Reframing the costs of smart climate action



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

According to a recent survey, 87% of New Zealanders have at least some level of concern about the impacts of climate change on society.  The government is currently consulting on how we want to translate climate concern into a target for reducing New Zealand’s emissions after 2020.

Rather than offering mitigation proposals, the government’s discussion document addresses the national context for setting a target and has a strong focus on the costs that accompany ambition.  But looking at the underlying modelling by Infometrics  and Landcare Research reveals more about the cost story in the discussion document than first meets the eye.  It also highlights the importance of discussing pathways alongside targets.

First, the modelling excludes important mitigation opportunities and benefits for New Zealand.  The authors of both studies are transparent about the limitations of their methodology (although these are not explicit in the discussion document).  For example, they exclude mitigation from the forestry sector, the potential for transformational technology changes (e.g. electric vehicles and improved batteries), and the value to society of co-benefits to human health, the environment and New Zealand’s international standing (e.g. clean-green branding) as well as avoided climate change impacts.

MfE releases NZ ETS modelling work, validates our simple model.

By Suzi Kerr and Judd Ormsby, Motu Economic and Public Policy Research

Last week we posted twice on modelling work we have done. The first post looked at what sort of carbon price we might need to achieve domestic reductions of 5% below 1990 BAU. The second post looked at how linking can make achieving this target easier.

Since then the Ministry for the Environment has released both pieces of ETS modelling work they commissioned. The modelling they referred to in their discussion document was done by Infometrics, but they have also released modelling work by Landcare Research.

Linking to credible sellers - de-linking ambition and ETS prices

By Suzi Kerr and Judd Ormsby, Motu Economic and Public Policy Research

In our last post we showed how even an emission reduction target of 5 per cent below 1990 levels could require a GHG price in excess of NZ$250 by 2030 if the New Zealand Emissions Trading Scheme (NZ ETS) were New Zealand’s only significant climate policy (However, the global price required to limit global warming to 2 degrees could be as low as NZ$60 by 2030[1]. This is because the global least cost approach to limiting atmospheric concentrations of CO2 equivalent gases to 450 ppm – roughly the level that achieves a 2 degree target – requires about 66 per cent of (discounted) abatement effort out to 2100 to occur in developing countries (Edmonds et al. 2007).

Linking is not a substitute for domestic emission reductions but allows us to do even more for the global effort and helps manage the uncertainty around short-term mitigation potential within New Zealand that could stop us taking ambitious short term targets.

We are not on track... yet

By Suzi Kerr and Judd Ormsby, Motu Economic and Public Policy Research

Submissions on New Zealand’s post-2020 climate change contributions have opened, but an immediate question for any proposed target is: can we achieve it?

Right now, the price of a unit in the New Zealand Emissions Trading Scheme (NZ ETS) is $6 per ton. Our simple model of what would happen to this market if the Government’s unconditional target of 5 percent below 1990 levels by 2020 were imposed as a cap on the sectors in the ETS with no complementary actions sees the price starting at $110 and reaching more than $250 by 2033.

Our modelling work on the NZ ETS was presented at the WEAI conference in January and the AARES conference in February. Now seems an appropriate time to share some of our findings.

Every model has inputs and outputs. We model the ETS as though it were a simple cap on total emissions (not including methane and nitrous oxide from agriculture), followed by trade. Our model is simple. It includes demand and supply for New Zealand Units (NZUs) in each year, the units people have been banking for future use, any linking arrangements we might have, and a (risk-adjusted) interest rate. The model’s outputs are an NZU price path, an emissions path, and a path of the NZU bank associated with these inputs.

Given the level of ambition of the government’s emissions targets, the price starts at around $110, rises at 5% per year (the rate of interest in the model) until reaching about $264 in 2033. This high price reflects the difficulty of achieving such a target within the NZ ETS and without international linking, which we lose at the end of this month. It is driven by a high level of business as usual emissions - because emissions have grown so much since 1990, a 5% cut relative to that involves a much larger cut relative to current emissions – and a low level of estimated (from others’ models) responsiveness to emissions prices. Responsiveness could probably be increased with complementary policies.  

Figure 1: The modelled price path of NZUs.

Majority of New Zealanders are concerned about climate change and taking actions that reduce emissions

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

The following media release was issued by Motu on 15 May 2015.

A strong majority of New Zealanders are concerned about climate change and taking actions that reduce household emissions, according to a recent survey.

Researchers at Motu Economic and Public Policy Research, an independent, not-for-profit research institute, and Victoria University of Wellington designed the survey of about 2200 New Zealanders aged 18+. The survey was conducted by Horizon Research Limited from 28 July to 1 September 2014 with support from the Sustainable Business Council.

The survey showed that about 87% of New Zealanders are at least somewhat concerned about the effects of climate change on society in general.

63% are concerned or very concerned about the societal effects of climate change and 58% are concerned or very concerned about the personal effects.

Figure from Horizon Research Ltd (2014)

Shaping New Zealand’s Contribution to a Low-Emission Future

By Catherine Leining (Policy Fellow) and Suzi Kerr (Senior Fellow), Motu Economic and Public Policy Research

In the international climate change negotiations, countries are currently preparing their emission reduction proposals for the period post-2020.  For many countries, these are likely to include quantified emission reduction targets plus a supporting explanation.  The New Zealand government is starting the consultation process on its proposal. 

At the global level, if countries want to limit the future temperature rise to no more than two degrees Celsius above pre-industrial levels, then two target numbers really matter.  The first is zero. We need to achieve zero net annual CO2 emissions globally by 2100. The second is one trillion. Global emissions need to peak and decline in order to limit cumulative net CO2 emissions to no more than one trillion tonnes of CO2 (as carbon) starting from the pre-industrial period. Under business as usual, we are projected to exceed our cumulative limit before mid-century. While many countries acknowledge the importance of the global temperature goal, most won’t commit to anything that appears to threaten their citizens’ development needs.

To turn those targets into reality, countries need to define collaborative pathways that will deliver a zero-net-emission future while meeting development needs. Recognising the uncertainties inherent in future technologies, markets and politics, what might transformational pathway choices look like for New Zealand?  Here are nine possibilities as a starting point for discussion.

Ontario on a Tear with its New Climate Proposal

By Derek Walker, Associate Vice President of the Environmental Defense Fund. Cross-posted from the EDF with permission. View the original post here.

Once upon a time, an international agreement forged through the United Nations Framework Convention on Climate Change (UNFCCC) seemed the surest route to meaningful action on climate change. But the complexities of reaching common ground between nearly 200 distinct national agendas have dimmed the hopes for the sort of “global deal” envisioned in the run-up to the Copenhagen conference in 2009. The UN process has provided a platform for countries to make new emission reduction commitments: Mexico recently announced a promising post-2020 climate commitment, and the US-China announcement last November was a game-changer. Even these critical breakthroughs, however, demonstrate that strong action on climate will be driven from the “bottom up” by national policies, not from the “top down” by an international treaty.

Thankfully, many leaders are blazing a path towards climate progress, working from the ground up and collaborating with others to foster collective action. As I have previously written, cities, states, and provinces are going ahead with some of the most substantial climate commitments to date. Ontario – Canada’s largest province, with 40 percent of the country’s population and nearly one-quarter of its greenhouse gas emissions – has become the latest jurisdiction to chart an ambitious path forward with this morning’s announcement of a comprehensive cap-and-trade program intended to ultimately link with the existing California-Quebec system.