Assessing cost and creating pathways

By Catherine Leining, Policy Fellow, Motu Economic and Public Policy Research

As COP21 enters its final hours, I want to look at how New Zealand can progress our climate change ambitions by looking at assessing costs and creating a domestic pathway towards zero-net emissions.

This is the third and final part of my discussion about the sort of effort New Zealand should make in relation to climate change. The first was setting targets top-down versus bottom up, while the second looked at choosing the balance between domestic and global contributions and assessing fairness.

In its Fifth Assessment Report, the IPCC framed the global challenge very clearly. To limit temperature rises below two degrees Celsius, we need to achieve zero-net emissions by the end of the century AND get there fast enough to keep cumulative emissions below a ceiling which the world will exceed by 2035 under business as usual. This means that emissions that cannot be avoided are fully offset by removals through forest sinks, carbon capture and storage, or other means. Getting to net zero smarter and faster means a much, much better world for the rising generations. It is a powerful choice to make, and one that is still available to us.

Assessing costs
There is widespread economic consensus that the costs of inaction far outweigh the costs of action. Every tonne of carbon dioxide that is emitted today - including every tonne from New Zealand - creates climate damages whose social cost today ranges from US$37 (NZ$56) as a central estimate to US$109 (NZ$166) under a high-impact scenario. That cost roughly doubles by 2050 (central estimate of US$71/NZ$108). A global study by the Obama Administration found that every decade of delay in mitigation raises the net cost of achieving a given target by 40% because a sharper adjustment comes at higher cost with greater stranded assets.

We make major investment decisions involving large costs all the time. Can we reframe the costs of mitigation as a strategic investment in our inevitable transition to a zero-net-emission economy? The challenging part is managing the distribution of those costs and accounting for the returns on those investments which accrue across the private and public sectors, across countries and across generations. The methods we rely on now for cost/benefit analysis for mitigation and for sharing mitigation investment risks are not producing the action that will support national and global welfare in the long term. We need new approaches here.

Creating a domestic pathway toward zero-net emissions

New Zealand will need to join the global transition toward net-zero emissions. Our challenge - and our opportunity - is to make the transition strategically so we thrive as a country and capitalise on our advantages. And we do have significant advantages. Our natural resource base, our economy and our institutions place a zero-net-emission future within our grasp. But we face some significant choices that will have long-term implications for our progress as a country.

I want to borrow from the words of Thomas Merton. Without a sound strategy for our transition, we face a very real risk that we could spend the next two decades working very hard to climb the ladder of success, only to find when we reach the top that the ladder is leaning against the wrong wall.

This transition will not be a linear process or a predictable process. We can guess at some of the likely characteristics of our pathway but much remains uncertain. So how can we get started? Motu's cross-sector Low-Emission Future Dialogue, which I've been involved in leading, has been exploring possibilities. One option would be to take an adaptive approach designed to encourage experimentation, leave desirable outcomes open, re-prioritise investment, remove barriers to innovation and avoid locking ourselves into emissions-intensive technologies, infrastructure and practices.

Transitioning toward a zero-net-emission economy will require both new and better processes for cross-party agreement and collaborative decision making, problem solving and action by governments and businesses. Such processes could be used to enable greater policy certainty across election cycles, align policy with action and investment across the public and private sectors, safeguard the needs of communities who are most vulnerable during the transition, and respond to rapid change with greater agility and coordination.

We shouldn't be afraid to strive for ambitious mitigation, and we shouldn't be afraid to fall short. If we must fear something, let it be inertia, apathy and free riding. I am hopeful about the opportunities that lie ahead for New Zealand if we commit to strategic transformation.