitivenessoftheagriculturalsector.Theyfoundnostatisticallysignificantrelationshipbetweenagriculturaltradeandthetax.Theyalsofoundthatagriculturalcommoditiesandproductswereneithertrade-intensivenorfossilfuelintensive.Andofcoursecnanaianagricultureisheavilyprotected,socompetitivenessissuescouldnotariseforsomeproducts.TheseresultsareobviouslynotrelevanttoNewZealand.Ex-anteanalysesTheex-anteanalysesusemodelstoforecasttheimpactofprojectedemissionpriceimpactsonvariablesofinterest.TheMFEfirstattemptstodowngradethe

significanceofthesestudiesonthegroundsthattheyonlytakelimitedaccountoftheinnovationstimuluseffect.Mostex-anteanalysesoftheimpactsofemissionspricinghavebeendonebycomputablegeneralequilibrium(CGE)modellingframeworks.Withintheseframeworks,limitedefforthasbeenundertakentoadequatelyaccountforthestimulationofinnovationpromisedwithemissionspricing.Hence,theemphasisoftheliteratureapplyingex-anteanalysisviaCGEmodellinghasbeenontheissuesofcompetitivenessandemissionsleakage.Theanalysisisimplicitlygroundedinconventionalwisdomthatbroadlyfollowsthepollutionhavenhypothesis.WehaveonlytheMFE’sassessmentthatthemodelstake‘inadequate’accountoftheinnovationstimuluseffect.GiventhelimitedevidencetosupporttheMFE’spreferredmodel,itisnotsuprisingthatmodellershavenotbuilttoomuchwishfulthinkingandspeculationintotheirmodels.TheMfEthenreporttheresultsoftheCarboneandRivers(2017)reviewoftheex-anteanalysisliteratureonemissionspricingimpacts.TheyfoundoutputinEITE(emissionsintensvetradeexposed)sectorsdecreasesastheregulatingcountryabatementrateincreases.A20percentreductioninaregulatingcountry’semissionlevelsgeneratedareductionofaroundfivepercentandasevenpercentreductioninexports.ThePorterhypothesesgoesmissingHavingsetthestageintermsofa‘contest’betweenbetweenthe‘Porter’and‘emissionhaven’hypotheses,theMFEneglectstomakeanassessmentofthestrengthoftheevidencesupportingonesideortheother.However,thereisareviewinDechezleprêtreandSato‘Greenpoliciesandfirms’competitiveness(2017)’,whichwasreferenced,butnotdiscussedbytheMfE.ThisiswhatithastosayonthePorterhypothesis. Whilethereisevidencethattheactualcostofachievinganenvironmentalobjectiveisusuallysmallerthananticipatedbecauseofinducedinnovation(seee.g.,Harringtonetal.,2000and2010;Simpson,2014),theliteraturetodatedoesnotprovidemuchempiricalsupportforthePorterhypothesis Thus,thereiscurrentlynoempiricalevidencethatenvironmentalregulationleadstoanincreaseinfirmcompetitivenessthroughitseffectoninnovation. Thereissomeemergingevidence,however,thatregulation-inducedenvironmentalinnovationstendtoreplaceotherinnovations,leavingtheoveralllevelofinnovationunchanged.

SeveralstudieshaveexaminedthecausalitychainimpliedbythePorterhypothesis--fromregulationtoinnovationtoprofitability--andfindthatthepositiveeffectofinnovationonbusinessperformancedoesnotoutweighthenegativeeffectoftheregulationitself(Lanoieetal.,2011). TheMfE’sConclusionsThisreporthasreviewedtheinternationalliteratureontheimpactsofemissionspricingoninnovationandcompetitiveness.Ithasinvestigatedextensivelytheliteratureregardingex-postanalysisandalsoconsideredex-anteanalysis.Giventheex-postanalysisislessmanipulatedbyunderlyingassumptions,conclusionsformedarebasedprimarilyonthisevidence.Sotheexanteevidence,whichisnotfavourable,isignored.Basedonthereviewoftheinternationalliterature,thereportconcludesthatemissionspricingatcurrentlevelsreducesemissions,whilenotweakeningoveralleconomicperformanceofmostbusinesses. Recentpreliminaryevidencesuggestsstrongerconclusions,whereemissionspricingmayalsoprovidesmallpositiveeconomicimpacts(eg,Klemetsonetal2016;Yamazaki,2017;Dechezlepretre,2018)Theseconclusionsastotheoveralleconomicimpactfromemissionspricingneedtobemoderated.FindingsalsorevealsomeEITEsectorsshowpotentialforemissionsleakageandnegativeeconomicimpactswithemissionspricing,althoughthesenegativeimpactsarealsosmall.AsdiscussedabovethisisamisrepresentationoftheDechezleprterestudy,andoverstatesthesignifcianceoftheYamazachianalysis.KlemetsonetalwasnotmentionedintheMfE’sdiscussion,soitisnotclearwhyitappearsinthisconclusion.ThisNorwegianstudyindicatesthattherewaslittleimpactonemissions,andthatfirmsprobablybenefitedattheexpenseofconsumers.The results indicate a weak tendency of emissions reductions among Norwegian plants in the second phase of the ETS, but not in the other phases. We find no significant effects on emissions intensity in any of the phases, but positive effects on value added and productivity in the second phase. Positive effects on value added and productivity may be due to the large amounts of free allowances, and that plants may have passed on the additional marginal costs to consumers. OurconclusionTheMfE’sinnovationoptimismstoryisnotsupportedbytheliteratureandtheMfEhasoftenmisunderstood,orhasmisrepresentedtheevidence.

Parteight:DefenceandclimatechangeInthispartwelookatacaseexampleofhowclimatechange‘hysteria’hascorrodedthecapacityforcriticalandrationalthoughtingovernmentcircles.InDecember2018theMinistryofDefence(Defence)issuedapaper‘TheClimateCrisis:Defencereadinessandresponsibilities’.ThedocumentwassignedbyHeleneQuilter,SecretaryofDefenceandK.R.Short,AirMarshalChiefofDefenceForceDefencetellsusThisDefenceAssessmentdrawsonextensiveresearchandeightmonthsofNewZealandandSouthPacific-baseddiscussionsonclimatechangeandsecuritywithofficialsfromcountriesacrossthePacific,notablymembercountriesoftheSouthPacificDefenceMinisters’Meeting,aswellaswithacademicsandcivilsocietyfromacrossNewZealandandthePacificregion.

Howeverthis‘extensive’researchissupportebyjustfourreferences.Thefirst36.’AutumncoolingofwesternEastAntarcticalinkedtothetropicalPacific’.isascientificstudywithnoobviousconnectionwithdefenceandsecurityissuesThesecondisafigurefrom‘PreparingforCoastalChange.ASummaryofCoastalHazardsandClimateChangeGuidanceforLocalGovernment(MinistryfortheEnvironment,December2017),whichshowsNewZealand’seconomiczoneandsearchreponsibilityareas.Thethird37,‘Perfectstorm’ofclimatechangeandgrowingconflict’,isnothingmorethanastoryaboutarecentvisittoNewZealandbytheheadoftheRedCross.Heisreportedassaying‘Thereisaperfectstormbuildingupbetweenthedeveomentofclimatechange…whichincertainrespectsweseeunfoldinginpartsofAfrica,partsoftheMiddleEastandeveninthePacific’.ItseemsthatjustthementionofthePacificwassufficienttoelevatethisbriefnewsitemtothetopofDefences’ssecurityandclimatechangeevidencebase.Thefouth38,‘FresheningbyglacialmeltwaterenhancesmeltingoficeshelvesandreducesformationofAntarcticBottomWate’isabouttheeffectsoficeshelfmelting,againwithnoobviouslinkagetosecurityissues.36Clem,K.R.,Renwick,J.A.,&McGregor,J.(2018).’AutumncoolingofwesternEastAntarcticalinkedto

thetropicalPacific’.JournalofGeographicalResearch:Atmospheres,123,89-10737Sachdeva,S.‘Perfectstorm’ofclimatechangeandgrowingconflict.(newsroom,4October2018),38Silvanoetal.,‘FresheningbyglacialmeltwaterenhancesmeltingoficeshelvesandreducesformationofAntarcticBottomWate’Sci.Adv.2018;4,

TheclimatescienceThereisnoseriousanalysisofpredictedclimatechangesinthePacificovercomingdecades,oftheeconomicimplications,orhowthechangesfeedthroughtosecurityconcerns.The‘analysis’mainlytakesitsdirectionfromonastatementfromthe2018PacificIslands’Forum.Atthe2018PacificIslandsForum,leadersaffirmedthat“climatechangepresentsthesinglegreatestthreattothelivelihood,securityandwellbeingofPacificpeople”.Thecurrenteffectsofclimatechangeintheregion,letalonethefutureintensityincrease,demonstratethesalienceofthisdeclaration.FortunatelywedohaveagoodscientificassessmentoffutureclimatechangesforPacificislandcountriesinthereport‘ClimateChangeinthePacific:ScientificAssessmentandNewResearchClimateChangeinthePacific’(2011)producedaspartoftheInternationalClimateChangeAdaptationInitiativeandfundedfromtheAustralianAidPacificclimatechangescienceprogram.

Itdescribesitselfas‘arigorouslyresearched,peer-reviewedscientificassessmentoftheclimateofthewesternPacificregion.BuildingontheFourthAssessmentReportoftheIntergovernmentalPanelonClimateChange,thistwovolumepublicationrepresentsacomprehensiveresourceontheclimateofthePacific.’Itissupplementedbyupdatedcountrystudiesinthe2014report‘ClimateVariability,ExtrennesandchnagesintheWesternTropicalPacific:newScienceandUpdatedCountryReports’AsummaryoftheextreneeventsanalysisofthecountriesmostrelevanttoNewZealand,presentedinthelatterreport,issetoutintablethree.Tablefive:Pacificislands’Extremeclimateeventprojections Extremerain Drought Cyclones Sealevel

riseWinddrivenwaves

Cookislands FortheSouthernCookIslands,thecurrent1-in-20-yeardailyrainfall

FortheSouthernCookIslandstheoverallproportionoftimespentin

IntheCookIslands,theprojectionisforadecreasein

7-17cm2030

Nochange

amountisprojectedtoincreasebyapproximately7mmby2030forRCP2.6andby9mmby2030forRCP8.5.

droughtisexpectedtodecreaseslightlyunderRCP8.5andstaythesameunderallotherscenarios

cyclonegenerationTheconfidencelevelforthisprojectionishigh.

Fiji Thecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately5mmby2030forRCP2.6andby7mmby2030forRCP8.5(veryhighemissions).

Timeindroughtdecressesslightlyiinallscenarios

theprojectionisforadecreaseincyclonegenesis(formation)frequency

Ariseofbetween8–18cmby2030(verysimilarvaluesfordifferentRCPs),with

Increasesof41–88cmby2090underRCP8.5

Adecreaseinmeanwaveheightof8cmin2090

Kirbati FortheGilbertIslandsthecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately6mmby2030forRCP2.6andby8mmby2030forRCP8.5

FortheGilbertIslandstheoverallproportionoftimespentindroughtisexpectedtodecreaseunderall

scenarios.

7-17cmby2030

ProjecteddecreaseinNovember–Aprilwaveheight(significantinFebruaryandMarchin2035underRCP8.5

PapuaNewGuinea

By2030,thecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately14mmunderRCP2.6and12mmunderRCP8.5.By2090,itisprojectedtoincreasebyapproximately21mmforRCP2.6andby55mmforRCP8.5.

Theoverallproportionoftimespentindroughtisexpectedtodecreaseinmostlocationsunderallscenarios

Adecreaseincyclonegenesis(formation)frequencyforthesouth-westbasin

7-17cmby2030

Samoa Thecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately10mmby2030forRCP2.6andby8mmby2030forRCP8.5.

TheoverallproportionoftimespentindroughtisexpectedtodecreaseslightlyunderRCP2.6verylowemissions)andremain

Projectionisforadecreaseincyclonegenesis(formation)frequencyforthesoutheastbasinInSamoa,theconfidencelevelforthisprojectionishigh

7-17cmby2030

Nochange

approximatelythesameunderallotherscenarios.

