Right and wrong

Estimating the economic impact of climate change and climate policy is controversial — not least in New Zealand, where some economists have been happy to generate specious forecasts to serve political purposes — so it’s a relief to read an article about climate change by a leading NZ economist that gets the issue “right”. Infometrics chief economist Adolf Stroombergen’s latest piece for the Dominion Post (which I saw in The Press business section on Saturday) correctly identifies that New Zealand’s primary vulnerabilities in the near to medium term are to the effects of climate change overseas, and to the actions other countries take to address the problem.

This will come as no surprise to readers of Hot Topic, as I’ve been emphasising this point for the last two years. However, while Stroombergen’s overall conclusion may be correct, his take on some of the underlying issues is a little less sure-footed.

Stroombergen first identifies six external factors he considers important: the direct impacts of climate change overseas, in particular the impact on food prices; immigration and refugees; “retaliatory trade policies” if NZ does not play its part in emissions reductions; food miles; the cost of buying emissions units to meet Kyoto and K2 targets; and the effect of growing biofuels on food prices. It’s not exactly an exhaustive list, but it’s a good start. However, his discussion of climate impacts on food prices is less convincing:

Research in these areas is sparse. With regard to international food prices for example, there is little consensus about whether prices will rise or fall as a result of climate change. Much depends on how quickly climate change occurs, on the extent to which countries adapt agricultural practices to different climates, and on international trade policy.

The research is less sparse than Stroombergen thinks. His article was published in the same week as a new UN Environment Programme Rapid Response Assessment report: The Environmental Food Crisis (summary), which finds that as a result of climate change, land degradation and population growth:

[…]world price of food is estimated to become 30–50% higher in coming decades and have greater volatility.

If NZ agriculture systems can adapt to the direct climate change here (and they should be able to cope well, provided that change is gradual), then it looks as though export markets should provide good returns[1. …only if we can ignore the effect of those prices on the world’s poorest inhabitants — and I would suggest we can’t]. Stroombergen, however, turns his attention to CO₂ fertilisation:

Another factor is the strength of the fertilisation effect of more CO₂ in the atmosphere. Without CO₂ fertilisation agricultural prices will probably increase. Assuming an increase of 10%, which is consistent with international research, generates a permanent lift household spending in New Zealand of about $120 per person per year. If the CO₂ fertilisation effect is strong, such that other countries can increase their agricultural output and become more self-sufficient, world commodity prices will fall and household spending in New Zealand would eventually be lower by about $170/person/year, but transitional effects could worsen this.

CO₂ fertilisation is very unlikely to be strong enough to impact food prices. The UN report referenced above covers the situation well:

Free-air concentration enrichment (FACE) technology has now facilitated large-scale trials of the major grain crops at elevated CO₂ levels under full open-air field conditions. In those trials, elevated CO₂ enhanced yield by about 50% less than in the enclosure studies. Hence, previous projections of no impact or even a slight positive impact of increasing CO₂ on global agricultural production by 2030 and 2050 may be too optimistic (Long et al., 2006). Current research results conclude that while crops would respond positively to elevated CO₂ in the absence of climate change, the associated impacts of high temperatures, altered patterns of precipitation, and possible increased frequency of extreme events such as droughts and floods, will likely combine to depress yields and increase production risks in many world regions (Tubiello and Fischer, 2006).

Quite why Stroombergen believes the CO₂ fertilisation effect could have a strong impact on food production is a mystery. The idea is not supported in the literature (see IPCC AR4 – WG2, Chapter 4, p220), and so hardly worth the modelling effort, I would have thought. He also struggles with other sectors:

Other industries such as tourism and horticulture may also be affected by climate change, but even the direction of the effects, let alone their magnitude is difficult to gauge.

These industries will be affected by climate change, both in NZ and the rest of the world, and it really isn’t hard to work out whether the impacts will be positive or negative. Within NZ, there’s a good body of work on the likely impacts of warming on horticulture, and it’s difficult to conceive of circumstances in which climate change would be positive for NZ tourism. I suppose if the rest of the world’s going to hell in a handbasket we might offer a haven for tourists who can afford the carbon offsets for long distance flights, but we might have trouble getting them to leave again…

Overall, however, Stroombergen’s piece is a useful outline of the real vulnerabilties NZ has to climate change and global climate policy. It’s evident that he understands the real issues, even if he can’t put a price on them:

…given the potential for international conflict as countries argue about water shortages, energy security and burden sharing with respect to emission reductions, the indirect international effects of climate change will likely dominate most other economic issues that will confront New Zealand over the next few decades.

I hope that message is being taken on board by our new leaders.

[Joe Jackson]