Solomons Thecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately9mmby2030forRCP2.6andby9mmby2030forRCP8.5.

FortheSolomonIslandstheoverallproportionoftimespentindroughtisexpectedtodecreaseunderallscenarios.

Theprojectionisforadecreaseincyclonegenesis(formation)frequencyforthesouth-westbasin

7-17m Adecreaseinmeanwaveheight(significantunder

TheveryhighemissionRCP8.5scenarioin2090)accompaniedbyadecreaseinwaveperiod,

Tonga Thecurrent1-in-20-yeardailyrainfallamountisprojectedtoincreasebyapproximately7mmby2030forRCP2.6andby4mmby2030forRCP8.5.

ForTongatheoverallproportionoftimespentindroughtisexpectedtodecreaseslightlyunderall

scenarios.

InTonga,theprojectionisforadecreaseincyclonegenesis(formation)frequencyforthesouth-eastbasinTheconfidencelevelforthisprojectionishigh.

7-17cm. Aslightdecreaseinwaveheight

Theevidenceisfairlyclear.Cyclones,whichmightrequireapost-disasterresponsefromNewZealanddefenceforcesareprojectedtobecomeless,notmore,frequent(thoughtheonesthatdooccurmightbealittlemoreintense).Droughtsbecomeslessfrequent;extremerainfallevents(mostlyanopportuniytofillwatertanksratherthanadirethreattoinfrastructure),getonlyalittlemore‘extreme’,andwaveswillgenerallybealittlelessthreatening.ThesealevelwillincreasesalittleoverthenextcoupleofdecadesandwilleventuallyposeathreattothelowlyingatollcountriesofKiribati,TuvaluandtheMarshallislands(withacombinedpopulationof200,000).ThismayhaveimplicationsforNewZealandandAustralia’sfutureimmigrationandaidpolicies,butthishaslittletodowithDefence’scurrentchallenges.ButthisisnothowDefenceseestheclimatescience.Inits2019DefenceCapabilityplanitsays:ThedramaticclimateeffectsthePacificregionisfacing,stemmingfromrisingtemperatures,includecontinuedsealevelrise,increasedfrequencyandintensityofextremeweathereventssuchasstormsurges,increasedintensityoftropicalcyclones,andmorevariablerainfallpatternsandprolongeddroughts.Theimplicationsoftheseeffectsincludearangeof

environmentalimpacts,allofwhichhaveflow-oneconomic,culturalandsocialconsequences.AndtheimplicationsareWithcurrentwarmingrates,thelinksbetweenclimatechangeandsecurityareoncoursetointensify,andwithoutprioritisationtheNewZealandDefenceForce,aswellasthoseofourpartners,willbestretchedwithagrowingnumberoftasksinresponsetoclimate-inducedimpactsglobally.HigherlevelsofreadinesswillberequiredtoensureNewZealandisabletorespondtoeventsofdecreasingpredictability.GreatercapacitywillalsoberequiredTheAustralianfundedreportsareobviouslythe‘go-to’startingpointdocumentsforanyassessmentofthesecurityimplicationsofclimatechangeinthePacific.EithertheMinistryfailedtofindtheminaneightmonthresearcheffort(ittookuslessthaneightminites),ortheydeliberatelysuppressedtheevidence,becauseitdidnotsupporttheirpreferrednarrative.WearealsotoldthatclimatechangeimpactsonNewZealandwillhaveimplicationsfortheDefenceforces.ButthereisnodiscussionofthepredictedchangessetoutintheMfE’s2018document,whichasdiscussedabove,donotraiseseriouslyelevated‘disasterrelated’concerns,evenlookingaheadmanydecadesThereisnoevidencethattheDefenceisevenawarethatthedocumentexists.TheintersectionbetweenclimatechangeandsecurityThe‘Climatecrisis’reportmakesaconcertedattempttodrawnalinkagebetweenclimatechangeandsecurityrisks.Itisclaimedthelinkagebetweenclimatechangeandsecurityareindirectbutdemonstrable.TheproblemisthatDefencedemonstatesalmostnothinginitsdiscussion,beyondsomegeneralstatementstheyhaveprobablycut-and-pastedfromelsewhere,andsomeunsupportedassertionsabouteventsinthePacific.Atmostitisanargumentthatsomewhereintheworld,sometimeinthefuture,climatechangemighthavesecurityimplicationsforsomebody.Thisisnodoubttrue,butthisisalongwayfromsupportingDefences’argumentthatclimatechangeisamajorexistentialchallengefortheNewZealanddefenceforce.Itsfullassessmentisrepeatedbelow.WethoughtitbesttoleaveDefencetospeakforthemselves.Whentheeffectsofclimatechangeintersectwithacomplexarrayofenvironmentalandsocialissues,theycanbeasignificantcontributortobothlow-levelandmoreviolentconflict.

Thesecurityimplicationsofclimatechangearefurthermagnifiedinareasdealingwithweakgovernanceorcorruption.ThewaysclimatechangeisaffectingthePacificregion,andthepaceandmagnitudeoftheimpacts,havedrawnleadersintheregiontoconsiderclimatechangeasathreatinitsownright.Globally,climatechangeismostacutelyaffectingstateslessequippedtorespondatpace,includinginthePacificregion.Pacificcommunitiesholdimportantlocalandindigenousknowledgethatcanenableclimatechangemitigationandadaptation,whichworkstoincreaselocalresilience.Thepersistentnatureofclimatechangeandtheflowonsocial,economicandhealthimplicationsofincreasinglyintenseenvironmentalchangesare,however,challengingcommunitiesacrosstheregion.Reducingarablelandanddepletingfreshwatersuppliesareadverselyaffectingcommunityhealth.Theimpactscancauseaddedstresstocommunitiesinpost-conflictenvironments,includingintheAutonomousRegionofBougainvilleandtheSolomonIslands.ManyPacificpeopleshaveexpressedtheirdesiretoremainontheirlandaslongaspossible,butsomecommunitieshavealreadyhadtorelocateandmoreclimate-inducedmigrationisinevitable.Climatemigrationhasalreadycausedsomecommunity-levelconflictwithinthePacific.Acrosstheregion,therehavebeeninstancesofcommunitiesbeingsplitupforrelocation,somebeingmovedtoareaswithdifferentcultureswithoutpriorconsultationwiththehostcommunities,andothersbeingmovedintoalreadycrowdedareas.Insuchcases,therehavebeenreportsoflow-levelconflictoverland—sometimesdeadly—andreportsofincreasedlevelsofviolence,includingagainstwomenandchildren.Whennotwellmanaged,climatemigrationhasthepotentialtoheightensecurityconcerns,inthePacificandextendingintobothmaritimeSoutheastAsiaandSouthAsia.Againstthisbackground,thereisaclearrequirementtoadvancenationalandinternationaldiscussionsacrosstheregiononthelinksbetweenclimatechangeandsecurity.ClimatechangeandconflictaremorereadilyexploredindiscussionsandacademicresearchinrelationtotheMiddleEastandAfricathanthePacific.Globally,disagreementsinrelationtoclimatechange—suchasinrelationtotheParisAgreement—couldinfluencebroaderrelationshipsbetweenstatesaswellasaffectcollectiveresponses.Somestatescouldlooktouseassistanceinclimatechangedisasteradaptation,mitigation,response,andrecoveryasawaytoincreaseinfluenceandaccess.WorkingwithPacificIslandcountriesonclimatechange,includinginthesecuritysphere,isanopportunitytolearnlessonsfromeachotherwhilefurtherstrengtheningstrategicpartnerships.Chinaprobablywillplaytheclimatechangecard,buttheywouldhaveusedothercardstobuyinfluence,soclimatechangewon’tchangetheChinariskproblemverymuch.itmainlyjustchangestherhetoric.Ifanything.bytalkinguptheclimatechange‘crisis’,DefencemightbeplayingChina’sgame.SearchandrescueDefencealsomakesasearchandrescuecapabilitypitch.

Furthermore,theenvironmentalimpactsofclimatechangeontheoceanandmarinelife,particularlyinthePacificandintheSouthernOcean,couldseefishingvesselsoperatinginnewareas,includingininternationalwatersandNewZealand’sexpansivesearchandrescueareaofresponsibilityinthecomingyears.Thereisnoevidence,ofcourse,tosupportthiscontention. Followingfromitsidentificationofanemergingclimatecrisis,Defencelistsasetofactionstoimproveclimatechangereadiness.Amongstotherthings

• DefenceshouldstartplanningforincreasinglyconcurrentoperationalrequirementsintheSouthPacificduetotheimpactsofclimatechange.-ThiscouldincludeupdatingthesuiteofDefenceplanningscenariostoenablepreparationforincreasinghumanitarianassistanceanddisasterreliefandstabilityoperationsaswellassearchandrescueinnewareasduetoanticipatedchangestowherefishingvesselsoperate.

Wehopethattheyactuallyreadthescienceaspartofthisexercise.

•Defenceshouldseektoelevateinternationaldiscussiononthesecurityimpactsofclimatechange,includingwithforeignpartnersinbilateraldefencetalksandatregionalforums.ThiswouldhelpDefencelearnfromothers,highlighttheimpactsontheSouthPacific,andemphasisetheimportanceofimprovingresilienceintheregion.

Again,itwouldpaytoreadthesciencefirst,orriskembarrassmentinfrontofAustralianandUSdefencepersonnelwhowon’tbesomuchintoclimatechangecrisishysteria.

Partnine:DirectinterventionsinthevehiclemarketTheGovernmenthasjustreleasedits‘Cleancars’proposalstoreduceC02emissions.Therearetwolimbsoftheproposals.Firsttherearelimitsontheaverageemissionsoftheimportedfleetsofcarswithfinancialpenaltiesforcompliance.Second,isa‘feebate’schemewhichessentiallyinvolvestaxingimportsofhigheremmissionvehiclesandusingtheproceedstomoresubsidisemorefuelefficientcars(particularlyEVs,whichwillgetawasfavourablyreviewedbytheProductivityCommissionintheir2018LowEmissionsEconomyreport.WereviewedtheanalysisinthedraftProductivityCommissionreportandmadeasubmissionpointingoutthemanyflawsintheiranalysis,inparticularthoserelatingtoa‘feebate’scheme.Thisisaninefficienttaxonthepoorermembersofsocietytosubsidiseelectricvehiclepurchasesbythebetter-offandcorporatevirtuesignallers.Oursubmissionispresentedinappendix3.Theproposalsandtheconsultationpapercameouttoolatetobefullyanalysedforthissubmission,butwewillreleaseafullanalysisoftheconsultationdocumentshortly.Brieflyourtakeonthereportisthatitisbadlythoughtout,poorlydocumentedandnotentirelyhonest.

• TheTransportMinistrysaysthatits‘preliminary’assessmentisthattheproposlahaveverypositivebenefit/costratios,butthereisnosightoftheanalysisbackingthisassessmentintheconsultationdocument

• Asignificantimpactonemissionsisreported,butagain,thereisnosightofanyanalysisbackingthisclaim.

• Therewasnoanalysisofalternativepoliciestoreduceemissions.• Thewinnerswillbewell-offpurchasersofEVs.Theloserswillbeworking

families,whowillfindthatthepriceofthe$8000-$10,000Japaneseimportsthattheydependonforaffordabletransport,couldincreaseby$2,000-$3,000.

• LimitingthesubsidytoEV’scostinglessthan$80,000ismeanttomitigateequityconcerns.Yeahright.

• The‘Cleancar’initiativemaybemis-named.Itwillencouragetheimportationofdieselcars,whichareregardedbysomeasadirtyformoftransport.

TheMFEonbarrierstoelectricvehicleuptakeThepolicydecisionsmayhavebeeninfluencedbytheMFE’sperspectiveontheslowuptakeofelectriccars.Inarecentpaper‘Reducingbarrierstoelectricvehicleuptake

Behaviouralinsights:Analysisandreview’theMfEarguesthatelectriccars,are,onalifetimebasis,nomoreexpensivethanICEs,andthatlowuptakeispartiallyduetobehaviouralbiasesthatleadtoaformof‘irrational’decisionmaking.Thereisa‘marketfailure’thatprovidesthetheoreticaljustificationforintervention.ThepaperdiscussesanumberofimpedimentstoEVuptake.‘Rangeanxiety’isdescribedasa‘perceptition’problemthatcanbeaddressedbydifferentwaysofdealingwithanexaggeratedfearofrunningoutofcharge.However,fornewcarsthisissueisrapidlybecominglessrelevantwithnewmodelscomingonthemarketwithrangesof300-500km.,comparedtoaround100km.forearlymodelusedNissanLeafs.Anotherissueisbatterylife.Thereviewsuggeststhatthiscanbeaddressedbylettingpeopleknowthatsomemanufacturersareofferingwarrentiesofuptoeightyearsonbatteries,ignoringthefactthattheusedimportsthatdominatethemarketarenotcoveredbymanufacturers’warrenties.Themostimportantissuesarepriceofnewvehicles,andtheavailabilityofcheaperusedelectriccarimports.NewEVsaresignificantlymoreexpensivethanequivalentICEvehiclesatpresent.OurfindingsindicatethisisthebiggestbarriertoEVuptakegloballyandinNewZealand.However,atotalcostofownershiporfive-yearrunningcostapproachshowsthatnewEVsarethesamepriceorcheaperthanequivalentICEvehicles. ConceptConsulting(2016)estimatedthepricedifferencebetweenanewmid-rangeEVoveranequivalentnewICEvehiclewasaround$12,000inNewZealand.TheConceptConsultinganalysiswas,putbluntly,faked.TherewasnoevidencethatthegapbetweennewEVsandICEswasaround$12000in2016.Althoughtherewerefewdirectcomparatorsthentherealfigurewascloserto$30,000.In2019wehavebettercomparisonpoints.AnewNissanLeafispricedat$59,000forwhatisa$30,000car.ThereisadirectcomparsonfortheHyundaiKona.TheICEpriceis$32000.Theelectricversionis$72000.AndtheVolkwagenGolfEVisatleast$25000moreexpensivethatitsICEequivalent.Andonrunningcosts.Ontheotherhand,therunningandmaintenancecostsaretypicallylowerthanforequivalentICEvehicles,makingthetotalownershipcostreasonablysimilar(ElementEnergy,2013;Raustad,2017).

TheElementEnergycomparisonwasfortheUKandincludedastringofsubsidiesforEVs.ItisnotrelevanttoNewZealand.TheRoustedanalysiswasfortheUSandincludedthelargeUSFederalsubsidy,andwhatappearstobeaninsurancebreakforelectriccars.Itisalsonotrelevant.Thepresentvalueofthelowerrunningcosts(partiallyduetotheroaduserchargesubsidy)ofanEV,offsetsjustapartofthenewcarcostdifference.ForexampleanewcarbuyerwhobuysaCorollahybridfor$32,000,(or$29000foraPriusC)withfuelconsumptionofabout4.1litresper100kilometres,wouldhaveafuelbilloflessthan$1200ayear(driving12,000kilometres),or$6000overtheMfE’sfiveyeartotalcostcomparisonhorizon.TheCorollahybridhascarbonemissionsofunder100gmsperkilometre,soemits1.3tonnesofcarbonperyear.ThecostpertonneofcarbonemissionssavedfrombuyinganEV(overthelifeofthevehicle)wouldbeabout$2000.A‘rational’,environmentallyconscious,carpurchaserwouldbuythehybridandthenbuycarboncreditsat$25atonne.Byinvestingincarbonforestyhecouldreducenetcarbonemissionsbyafactorof80forthesamemoney.TheMfEthenarguesthatthepriceofEV’swillfallinthenearfuture.Pricesareprojectedtofall,withmanyvehiclemanufacturerscommittingtoreducedEVprices.Forexample,by2022SkodaintendstoproduceanEVwitha480-kilometredrivingrangeand15-minutechargingtimethatischeaperthanmostcomparableICEvehicles.Butdespitefallingpricesandthegrowingsecond-handimportmarketinNewZealand(Zhu,2016),theperceptionremainsthatEVsareexpensive.Ifpricesdofallthenconsumerswillbuymoreofthem,butthisdoesnotdemonstratethatconsumersarebeing‘irrational’now.Quitetheopposite.Ifpricesareforecasttofall,thenitdoesn’tmakesensetobuynowbecausethepricefallswillbereflectedinahigherdepreciationrateforavehiclepurchasednow.UsedEVsThediscussionthenmovestousedelectriccars.Thesearemuchcheaper,becausetheinitialjapanesebuyer(mostusedEVssoldinNewZealandareusedNissanLeafs)hasincurredaverybigloss.Onthesecond-handmarketthe2011NissanLeafisonaverageavailableforroughly$13,700andthe2011ToyotaCorollaforroughly$13,200.TheMFEthendoessomecalculationstodemonstratethatthe2011Leafissignificantlycheaper–by$1460ayear-torunovera5yearhorizon.Itisthenacknowlegedthatbatterylifemaybeaconcern,andthattheconsumermaywishtobuya2016model.Atanaveragepriceof$23,650theLeafisdescribedasbeing

comperablelypricedtotheToyotaCorolla($20943),theMazda3($23664)andtheFordFocus($23259).WecheckedtheMfE’snumbers(onTrademeforprices)andfoundthattherewerebiasesthatoverstatedtheadvantageofEVs.

• FuelsavingsareoverstatedbecausetheaveragemileageforallNewZealandcarsisunlikelytobeachievedbytheaverageEVdriver.

• Noaccountistakenofmuchhigherelectricitypricesatchargingstations.• ThepriceoftheLeafsisunderstatedandthatofcomperableICEcars

overstated.ThecorrectICEcompartorswouldhavebeenusedJapaneseimports.Thegoingrateforastandard2011MazdaAxela(thejapaneseversionoftheMazda3)ismorelike$10,000-11,000than$13,000,and$19,000fora2016.Themedianpricefora2016Leafwas$26000,$2,400higherthantheMfE’sestimate.

• Electrictyispricedatanoffpeakpriceof0.15centsperkilowatthour.Notallhomechargingcanbedoneatthatrate.

• Theexpiryoftheroaduserchargeconcessionin2020isnottakenintoaccount.

ThesunkcostfallacyAnotherimpedimenttoEVpurchases,andanexplanationofwhyNewZealanderstendtohaveoldercars,accordingtotheMfE,isthe‘sunkcostfallacy’.Peopledon’tupdatetheircarbecausetheybecomeirrationallyfixatedonrecoveringtheirpurchaseprice.Forexample,imagineabuyerwhoboughtanICEvehiclethreeyearsagofor$11,000,butduetodepreciationthevehicleisworth$6,755inthecurrentmarket.Thebuyer,however,stillvaluesthevehicleat$11,000becausetheywanttorecoverthemoneytheyinitiallyspent.Thevehicleisreliableandstillmeetstheirtravelneeds.Thebuyermayprefertoholdontotheirvehicleuntilitnolongerreliablymeetstheirneedsorrepaircostsexceeditsvalue,ratherthanaccept$4245lessthantheyvaluetheirvehicleat.Thisreasoning(thesunkcostfallacy)canapplytothepurchaseofanEV.Somebuyersmayfinditdifficulttojustifythehighupfrontpriceforanumberofreasons,includingthatthey:•have‘sunk’somuchintotheirICEvehicle•knowtheirICEvehiclehasalwaysbeenreliable•donothavethisleveloftrustwithanEV(familiaritybias).…thisfallacyislikelytobeasignificantfactorinslowEVuptakeamongthe84percentofNewZealanderswhoarenotwillingorable(constrainedcapital)tospend$30,000ontheirnextvehicleuntilEVsbecomeconsiderablycheaper.Mostofthisisoverstatedorwrong.NewZealandersdoknowthatcarsareadepreciatingasset.Butmanyjusthaveabuyandholdstrategy.Itisperfectlyrationaltobuy,say,aToyotaCorolla,whenitistenyearsoldandkeepitforanotherten,orevenfifteen,yearswhileitcontinuestoperformreliably.Itmaybealittleless

fuelefficientthanalatermodel,andhavefewerbellsandwhistles,butthiscanbethelowestcoststrategy.Turningovercarsfrequently,incurshigherdepreciation,fundingandtranactioncosts(dealers’margins).Holdingontoareliablecaralsoremovestheriskofbuyingadud.However,theMfE‘sbasicpoint,thatusedEVsaremoreaffordablethannewvehicles,stands.Thereisnottoomuchofapricepenaltyforbeinga‘climatewarrior’or‘earlyadopter’,aslongasyoudon’tmindtheinconvenienceoftheEVonlongtrips;don’tregardtheLeafasbugugly;don’tneedaSUV,apeoplemoveroravehiclewithsometowingcapacity.SotheMfEaskswhyaren’tpeoplebuyingEVs,andhowcanwereducethoseimpediments?Theansweristhatpeoplearebuyingthem.Therearecurrentlyaround1000LeafsforsaleonTrademeandLeafswerethedriverbehindtheupsurgeinEVregistrationsin2018.TherearespecialistEVdealerswhoarevigououslypromotingthem.TheMfEmightrepondthatifwefurtherencouragedEVuptakethenevenmorewillbesold.ThebasicflawinthatargumentisthatthereislimitonthesupplyofsecondhandLeafsinJapan.BelowarethenumbersforJapaneseLeafregistrationsbyyear.Obviouslynotallareonsale,andNewZealandhasalreadytakenafairchunkoftheolderones.Otherrighthanddrivecountries,tryingtotheirbitfortheenvironment,arealsoaccessingtheusedLeafmarket.SriLankahas5,000Evs,mostofthemusedLeafs.WhileeffortstofurthersubsidiseorpromoteEVsaleswillgiveNewZealandabiggershareofthefinitepie,thiswilltendtodriveuppricesandsomeoftheNewZealandsubsidywouldflowtoJapanesesellers.Themarginalcostpertonneofcarbonsavedcouldbeveryexpensive.NissanleafsalesinjapanSource:insideEvs20111033020121111520131302120141417720159057201614795201716935201825722Isanoldfleetaproblem?ThereisflavourinvehicleemissiondiscussionsthatNewZealand’srelativelyoldfleet(14yearscomparedto10yearsinAustraliaandtheUS,and8yearsinthericher

Europeancountries)isabadthing,andindicativeofsomekindofmarketfailure.SomeofthereasonsthatNewZealandershaveoldercarsare:

• Carsarenowmoremechanicallyreliableanddonotrustout,sotheycanbebekeptforlonger.

• NewZealandisarelativelypoorupperincomecountry.Fewerpeoplecnaffordalatemodelcar.However,ordinaryworkingpeoplecanafforda$8000usedimportcarthatwillbereasonablyreliable,withouttakingoutanexpensiveloanthatpotentiallycangetthemintobudgetdifficulties.

• ThereisalargesupplyofcheapJapaneseusedcarimports,whichisnotisnotanoptionincountriesthatdriveontheothersideoftheroad,andforAustralia,thatbannedthemtosupportitscarindustry.

• Oldercarsaredrivenlessthannewcarssofueleconomyislessofaconsideration.

• NewZealandersmaynotplaceasmuchvalueonanewcarasastatussymbolascarownersinothercountries.

• NewZealandersmaybetakingacirculareconomyapproach(beforethenotionbecamefashionable)tocarownership.Carsshouldbeusedaslongaspossible.

ConclusionThemarketappearstobeworking.Potentialbuyersarenotbeingsystematicallyirrational,andthemarketdoesn’tneedfurthergovernmentintervention.Thereislimitedscopeforincreasingtheuptakeofelectricvehiclesuntilthepriceofnewvehiclesfalls,andthereisamarkedincreaseinEVsalesinJapan,tofuel(withalag)thesecondhandmarket.TheimmediatesignsfromJapanarenotencouraging.EVssalesinJapanseemtobestuckat1percentofthemarketwithtotalsalesfallingslightlyin2018.TheEVrevolutionisgatheringpace,butitwillbesometimebeforethereisameaningfulsurgeinEVpurchasesinNewZealand.However,EVsareahighlyvisiblesignofthezerocarbontransitionandtheGovernmenthasbeentemptedtotinker.WeshouldhaveresistthetemptationtobecomeanotherNorway,which,withasmallerfleetsize,hasmorethan200,000EVscomparedtoour14,000.Butthatwasboughtataveryhighcost.ArangeofsubsidiesreducedthecostofanEVtobelowthecostofanequivalentICE.Wehaven’tseenanestimateofthetotalcostbutitmustbeintheorderof$5-6billion.WealreadyhavebetterbeachesandflightlessbirdsthanNorway,soweshouldleaveittothemintheEVcompetitionstakes,contentingourselveswiththefactthatwehavemoreEVsthanAustralia.

Partten:Cheaperwaystoinfluenceworldopinion

Asdiscussedabove,oneofthepurposesofambitiousandearlyactionistogetfavourableattentioninternationally,whichhopefullywilladdmomentumtotheinternationalcommunity’sjourneytoazeroemmissionworld.

Therearemuchcheaperwaystosecurethesebenefits.Wehavesetoutfivepossibilities.Somearealittlewhimiscal,andaretheretopromotedebateandthinkingonotherpossibilities.Mostareserious.

HighercarbontaxonvehiclefuelThecarbontaxontranportfuelscouldbeincreasedimmdiatelyto,say,$50pertonneofCO2,withfutherincreasesto$100andabovesignalled.Thiswillnotmakeahugedifferencetofuelpricesimmediately,butwewouldhavethehighestcarbonpriceintheworld.Fuelpricinghasthefollowingadvantages:

• Itimpactsonallfuelusersnotjustonthepurchasersofimportedvehicles.• Itdirectlytargetstheproblem.Driverswhodrivemoreandmoreaggressively

willpaymore.Vehiclepricingisapoorwaytotargetactualemissions.• Itdoesnotinvolveatranferfromworkingfamiliestotherelativelyrichwho

canaffordanelectricvehicle.• Itbetterpreservesconsumechoice• Itdoesnotarequirecomplexnewadministrativeframework.

AtaxoninternationalairtravelInternationalairtravelemissionshavebeenprettymuchignoredintheNewZealandpolicydiscussions.ButNewZealandmusthaveoneofthemostemissionsintensiveinternationaltouristindustriesintheworld,andNewZealander’shaveahighrateoflongdistancetravel.Ifwemovedearlytoimposeasignificanttaxoninternationaltravel,thatwouldattractfavorableinternationalattentionandmayinduceothercountriestofollow.ItwouldreducetheincongruityintheargumentthatNewZealandneedstobecarbonneutraltoenhanceourcleanandgreenimage,andsobenefitthetouristindustry.Wecouldimposeadeparturetax,whichcouldbecalibratedtoroughlyreflectarealisticCO2price.Therecouldbetwoprices,say$150forlonghauland$50forthe

PacificandAustralia.Alternatively,ataxcouldbeleviedonjetfuel.AirlineshavealimitedabilitytoavoidthistaxbyfuellingbeforegettingtoNewZealand.Theobjectionsarethatitwouldreducetouristarrivalswhowouldwemoreinclinedtotraveltodestinationsthatdon’timposethetax,ordivertoutwardtravelthroughAustralia.Onthelastpoint,thediversionwouldbeexpensive,sotheeffectmightbelimited,butinanyevent,$50isbetterthannothing.Therewillbeanimpactontouristnumbers,butthatisthepointofthetax.Thenegativevolumeimpactwouldlikelybeoffsetbytherevenuebenefits.Fromapuretaxperspective,anexittaxisrelativelyefficientbecausemorethanhalfofthecostwouldfallonforeigners,whosewelfaredoesnotcountfromaNewZealandperspective.WithrespecttoNewZealandersthetaxwouldbelargelyprogressive,comparedtotheregressiveelementinmanyotherproposals.ItwouldalsooffsetpartofthedistortioninthetaxsystembecauseinternationaltraveldoesnotincurGST.AbanonofficialbusinessclassairtravelAbusinessclasstravellergeneratesthreetimestheemissionsofaneconomyclasstraveller.AsinglebusinessclassfaretoLondoncangenerate15tonnesofCO2(adjustingfortheeffectofhighaltitudeemissions).Thereshouldbeanabsolutebanonbusinessclasstravelbyallgovernmentofficials(includingpoliticians).Thishasseveraladvantages.

• Itwouldgetinternationalattention.• Itwouldbedomesticallypopular.Mostpeoplewouldsupportapolicythat

wouldrequirepoliticiansandbureaucratstoputtheirbuttswheretheirmouthsare.Thiswouldpromotesocialsolidarity.

• Itwouldsavemoney.• Itwouldreduceincentivestogoonjunkets.

AbanontraveltoclimatechangeconferencesThetechnologyexiststoattendaconferencevirtually.NewZealandwouldsendasignalthatitwasseriousaboutclimatechangebyusingthistechnologytoreduceemissionsfrominternationaltravel.Thiswouldhavetheco-benefitsmentionedabove.Itwouldalsoaddressadivergencebetweensocialandprivatebenefits.Thepolicyelitethatattendstheseconferencesgetsaprivatebenefitfrommixingwithlikemindedcolleagues.TheneedtogainsocialacceptancemaybiastheirjudgmentstothedetrimentofNewZealandinterests.ReplacetheBMW7seriesministerialcarswithNissanLeafs.

Thesewillbecheaper(newpriceajustunder$60,000)thanthecurrentBMW7series,andwillsettherightexamplefromasocialcohesionperspective.Thisisa‘win-win’initiative.AlltuktukselectricAlltuktuksshouldbeelectricby2020.WewillbeatIndia(whichalreadyhas1.5millionelectrictuktuks)intheracetohaveafullyelectricfleet.

Appendix1TheWestpacModel TheWestpacClimatereportisintroducedonitswebsitebythefollowingboldheadlineandkeyresult.

‘Inactiononclimatechangeputstensofbillionsofdollarsatstake.

TakingfasteractiononclimatechangecouldsaveNewZealand$30billionby2050,accordingtonewresearchcommissionedbyWestpac.

Theresearch,whichwascarriedoutbyEYandVividEconomics,wasbasedonthemodellingoftwoscenarios:acentralscenario,whereearlyclimatechangeactionistaken,andashockscenario.Thekeydifferencebetweenthetwoisthatinthecentralscenario,agricultureisgraduallyintroducedintotheemissionstradingschemeover2020-30.Intheshockscenarioagricultureisintroducedtotheschemein2030,becausesomeexplainedshockeventoccurs,andisonlygiventwotofiveyearstoadjusttoitsfullimpact.Accordingtothereporttheearlybutslowintroductionreducesagriculturaloutputby2.1percent,comparedtoa13.7percentreductionwiththeshockevent.ThisappearstothekeytothereductioninGDPof0.4percent,(seetheirfigure1)whichdrivesthecumulative$30billionloss(whichisreportedinnominalratherthanpresentvalueterms).Theresultslooktobeimplausibleandcontrived.Technicallytheagriculturalsectorcandolittletoadjusttocarbonpricesoverthenexttenyears,otherthanbyreducingoutput,soitisnotclearhowthelongerphase-intimewouldhavehelped.Andifthephase-intimewascritical,itisnotexplainedwhyanysanegovernmentwouldimposetheEPSoveratwotofiveyearhorizon.Despitethecriticalityofthesequestionsthereisnodiscussionontheminthereport.

Apossibleexplanationfortheresultsisthattheymightbepartiallydrivenbytougheremissionstargetsintheshockscenario.Theirfigure2,presentedbelow,appearstoshowthatthe2050emissionsandthecumulativeemissionsarebothlowerfortheshockscenario.TougheremissiontargetswillhaveagreaterimpactonGDP.

Anotherunexplainedresultistheemissionspricetimepath.Thepricesarethesamein2020andtheshockpriceishigherin2025($61comparedto$44)despitefarmingbeingintheETS.Thedemandforunitsfromthefarmingsectorshouldrequireahigherpriceinthecentralscenario.Theremustbesomethingelsegoingoninhemodelthathasnotbeendisclosed.

Inshortthisisanopaquemodelwithimplausibleresults,thatappearstohavebeencontrivedtomeettheclientsneeds.TheChiefexecutiveofWestpacisasomethingofaclimatechangeactivist.Themodelresultsshouldbeignored,atleastuntiltheresultsarebetterexplained.

Appendix2TheFifthIPCCreportonNewZealand

Observedandprojectedclimatetrends

Naturalclimaticvariabilityisveryhighintheregion

Thisvariabilityposesparticularchallengesfordetectingandprojectinganthropogenicclimatechangeanditsimpactsintheregion.Forexample,changesinENSO(ElNINO/SouthernOscillation)inresponsetoanthropogenicclimatechangeareuncertain(WGIAR5Chapter14)but,givencurrentENSOimpacts,anychangeswouldhavethepotentialtosignificantlyinfluencerainfallandtemperatureextremes,droughts,tropicalcyclones,marineconditions,andglacialmassbalance(Mullan,1995;Chinnetal.,2005;Holbrooketal.,2009;Diamondetal.,2012;Minetal.,2013).

Theregionhasexhibitedwarmingtothepresent(veryhighconfidence)andisvirtuallycertaintocontinuetodoso(Table25-1).ObservedandCMIP5-modeledover1950–2004increasesinannualrainfallinthesouthandwestoftheSouthIslandandwestoftheNorthIslandofNewZealand,anddecreasesinthenortheastoftheSouthIslandandeastandnorthoftheNorthIsland.….ForNewZealand,annualaveragerainfallisprojectedtodecreaseinthenortheasternSouthIslandandeasternandnorthernNorthIsland,andincreaseinotherpartsofthecountry(mediumconfidence).

NewZealandextremeone-dayeventsdecreasedinthenorthandeastandincreasedinthewestsince1930.

ProjectedmagnitudeoftemperatureextremesSpringandautumnfrostfreelandtoatleasttripleby2080Upto60morehotdays+25degreesinthenorthby2090Comment:Othercountryreportstypicallyfocusondaysexceeding40C.TheNewZealandtestismoreameasureoftheincreaseinpleasantlywarm,thanextremelyhot,days.DroughtTimespentindroughtineasternNewZealandisexpectedtodoubleortrebleby2040.Onthefrequencyofobserveddroughtsthereisnocomment.Insteaditisexplainedhowadroughtisdefined.Windmeanwesterlywindprojectedtoincrease…..decreasesof20%inSummerandAutumnFirerisk

Changesinhighandextremefireriskdaysby0-400%usingonemodel0-700%anotherby2040.PrecipitationintensityIncreaseinprecipitationintensityofrareintensehighrainfallevents(lowconfidence)Increaseofdailyextremerainfallsof8%perdegreeofwarmingComment:Iftemperatureincreasesby2degreesthenextremedailyrainfalleventsincreaseby16percent.Thisisnotreallyaworldchangingoutcome,butanincreaseinextremerainfalleventsisoftencitedasamajorclimaticrisk.Restrictingthetemperaturechangetoonedegreedoesn’tmakemuchdifference.Thereislowconfidenceintheintensityofintenserainfallevents.TropicalcyclonesandotherseverestormsIncreaseinintensityofcyclonesinthesouthinwinterbutdecreasingelsewhere.Increaseinconditionsconducivetoconventionstormdevelopmentisprojectedtoincreaseby3-6percentby2070-2100comparedto1970-2000.Comment:Anincreaseinseverestormsisoftencitedasanimportantdriverofclimatechangecosts.Theincrease,ifany,isexpectedtobeminimal.ProjectedImpacts

FreshwaterresourcesInNewZealandprecipitationchangesareprojectedtoleadtoincreasedrunoffinthewestandsouthofthesouthislandandreducedrunoffinthenortheastofthesouthislandandtheeastandnorthofthenorthislandAnnualflowsofeastflowingriverswithheadwatersinthesouthernalpsareprojectedtoincreaseby5to10%.Retreatoftheglaciershasonlyaminoreffect.InNewZealandasinglestudyprojectsgroundwaterrechargeintheCanterburyPlainstodecreaseby10percentby2040.

InNewZealandthereislittleevidenceofwaterresourceadaptationspecificallytoclimatechange.WaterinNewZealandisnotascarceresourcegenerallyandwaterpolicyreformisgenerallydrivenmorebypressuretomaintainwaterqualitywhileexpandingagriculturalactivities.

Impactsofclimatechangeonwatersupply,demand,andinfrastructurehavebeenconsideredbyseveralNewZealandlocalauthoritiesandconsultancyreports(Jollandsetal.,2007;Williamsetal.,2008;Kouvelisetal.,2010),butnoexplicitmanagementchangeshaveyetresulted.

InlandfreshwaterandterrestrialecosystemsInNewZealand,fewifanyimpactsonecosystemshavebeendirectlyattributedtoclimatechangeratherthanvariability.AlpinetreelinesinNewZealandhaveremainedroughlystableforseveralhundredyearsdespite0.9degreesCaveragewarmingoverthepastcentury.ThefewstudiesofclimateimpactsonbiodiversityinNewZealandsuggestthatongoingimpactsofinvasivespeciesandhabitatlosswilldominateclimatechangesignalsintheshorttomediumtermbutthatclimatechangehasthepotentialtoexacerbateexistingstresses.Thereislimitedevidencebuthighagreementthattherichbiotaofthealpinezoneisatriskthroughincreasedshrubbygrowthandlossofherbs,especiallyifcombinedwithincreasedestablishmentofinvasivespecies.Somecoldwater-adaptedfreshwaterfishandinvertebratesarevulnerabletowarmingandincreasedspringfloodingmayincreaserisksforbraidedriverbirds.Forsomerestrictednativespeciessuitablehabitatmayincreasewithwarmingalthoughlimiteddispersalabilitywilllimitrangeexpansion.Tuatarapopulationsareatriskofwarmingincreasesintheratioofmalestofemales,althoughthelineagehaspersistedduringhighertemperaturesinthegeologicalpast.

BiodiversityresearchandmanagementinNewZealandtodatehastakenlittleaccountofclimaterelatedpressuresandcontinuestofocuslargelyonmanagingpressuresfrominvasivespeciesandpredators,freshwaterpollutionexoticdiseasesandhaltingthedeclineininnativevegetation.CoastalandOceanEcosystemsNoclimatechangeimpactshavebeenreportedatthisstage,althoughthismaybeduetoinsufficientmonitoring.Eventhoughevidenceofclimateimpactsoncoastalhabitatsislimitedtodate,confidenceishighthatnegativeimpactswillarisewithcontinuedclimatechange(Lovelocketal.,2009;McGloneandWalker,2011;Trailletal.,2011;Chapter6).Somecoastalhabitatssuchasmangrovesareprojectedtoexpandfurtherlandward,drivenbysealevelriseandexacerbatedbysoilsubsidenceifrainfalldeclines(mediumconfidence;Trailletal.,2011),althoughthismaybeattheexpenseofsaltmarshandconstrainedinmanyregionsbythebuiltenvironment(DCC,2009;Lovelocketal.,2009;Rogersetal.,2012).Estuarinehabitatswillbeaffectedbychangingrainfallorsedimentdischarges,aswellasconnectivitytotheocean(highconfidence;Gillandersetal.,2011).Lossofcoastalhabitatsanddeclinesiniconicspecieswillresultinsubstantialimpactsoncoastalsettlementsandinfrastructurefromdirectimpactssuchasstormsurge,andwillaffecttourism(mediumconfidence;Section25.7.5).

Comment:Thesearemostlyqualitative,andsomewhatshrill,assertionswithoutanyattempttoquantifytheextentofthe‘negativeimpacts’.

AstrengtheningEastAucklandCurrentinnorthernNewZealandisexpectedtopromoteestablishmentoftropicalorsubtropicalspeciesthatcurrentlyoccurasvagrantsinwarmLaNiñayears(Willisetal.,2007).Suchshiftssuggestpotentiallysubstantialchangesin

productionandprofitofbothwildfisheries(Norman-Lopezetal.,2011)andaquaculturespeciessuchassalmon,mussels,andoysters(mediumconfidence;Hobdayetal.,2008;HobdayandPoloczanska,2010).Ecosystemmodelsalsoprojectchangestohabitatandfisheriesproduction(lowconfidence;Fulton,2011;Watsonetal.,2012).

Comment:Herewehavesuggestionsof‘potentiallysubtantialchangesinproductionandprofit’butnoactualanalysistobackitup.

ProductionforestryInNewZealand,temperaturesaremostlysub-optimalforgrowthofP.radiataandwaterrelationsaregenerallylesslimiting(KirschbaumandWatt,2011).WarmingisexpectedtoincreasegrowthinthesouthandreduceitinthenorthbutCO2fertilizationmayoffsetthis(mediumconfidence;theabovestudiesprovidelimitedevidencebuthighagreementofpotentialnetincreasedproductivityinmanyareas,butonlywheresoilnutrientsarenotlimiting.Adaptationstrategiesincludechangestospeciesorprovenanceselectiontowardtreesbetteradaptedtowarmerconditions,oradoptingdifferentsilviculturaloptionstoincreaseresiliencetoclimaticorbioticstresses,suchaspestchallengeAgriculturalproductionissensitivetoclimate(especiallydrought;Box25-5)butalsotomanynon-climatefactorssuchasmanagement,whichthusfarhaslimitedbothdetectionandattributionofclimate-relatedchanges

AgricultureAgriculturalproductionissensitivetoclimate(especiallydrought;Box25-5)butalsotomanynon-climatefactorssuchasmanagement,whichthusfarhaslimitedbothdetectionandattributionofclimate-relatedchange.Projectedchangesinnationalpastureproductionfordairy,sheep,andbeefpasturesinNewZealandrangefromanaveragereductionof4%acrossclimatescenariosforthe2030s(Wrattetal.,2008)toincreasesofupto4%fortwoscenariosinthe2050s(Baisdenetal.,2010)whenthemodelsincludedCO2fertilizationandnitrogenfeedbacks.

StudiesmodelingseasonalchangesinfoddersupplyshowgreatersensitivityinanimalproductiontoclimatechangeandelevatedCO2thanmodelsusingannualaverage

production,withsomeimpactsexpectedevenundermodestwarming(highconfidence)inbothNewZealand(Liefferingetal.,2012)andAustralia

InNewZealand,projectedchangesinseasonalpasturegrowthdrovechangesinanimalproductionatfoursitesrepresentingthemainareasofsheepproduction(Liefferingetal.,2012).InHawke’sBay,changesinstocknumberandthetimingofgrazingwereabletomaintainfarmincomeforaperiodinthefaceofvariableforagesupplybutnotinthelongerterm.

InSouthlandandWaikato,projectedincreasesinearlyspringpasturegrowthposedmanagementproblemsinmaintainingpasturequality,yet,iftheseweremet,animal

productioncouldbemaintainedorincreased.

TheimpactofelevatedCO2onforageproduction,quality,nutrientcycling,andwater

availabilityremainsthemajoruncertaintyinmodelingsystemresponses(McKeonetal.,2009;Fingeretal.,2010);

NewZealandagro-ecosystemsaresubjecttoerosionprocessesstronglydrivenbyclimate;greatercertaintyinprojectionsofrainfall,particularlystormfrequency,areneededtobetterunderstandclimatechangeimpactsonerosionandconsequentchangesintheecosystemservicesprovidedbysoils(Basheretal.,2012).

CroppingModelingsuggeststhereisthepotentialtoincreaseNewZealandwheatyieldsunderclimatechangewithappropriatechoicesofcultivarsandsowingdates(highconfidence;Teixeiraetal.,2012).WidespreaddroughtinNewZealandduring2007–2009reduceddirectandoff-farmoutputbyaboutNZ$3.6billion(Butcher,2009).The2012–2013droughtinNewZealandisestimatedtohavereducednationalGDPby0.3to0.6%andcontributedtoasignificantriseinglobaldairyprices,whichtemperedevengreaterdomesticeconomiclosses(Kamberetal.,2013).Droughtfrequencyandseverityareprojectedtoincreaseinmanypartsoftheregion

EnergysupplydemandandtransmissionNewZealand’spredominantlyhydroelectricpowergenerationisvulnerabletoprecipitationvariability.Increasingwinterprecipitationandsnowmelt,andashiftfromsnowfalltorainfallwillreducethisvulnerability(mediumconfidence)aswinter/springinflowstomainhydrolakesareprojectedtoincreaseby5to10%overthenextfewdecades(McKercharandMullan,2004;Poycketal.,2011).Furtherreductionsinseasonalsnowandglacialmeltasglaciersdiminish,however,wouldcompromisethisbenefit(Chinn,2001;Renwicketal.,2009;Srinivasanetal.,2011).Increasingwindpowergeneration(MED,2011)wouldbenefitfromprojectedincreasesinmeanwesterlywindsbutfaceincreasedriskofdamagesandshutdownduringextremewinds(Renwicketal.,2009).Climatewarmingwouldreduceannualaveragepeakelectricitydemandsby1to2%perdegreeCelsiusacrossNewZealand.TourismSkitourismisexpectedtodeclineintheAustralianAlpsduetosnowcoverreducingmorerapidlythaninNewZealand(Pickeringetal.,2010;Hendrikxetal.,2013)andgreaterperceivedattractivenessofNewZealand(Hopkinsetal.,2012).HumanhealthInthesouthernstatesofAustraliaandpartsofNewZealand,this(heatrelateddeaths)maybepartlyoffsetbyreduceddeathsfromcoldatleastformodestrisesintemperature.Comment:Thisinformationcomesfromastudythatexaminedtheimpactonmortalityofheatandcold.ItwasbasedonempiricaldatafromChristchurchpriorto

2000.Itwasclaimedthatalmostallofthewinterexcessmortalitywasduetoairpollutionnotcold,andthatcoldonlybecameafactorwithtemperaturebelow0C,andthatheatwasafactorabove28C.Itisnotconsistentwithmanystudiesthatfindarelationshipbetweencoldandexcessmortalityathighertemperaturethresholds.

Intra-andInter-regionalFlow-onEffectsamongImpacts,Adaptation,andMitigationForNewZealand,thereislimitedevidencebuthighagreementthathigherglobalfoodpricesdrivenbyadverseclimatechangeimpactsonglobalagricultureandsomeinternationalclimatepolicieswouldincreasecommoditypricesandhenceproducerreturns.Agricultureandforestryproducerreturns,forexample,areestimatedtoincreaseby14.6%undertheA2scenarioby2070(Saundersetal.,2010)andrealgrossnationaldisposableincomeby0.6to2.3%underarangeofnon-mitigationscenarios(Stroombergen,2010)relativetobaselineprojectionsintheabsenceofglobalclimatechange.SomeclimatepoliciessuchasbiofueltargetsandagriculturalmitigationinotherregionswouldalsoincreaseglobalcommoditypricesandhencereturnstoNewZealandfarmers(Saundersetal.,2009;Reisingeretal.,2012).Dependingonglobalimplementation,thesecouldmorethanoffsetprojectedaveragedomesticclimatechangeimpactsonagriculture

FewstudiesconsidermitigationbenefitsexplicitlyforNewZealand,butscenario-basedstudiesgivehighconfidencethat,ifglobalemissionswerereducedfromahigh(A2)toamedium-low(B1)emissionsscenario,thiswouldmarkedlylowertheprojectedincreaseinfloodrisks(Ballingeretal.,2011;McMillanetal.,2012)andreduceriskstolivestockproductioninthemostdrought-proneregions(Taitetal.,2008a;Clarketal.,2011)

Migration within countries, and from New Zealand to Australia, is largely economically driven and sustained by transnational networks, though the perceived more attractive current climate in Australia is reportedly a factor in migration from New Zealand (Goss and Lindquist, 2000; Green, A.E. et al., 2008; Poot, 2009). (Our emphasis).

Appendix3Directinterventionsinthevehiclemarket ThispaperwaswrittenasasubmissiontotheProductivityCommission’sdraftClimatechangepaper.TheCommission’sresponsewastomasksomeoftheirsillierandmisleadingarguments(thoughseveralremained)inthefinalreport,buttheydidnotchangetheirrecommendations. TheProductivityCommission’srecommendationsondirectinterventionstoreducelightvehiclegreenhouseemissions:AreviewInitsdraftreport’LowEmissionsEconomy’theProductivityCommissionrecommendedtwoadditionalpoliciestoreducegreenhousegasemissionsfromlightvehicles.

• Limitsonmaximumpermeatedemissionsfornewlyimportedvehicles.• A‘fee-bate’scheme,whichwouldtaxrelativelyhighemissionimports,and

usetheproceedstosubsidisevehicleswithrelativelylowemissions.

Thisnotereviewstheargumentsandevidencethatsupportstheserecommendations.Weproceedbysettingouttheargumentsandevidenceinthereport,commentingasappropriate.Ourkeyconclusionsare:

• Thestandardoftheanalysiswaspoor.Muchofitis‘cutandpaste’exercisefromafewfavorablepapers.Moreskepticalanalysiswastypicallyignored;thecontentofsomepaperswasmisrepresented;andtherewaslittlecriticalscrutinyofwhatwasused.

• Thepolicieswillnotgenerateleastcostabatementandcouldgeneratesomeperverseoutcomes.Theuptakeofnewelectricvehicleswillbeencouragedatacostofmorethan$1000pertonofCO2saved.

• Thepoliciesareheavilyregressive.Thepoorwillbetaxedtosubsidisetherich,andcorporatevirtuesignalers.

ItcouldbesaidthattheCommissionhasbeenmoreconcernedwithcheer leadingthanprovidingrobustandindependentscrutinyoftheproposals.

SettingthesceneTheCommissionssetsthescenebytryingtoconveyasenseofthenecessityandurgencyforaction.Theaverageageofvehiclesrose14.2comparedto10forAustralia.Vehiclesarescrappedafter19years.Thisslowturnoverimpliesthatpurchasedin2018willlikelystayinthefleetuntilwellafter2030andpotentiallyafter2040.VehiclesenteringNewZealand’sfleetaremoreemissionsintensivethaninmanyotherdevelopednations.Allthisisalltruebutnotasurprise.Bydevelopedcountrystandardswearerelativelypoor(moreuppermiddleincomethanrich)andheavilyrelyonimportsofolder,cheaper,butmoreemissionsintensivesecondhandvehicles.Vehiclesarekeptforlongerperiodsbecausemanymotoristscannotaffordtoupdatetoamoremodernvehicle.Motoristsalsohaveplacestopark;thereisalessofthedenseurbanenvironmentsthatfavorsmallercars;andmoreofanoutdoorsculturethatfavorslargerones.OurpreferencesandneedsaredifferenttothoseinEuropeandJapan.Relianceonroadtransporthasledtosignificantexternalcosts.Whiletherearesomeexternalities,mostly(i.e.congestion)thesearenotrelevanttotheemissionsissue.Asdiscussedbelowtheamountofrelevantunpricedemissionsrelatedexternalitiesisnotaslargeasimplied.Theobvioussolutiontounpricedexternalitiesistoapplyanappropriatetaxonfuel.Theemissionspricecomponentcouldbeincreased,withanadditionaltaxappliedtopricethehealtheffectsofemissions.ThishassomeobviousadvantagescomparedtotheCommissionsproposals:

• Itiseasytodo.Thepricingmechanismalreadyexists.• Itappliestoallvehicles.Itwilltakearound20yearsforpoliciesappliedto

justnewlyimportedvehiclestohavetheirfulleffect.Weconducteda‘back-of-the-envelope’assessmentoftherelativeeffectivenessofa5percentincreaseinpetrol/dieselpricescomparedtoanemissionstandardthatimprovedefficiencyofnewimportsby15percent.Over20yearsthepriceincreasereducedemissionsbyathirdmore.

• Itismorepreciselydirectedattheexternalityproblem,whichisafunctionofhowfaracarisdriven,andhowitisdriven,notjustameasureofitsemissionsperformanceperkilometreunderlaboratoryconditions.

TheCommissionappearstoacknowledgetheimportanceofanefficientpricingmechanisminprinciple,butarguesthatcomplementarypoliciesarestillnecessarilyandthatreducingemissionswillnotcomeatalargecost.

AtcurrentpricestheNZETSislikelytohavealimitedimpactontransportemissions.Theemissionspriceisarelativelysmallcomponentoffuelpricesatcurrentlevels,andfueldemandisrelativelyunresponsivetochangesinprice.Thecurrentcarbonpriceisabout$25,butevenifweredoubledthiswouldnotmakeahuge,shortrun,changetothelevelofemissions.However,thisdoesnotnecessarilyleadtotheconclusionthatemissioncontrolsorsubsidiesarenecessary.Itjustmeansthatpersonaltransportishighlyvaluedandthatitmaybemoreefficientifnetemissionsavingsareobtainedelsewhereatalowereconomiccost.Ifvehicleemissionslooktobehigherin2050thanprojectedthenthedifferencecanreadilybemadeupbymoreforestrysequestration,whichisarelativelyheapformofabatement.Moreimportantly,forthisdiscussion,istheargumentthatthereisanurgencytoimprovefueleconomyrightnow.Thiscaseisnotmade.Emissioncontrolsandfeebatesmightimprovethefueleconomyofimportedcars,butthesewillhavebeenscrappedbythetargetdateof2050.Andwhiletheremaybesomeimpactoncumulativeemissionsthiscanbereadilyachievedbyalternative,muchmoreefficient,mechanisms.ThecaseforEmissionsControlsTojustifytheinterventionstheCommissionarguesthattherearemarketfailuresinthecarmarketthat,byimplication,justifyanemissionslimitintervention.First,motoristssystematicallyunderpricefuturefuelsavings,andsecond,manufacturersdonotprovideNewZealandcarbuyerswiththechoiceofthemostfuel-efficientcars.Evenwithmuchhigheremissionpricesdevelopmentanduptakeoflower-emissionvehicleswillverylikelyoccurmoreslowlythatoptimalfromasocietalperspective.Evidencesuggeststhatbuyersbehaveasiftheyheavilydiscountfuturefuelsavingsandthatandthatuncertaintyaroundfuturefuel(andemissions)pricesmayplayaroleinthis.….buyerscanonlyactonthechoicesavailabletothem,andareveryunlikelytobeawareofmoreefficientmodelvariantsunavailableinNZ.Manufacturerswillchoseaselectionofvehiclesthatwillmaximizetheirprofits–ManufacturersarelikelyoptingtoprovidelessefficientmodelvariantsintotheNewZealandmarketthantomarketswherestandardsapply

Obviouslymanufacturersareseekingtomaximizeprofits,butinasmallmarketwheretheycannoteconomicallysupporteverymodelvariant,theexpectationisthattheywillrestrictthemselvestoasubsetthatbestmatchesconsumerdemand.Further,themajorityofNewZealandcarregistrationsareusedandparallelimports.Itisperfectlypossibleforbuyerstoimportmorefuel-efficientmodelsiftheywishtodoso.HeretheCommission’sanalysisisessentiallyacutandpastefromtheAustralianDepartmentofInfrastructureandRegionalDevelopment’s(DIRD)RegulatoryImpactStatement(2016)onemissionstargets,sowehavesetouttheDIRD’skeyargumentstogivethereaderabettersenseoftheeconomiclogic.

2.3GovernmentactioncouldhelpaddressmarketfailuresMarketfailuresaredeparturesfromthecharacteristicsnecessaryforunregulatedmarketstodeliveroutcomesthatmaximisebothprivate(householdandbusiness)aswellasoverall(social)wellbeing(PC2005,DPMC2014).Themostrelevantmarketfailurewithrespecttolightvehicleefficiencyistheamountand/ordistributionofinformationinthemarket,andtheabilitytoprocessthisinformation.Vehiclesuppliersandbuyersgenerallyhaveasymmetricinformationaboutthecostsofimprovingvehicleefficiency(Green2010).Vehiclemakersknowtherelationshipbetweenfuelefficiencyandadditionalvehiclecostsforalargerangeoftechnologies,includingthosenotcurrentlyincludedintheirvehicles,whilevehiclebuyersgenerallyonlyknow(andcanacton)thetrade-offsbetweenvehiclecostsandefficiencythatarecurrentlyonoffer.

Ifbuyersundervalueefficiencyimprovements,orhavelimitedcapacitytoassessthevalueofthoseimprovementswhenmakingpurchasingdecisions,thenmanufacturershavelessincentivetosupplyvehiclesthatmaximiseprivateorsocialwellbeing.

Animportantbehavioralbarrieristhatanyindividual’sabilitytoobtainandprocesscomplex,changinganduncertaininformationisfinite.Inresponsetocomplexity,ratherthancalculatethebestpossibleprivatedecision,individualstendtoadoptrules-of-thumb.Suchstrategiesincludepurchasingthesamebrandasafriend,purchasingthesamebrandthattheyhaveboughtbefore,orusingsimplifiedchoicecriteriathatfocusonasubsetofthefeaturesofagood(Green2010).

Whilethesemeasures(fuelefficiencylabeling)helpconsumersassesstherelativeefficiencyofnewvehiclesandprovideanincentiveforconsumerstoconsiderthepurchaseofamoreefficientvehicle,thesemeasuresdonotaddressthedifficultiesconsumersfaceinassessingthebenefitsofefficiency,relativetootherattributessuchasprice,sizeandperformance.Asthebenefitsofpurchasingamoreefficientvehicletendtobelessimmediateandtangibletoconsumers,thiscanmakeitlessattractiveforvehiclemanufacturerstouseefficiencyasasellingpoint.

WhilearecentsurveyfoundthatAustraliansratefuelefficiencyalongwithreliabilityasthetwomostimportantconsiderationswhenbuyingacar(AAA2016),thereisverylittleevidenceonhowtheyassessthebenefitsoffuelefficiency–particularlyoverthelongerterm.Calculatingthebenefitsfromimprovedfuelefficiencyrequiresbothspecificinformationandstrongmathematicalskills,andisunlikelytobedonebyallpurchasersorforallpurchases(see,forexample,ABS2013a).EvidencefromoverseasmarketssuchastheUSindicatesthatbuyersbehaveasiftheyheavilydiscountfuturesavingsfromreducedfueluse(ouremphasis,foritssignificanceseebelow)(Green2010,IEA2012)

Thesebehavioralbarriersarelikelytohaveamorepronouncedeffectonhouseholdratherthanbusinessvehiclepurchases.Nevertheless,thereissubstantialevidencethatsimilarbarrierscanalsopreventbusinessesinvestingincost-effectiveefficiencyimprovements,especiallyiffueluseisarelativelysmallcomponentofoverallcosts(ClimateWorks2013).Forexample,fleetbuyersarelikelytorequirepaybackperiodsofthreeyearsorfeweronamoreefficientvehiclebecausemostfleetvehiclesarere-soldwithinthisperiod.Asjustunderhalfofnewcarsarepurchasedbyfleets(FCAI2015),this‘splitincentive’couldlimitthetake-upofvehiclesthatwoulddeliveroverallfinancialbenefitsformotoristsbutnottheirfirstowner(CCA2014).

Onthe‘splitincentive’problem,thisignoresthefactthatfueleconomyisembeddedinusedcarprices.Otherthingsbeingequal,superiorfueleconomyincreasestheresalepriceofthevehicle,andreducestheinitialbuyer’soverallvehiclecosts.Thereisnoapriorireasontoexpectthatthemarketdoesnotworkinthisrespect.

And,asnotedabove,InNewZealandthemajorityofvehiclesareusedimports,andsoconsumersofusedvehiclesarenotconstrainedby‘inefficient’choicesmadebydomesticnewvehiclepurchaser.

Green(2010)isthesourceofmostoftheDIRD’sanalysis.Thisiswhatwasactuallysaidontheevidencethatconsumerssystematicallyundervaluefueleconomy.

Theevidencefromeconometricstudies,mostlyfromtheUS,isreviewedandshowntovarywidely,providingevidenceforbothsignificantunder-andover-valuationandeverythinginbetween.

TheDIRD’srepresentationofwhatGreenet.alsaidwasmisleading.Theydidnotsaythattheevidenceindicatedthatbuyersheavilydiscountedfuturefuelsavings.

Greenet.al.alsodiscusstheoreticalargumentsontheroleofriskandlossaversionindecisionmaking.Itisclaimedthatthesefactorscoudimplythatconsumersmightundervaluefueleconomyrelativetoitsexpectedvalue.

Marketresearchisscarce,butindicatesthattherationaleconomicmodel,ingeneral,doesnotappeartobeusedbyconsumerswhencomparingthefueleconomyofnewvehicles.Somerecentstudieshavestressedtheroleofuncertaintyandriskorlossaversionin

consumers’decisionmaking.Uncertaintypluslossaversionappearstobeareasonabletheoreticalmodelofconsumers’evaluationoffueleconomy,withprofoundimplicationsformanufacturers’technologyanddesigndecisions.Thetheoryimpliesthatmarketswillsubstantiallyundervaluefueleconomyrelativetoitsexpectedpresentvalue.

Buttheyconcludesbysaying:

Thetheoryofboundedrationalityimpliesthatiffuelpricesarehighenoughtomakefueleconomyoneofconsumers’3-5topconsiderations,itmaybeconsideredinamannerclosertotherationaleconomicmodel.

AsfuelpricesinAustralia(andNewZealand)aremuchhigherthanintheUS,andfueleconomyisanimportantpurchaserconsiderationinbothmarkets,theconclusionthatshouldhavebeendrawnfromGreenisthatthesemarketscanbeexpectedtobebroadlyefficient.

TheAustralianProductivityCommissiononmarketefficencyIn2005theAustralianProductivityCommison(APC)producedareport(ThePrivateCostEffectivenessofIncreasingEnergyEfficiency)ontheeffiencyofanumberofmarketswhereregulatoryinterventionswerebeingcontempalted.Withrespecttomotorvehiclestheirkeyconclusionswereasfollows:TheCommissionconsidersthattheboundedrationalityofconsumersisaninsufficientgroundforjustifyingintrusivemeasuressuchasminimumstandards.Thecaseforinterventionreliesonnotionsofomniscientregulatorswhoarecapableofmakingdecisionsthatareinthebestinterestsofenergyusers.Ifthoseuserswerecapableofcollectinganddigestingtherelevantinformation,thepresumptionisthattheywouldcometothesameconclusionastheregulator,thatis,tonotpurchasetheenergy-inefficientappliance.Thismightdecreasesearchcostsbutgiventhediversepreferencesofenergyusers,mustinevitablyleavesomeconsumersworseoff.

Whetherreducingfuelconsumptionthroughgreaterfuelefficiencyisprivatelycosteffectivewilldependonthesavingsfromlowerfuelconsumptioncomparedtoanycapitalcostofimprovingfuelconsumptionandthevaluetoconsumersofanyotherlossinamenityrequiredtoachievethosesavings.Theabsenceofanyclearmarketfailuresimpedingvehiclebuyersfrommakingprivatelycost-effectiveenergyefficiencyimprovementssuggeststhatopportunitiesforsuchimprovementsarelimited.

ThehighlycompetitivenatureoftheAustralianmotorvehiclemarketshouldmeanthatproducersprovidethevehiclefeaturessoughtbyconsumers,ofwhichenergyefficiencyisone.

Fleetwidefuel-efficiencytargetsthatgomuchbeyondwhatthemarketwoulddeliverarelikelytosufferfromanumberofdrawbacks.Totheextentthatsuchtargetsdistortedproducerandconsumerbehavior,theresultantenergyefficiencygainswouldnotbe

privatelycosteffective—consumerswouldvalueimprovedfuelefficiencylessthantheassociatedcostsandadditionalconstraintsonvehiclechoice.

ThereisnothingintheDIRD’sanalysisthatwouldleadtoadifferentconclusion.Notably,theDIRDcitedtheAPC’sreport,butdidnotexplainwhytheycametosuchadifferentconclusion.Notablytoo,theCommissionalsocitedtheAPCreportbutdidnotdiscussit,orexplainwhytheyhavecametoadifferentconclusion.

TheDIRD’scostbenefitanalysisTheCommissionalsocitestheDIRD’scostbenefitanalysis,whichpurportstoshowthatthebenefitsoffuelefficiencystandardsexceedsthecosts,andthatthecostsoflowercarbonemissionsarethereforenegative.

TheAustralianGovernmenthasmodelledtheimpactofalightvehicleCO2emissionstandardatdifferenttargetlevels.Themodelingfoundneteconomicbenefitsunderalltargetsconsidered.ThecurrentemissionsintensityofNZslightvehiclefleetisverysimilartoAustralia’ssoitislikelythatsimilarresultscouldbeobtained.TheDIRD’smethodologywasasfollows:

• Thefuelcostssavingsfromtheprojectedimprovementinvehiclesefficiencywascalculated.

• ThevalueoftheassociatedC02reductionswascalculatedusingacarbonpriceofA$35perton.

• ThecostofmeetingthehighertargetsweretakenfromUSandEuropeangovernmentstudiesofthehighermanufacturingcoststomeetemissionstandardsinthosecountries.Theseestimatesweredescribedasuncertain.

• Thecostsandbenefitsarecalculatedannuallyoutto2040andthenexpressedaspresentvalues.

Thepresentvalueoffuelsavingsandcarbonreductionbenefitsforthemoststringentofthreerequirementswere$27.5billionand$2.7billionrespectively.Thecostwas$16.2billion.Asthefinancialbenefitsarehigherthanthecoststhereisanegativecostforreducingcarbonemissions.TheobviousproblemwiththisanalysisisthatthecostfiguresrelatetolargeEuropeanandAmericanmanufacturers.However,theperunitcostofmakinganymaterialtechnicalinnovationsfortheAustralianmarketwouldbemuchhigher.Manufacturersmightdosomeminortinkering,butthemainresponsewouldbetowithdrawproductlines;ordependingonmarketdynamics,raisepricesforthelessfuel-efficientmodelstochokeoffsomeofthedemand.Thepresumption,astheAPChasarguedmustbethattheseresponseswillhaveanetwelfarecost.TherewillbeastrongerpresumptionofalossinthemuchsmallerNewZealandmarket.

Inshortthereisnofreelunchhere.TheDIRDcostbenefitanalysisdidnotseriouslyengagedwiththekeyissue,whichiswhethertheycanincreasewelfarebyinterferingwithmarketprocesses.Obviouslyfuelconsumptioncanbereducedbycompellingpeopletodrivesmallercars.Butthiscomesatacostbecauseusersvalueothervehicleattributes,notjustfueleconomy.AnotherseriousshortcomingintheCommission’sanalysisisthelackofanyconsiderationoftheimpactofemissionstandardsontheusedimportmarket,whichaccountformorethanhalfofvehicleregistrations.Thereisadiscussionofadministrativedifficultiesinapplyingthestandardstousedimports.However,theydonotconsidertheeffectoftheemissionstandardsthemselvesonthefunctioningoftheusedimportmarket.Thelateststatisticsshowthataverageageofusedimportsis10years.Theremustbeasignificantriskthatmanyoldercarswillnotmeetlowerandincreasinglyrestrictiveefficiencystandards,andthatamaterialpartofthesupplywillbechokedoff.UsedimportsarecriticalinsupplyingpoorerNewZealanderswithaffordabletransport,sotheeffectofthepolicieswillfalldisproportionatelyonthem.Theywillhavetopaymoreforamuchnewervehicle,buyacarthatistoosmallfortheirneeds,ornotupdatetheircar.Therewillbeunintendedconsequences:

• Theintroductionoftherequirementswillbewellsignaled,sotherewillbearushtoimportvehiclesbeforetheycomeintoeffect.Thesevehicleswillprobablybelessefficientthanthevehiclesthatwouldotherwisehavebeenimportedatalaterdate.

• Someownerswillrespondtohigherpricesbydeferringthereplacementof,say,atwenty-year-oldvehiclewithaneight-year-oldvehiclethatismorereliableandfuel-efficient.Theeffectwillbetoreducefuelefficiency.

• Theroadtollcoulddeteriorate.OneofthefactorsbehindtheimprovementintheNewZealandroadtollovermanyyearswasashiftfrommotorcyclestocars.Thistrendcouldbepartiallyreversed.

TheCommissionacknowledgesthattherecouldbeanimpactonprices.Introducingvehicleemissionstandardsislikelytoraiseaveragevehiclepricesovertime.Yettheincreasewouldbegradualgiventhatthestandardsonlyeffectnewvehiclesenteringthefleetandmostvehiclesstayinthefleetforclosetotwodecades.Thisiswrong.Chokingoffthesupplyofusedimportswillquicklyimpactonpricesthroughthesecondhandmarket.

OnequityissuestheCommissionacknowledgesthattheeffectofanypriceincreasewouldbefeltparticularlystronglyamongstlow-incomehouseholders.Theirrecommendationisthat‘thegovernmentshouldmonitortheeffectovertime’.Thereisnosuggestionthattheequityeffectshouldbeamaterialconsiderationinthedecisiontointroduceemissionlimits,oranysuggestionofwhatthegovernmentshoulddotomitigatetheequityimpact.Thefee-bateschemeAfeebateschemeinvolvestaxinghighemittingvehiclesandusingtheproceedstosubsidiselowemittingvehicles.Whiletheschemeappliestoallvehicles(thatmeettheminimumemissionstandard),theprimaryintendedeffectwillbetosubsidiseElectricvehicles(EV)imports,whichtheCommissionwantstoencourage,andtotaxinternalcombustionengine(ICE)imports.Againitisarguedthattheschemecanbejustifiedbecauseitcorrectsforexternalcostsgeneratedbyinternalcombustionenginevehicles.AkeyrationaleforprovidingincentivesforEVsisthattheactualcostofusingEVsiscurrentlygreaterthanthewidersocialcost.Alsoconsumersdonotfullybenefitfromreducingsocialcostswhenswitchingfromafossilfuelvehicleduetocurrentlyloweremissionpriceandthelackofpricingforairpollution.InadditiontotheaboveC02andairqualitysocialcosts,EVownersarealsopenalisedbecausetheydonotpaythetruesocialcostsofelectricity.Theytypicallychargeatnightwhenthesocialcostislow,butincurthehigheraveragecostappliedtodomesticconsumers.Inresponsetotheargumentthattheexternalcostissuecanbestberesolvedbyappropriatefuelpricingtheresponseisthat“Electricitypricingwilltaketimetoresolve.Someformofsupportisthereforelikelytoberequiredasatransitionalmeasure.Thereisalreadysomeformofsupport.EVsareexemptfromroadusercharges.Thiscouldbecontinued,atanappropriatelevel,pastthecurrentexpirydateof2021.Thissubsidydoesnotpreciselytargetthedifferencebetweenprivateandsocialcost,asitisappliedpervehicle,notbytheamountofelectricityused.Inthisrespectitisclosetoidenticaltoafee-batesubsidythatsimilarlydoesnottargetactualusage.Theroaduserchargesubsidywilldoasa‘transitionalmeasure’untiltheelectricitypricingissuecanbeaddressed.

AreEVsalreadyeconomicallyviable?TheCommissionreferencesanalysisbyConceptConsulting(CC)thatsuggeststhatEVsarealreadyeconomicallyviableatcurrentprices.ConceptConsulting2017(a)demonstratethatwithanemissionpriceofjust$9EVswithapricepremiumof$12500wouldbeaviableoptionforconsumesifthefullpublicbenefitsofEVsweretakenintoaccount.Wehave,approximately,replicatedtheCCanalysis,whichlooksatwholeofvehiclelifecostsandbenefitsincludingthecostsofairandnoisepollution.ThecriticalassumptionistheEVpricepremium.Thereisnoexplanationofwherethe$12500(ex-GST)numbercomesfrom.Itappearstobetherejusttomakethenumberswork.AssessingthedifferencebetweenEVandICEpricesinNewZealandhasitsdifficulties,butthebestcomparisonistheNissanLeaf39.NewornearnewLeafsaresoldonTrademe(withoutamanufacturer’swarranty).Onecouldbeobtainedataround$48000exGST.AnewToyotaCorollaICEvehiclemightbeasuitablecomparator(excludinganyadjustmentfortheEVsmuchinferiorrange,andlonger‘refueling’time)costsaround$25000.Thatisadifferenceofaround$23,000.LookingatBMWs,thecheapest1seriesis$47000,thecheapestEV,thei3hatchis$86000.BMW’sarenotacommonpurchase,sowehavebasedourassessmentontheLeafpricepremium,using$20,000and$25,000pricedifferenceassumptions.Anotherkeyassumptionisthedistancetravelled.Theshorterthedistance,thelessattractivetheEV,asthereislowerfuelsavingstocompensateforthehighercapitalcost.CCpresentdifferentestimatesbasedonthedistancetravelled.At50percentoftheNewZealandfleetaverage,thecarbonpricethatequalisesthecostsandbenefitsis$415comparetothe$9foranaveragedistanceassumption.TheCommission,however,focusedontheaveragedistanceresult.BecausethelimitedrangeofEVswethinkthatalowerdistancetravelledisthebetterassumptionthantheaverage.ThereissomeevidenceonthisinTrademe’susedcaradvertisements.Theodometerreadingfor2011-2012usedCorollaswas85000km.ForLeafsofthesamevintageitwas35,000km.AssumingthatEVaveragemileagewillincreaseinthefuture,asEVswithalongerrangecomeonstream,wehaveassumed,somewhatgenerously,thataverageEVkilometerstravelledwillbeabout60percentoftheaverage.WehavealsoassumedthatEVswillhaveanaveragelifeof12yearsduetobatterydegradation.

39NewLeafscostabout$60,000.ThebestlikeforlikecomparisonistheHyundaiKona.Ithasa60kw

batteryandarangeofabout300km.TheiCEversioncosts$32,000comparedto$72000fortheelectricversion.

GiventheseassumptionsourestimateofthecostofC02savedpertonisabout$1000,assuminga$20000pricedifferential,and$1400assuming$25000.Thesearewholeoflifecalculation.Fornewcarbuyerswhokeepthecarfor3or4yearsthefiguresaresubstantiallyhigher–over$2000perton,becauseheavydepreciationcostsoverwhelmfueland‘external’costssavingsoverashortholdingperiod.ItisclearthatonalifetimebasisEVsarenotacosteffectivewaytoreduceC02emissions.However,allisnotlostforthosewhowanttoseetoseeanearlyEVuptake.NewZealanderscan,anddo,purchaseimportedsecondhandEVs.Becauseofheavydepreciationratesoverthefirstthreeorfouryears,thecapitalcostforthesubsequentpurchaserwillbemuchlowerthanthenewprice,whiletheownerbenefitsfromlowerrunningcosts.TheuptakeofusedEVsisalreadyoccurring.OnJuly152018therewere777NissanLeafsforsaleonTrademe.Over700wereused,andthegreatbulkwouldhavebeenimports.Usedimportsnowaccountforabout80percentofEVregistrations.Itispossiblethatsomeofthesevehiclesmayhaveashortanduncertainlife,whichwouldruinthecosteffectivenessofthepurchasedecision,butthatisariskthatsomebuyersarepreparedtotake.Forsomethereisutilityindoingtheirbittofightglobalwarming,whichoutweighsnarrowerfinancialconsiderations.Futureprospectslookpositive.Therangeofavailablevehicleswillwiden,batterylongevityshouldbecomemorereliable;effectiverangeisimprovingasbatterysizesgrow;andcostsarelikelytofall.Asthestockofmorereliableandlonger-rangesecondhandvehiclesinJapanandtheUKgrows,morewillfindtheirwaytoNewZealand.Butitisnotatallobviousthatthisprocessshouldbeacceleratednowbyapplyingasubsidy.WhyfurtherencourageNewZealand’suseasa‘dumpingground’forsuspectandobsoleteEVs?WhyshouldthebuyerofasecondhandinternalcombustionenginehavetopaymoreforavehicletothebenefitofEVpurchasers,whoarealreadyrewardedthroughavirtuepremiumfordoingtheirbitfortheplanet?GiventhesmallstockofsuitableusedEVsforsaleintheUKandJapanesemarkets,partofthesubsidytoNewZealandbuyerswillflowthroughtosellersinthosemarketsasincreasedNewZealanddemandpushespricesup.TheequityissueItisfairlyobviousthatthefeebateschemewillberegressive.Privateearlyadopterswillalmostcertainlyhavehigherincomesthanconventionalcarpurchasers.Companies,whoareinthevirtuesignalinggame,areperfectlycapableforpayingforthepublicrelationsbenefitofbeingseenasearlyEVadopters.AirNewZealand,who

emitsasmuchC02as1,000,000cars,hascommittedtoconvertingalloftheirlightgroundtransporttoEVs(wherepossible)by2020.WithafeebateschemeastrugglingfamilyinPorirura,whowantstoupgradea20yearoldcarwillhavetohelppayforanAirNewZealand’efforttodeflectattentionfromtheirtotalC02emissions.The‘supporting’literatureonfeebatesTheCommissioncitesthreereferencestosupporttheirrecommendationtointroduceafeebatescheme.InmodelingpricingpoliciesforvehiclesintheUnitedKingdomBrandetal2013foundfeebatestobemostcosteffectiveinreducingemissionsandacceleratingthemarketshareofEVs.Brandetal.evaluatedthreepolicyoptions:feebates,roadtaxesandsubsidisedscrapping.Theyexcludedaconsiderationoffuelpricingonthegroundsthatthepublicthoughtthatthesetaxeswerealreadytoohigh.Theassessmentcriteriawere:whichoptiondeliveredthegreatestemissionsreduction:revenueneutrality,andnoadverseeffectsoncarusage.Therewasnomentionofeconomicefficiency.Thescrappingschemewasassessedasrelativelyineffective.Thefirsttwooptionswereequallyeffective,butthetaxoptionrisked‘overburdening’thepublicwithexcessivetaxes.Essentiallytheirassessmentwasmademoreonpoliticalthaneconomicgrounds.Ifataxcanbehiddeninabundledproposalthenitismorelikelytobeacceptable.ElementEnergyrecommendedthatthefeebateshouldbeexplored.Arecommendationto‘explore’isnotcompellingsupport,orevidence.BartonandSchulteidentifyfeebatesasapolicythathas‘credibility’aprovenrecordofsuccessinternationally,andissuitableforNewZealand.Thereisnoeconomicanalysisinthispaper.Inparticularthereisnoassessmentoftheeconomiccostsandbenefits,oranycomparisonwiththepricebasedpolicyoption.WhytheneedtoencouragearapidincreaseinEVsnow?TheCommissionarguesTheearliertheuptakeacceleratesthegreatertheproportionofEVsinthefleetby2050Thisdoesn’tfollow.Thevehiclesthatareimportednowwillnotbearoundin2050.GiventhelikelyrapidevolutioninEVcapability,andpossibly,costs,andtheneedtowaituntilthestockofbetterusedvehiclesintheUKandJapanesemarketsbuilds,itmakessensetowait,andtoletnormalmarketprocesseswork.Thereisnoreason

tobelievethatthiswaitingperiodwouldaffectthestockofEVsin2050.Indeedthereisarisktopromotingtheearlyadoptionofwhatareimmaturetechnologies.AsecondargumentisthatEarlyadoptionwouldpromotetechnologyleaning.Itisnotexplainedwhatthistechnologylearningis,butthisappearstobeatrivialpoint.IntermsoftheactualdrivingthetransitionfromconventionalcarstoEVsisstraightforward.DriverswillalsohavetolearnhowtomanagetheshortrangeofEVs,butthiswillbecomelessrelevantastherangeofEVsimproves.TreasuryonsubsidiesAreportbyTreasuryiscited.TreasuryarguesthattheRoadUserChargesubsidyforEVsispoorlytargeted.EVsusetheroadssoitisappropriatethattheypaythetax.InsteadTreasuryrecommendsapricesubsidythatdirectlytargetsthepricedifferentialbetweenEVsandICEsItisdifficulttounderstandthelogichere.EVbuyersbenefitfromtheirpurchase,sothereisnoobviousreasonwhyadrivershouldbesubsidisedjustbecausetheyhavechosenamoreexpensivevehicle.ThehealthcostofairpollutionfromtransportemissionsCChasusefullytranslatedaggregateestimatesofthehealthcostsofemissionsintoperlitrecosts.TheirstartingpointwastwostudiesofthehealthcostsoftransportemissionsinNewZealand:UpdatedHealthandAirPollutioninNewZealandStudy”,March2012.Thisstudyestimatedthehumanhealthcostsoftransportemissionstobe$950mperyear.SurfaceTransportCostsandChargesStudy,March2005.Thisstudyestimatedthehumanhealthcostsoftransportemissionsin2001/2tobe$600mperyear.

Ifbothestimatesareupdatedtoa‘presentvalue’,takingintoaccountincreasesinpopulationandCPIsincetheestimateswerecalculated,thisgivesrisetoa2015/16estimateof$1.1bnand$1.3bn,respectively.Forthepurposesofthisstudy,acentralestimateof$1.2bn/yearisused.ThiscosthasbeensimplyapportionedbetweenpetrolanddieselvehiclesinproportiontotheirrelativeemissionsofPM10.AccordingtoMinistryofTransportdataonmedianPM10emissionsfromlightvehiclesinAuckland,dieselvehiclesemitapprox.6.5timesmorePM10thanpetrolvehicles.

Usingthisfactor,andreportedlandtransportdieselandpetrolconsumptionfor2015,thisgivesrisetoahealthcostof7c/litreforpetrol,and44c/lfordiesel.

TheCCapproachdoesnotadjustformotorvehiclesemissionscostsduetoheavyvehicles,andsooverstatesthelightvehiclecosts.Moreimportantly,therearesomeseriousissueswiththeassumptionsintheHealthandAirPollutionstudy,which,inourview,potentiallyverysubstantiallyoverstatesthesocialcostofairpollution.This

isacomplicatedissue,whichwillbethesubjectofaforthcomingpaper,buttwoimportantissuesarestraightforwardenoughtobepresentedhere.Thefirstissuerelatestothesocialcostsofaprematuredeath.

AlmostallofthesocialcostsintheHealthandAirPollutionstudyrelatetoprematuredeaths.

Thesedeathsareheavilyconcentratedamongsttheelderly.

Itisassumedthatthesocialcostofadeath(takenfromtheroadfatalitysocialcostestimate)isnotafunctionofage.Thatis,avoidingtheprematuredeathofanelderlypersonwhomightotherwisehavelivedfor,sayanotherthreeyears,hasthesamesocialvalueasavoidingtheprematuredeathofa15yearold,whowouldotherwisehavelivedforanother70years.Thisisnotajudgmentthatwe,andwebelievemostNewZealanders,wouldshare.Ifthemethodologywereadjustedtoanumberoflifeyearssavedbasis,thentheestimateofthesocialcostofairpollutionwouldfallbyperhaps80percent.

Second,theNewZealandstudyappearstosubstantiallyoverstatethenumberofprematuredeathsduetoairpollution.Theirestimatewas2,300peryear.ArecentWorldHealthOrganisationreport’s40estimateforNewZealandis20.

Ourconclusionisthatsocialcostsofairpollutionhavebeenexaggeratedandreducingthecostscausedbyvehiclesistootriviala‘co-benefit’towarrantconsideration.Evenifitweremorematerial,ataxofacentortwoonfuelwouldaddresstheissue.

ConclusionTheCommissionhasnotmadeacasefortheintroductionofemissionstandardsforimportedvehiclesandtheintroductionofafee-batescheme.Thereisnoevidenceofmaterialdysfunctioninthecarmarketthatwouldwarrantintervention,orofmaterialexternalcoststhatcanbemitigatedbythesedirectinterventions.Theproposalsareregressive.Poorercarownerswillhavetheiraccesstoaffordablevehiclesreduced,andtheywillbetaxedtosubsidisemiddleclassandcorporatevirtuesignalers.

40WHO2016AmbientAirPollution:Aglobalassessmentofexposureandburdenofdisease

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