To boldly follow…?

NzifollowThe New Zealand Institute, the politically neutral think tank born of the “Knowledge Wave” conference, has been making waves of a different kind today with its new, and rather idiosyncratic take on how NZ should approach emissions reductions. The report, part of a series on climate change, is called “We’re Right Behind You” [PDF], and advocates a “fast follower” approach to emissions reductions – which apparently means reneging on our Kyoto commitments. The report recommends that:

…it seems appropriate and realistic for New Zealand to undertake to reduce its net emissions to their 1990 levels by 2020 rather than by 2012. We recommend that New Zealand should seek to avoid the obligation to purchase carbon credits associated with the decision to delay achieving its Kyoto committment by 2012.

This effectively means withdrawing from Kyoto, and as you might expect this “considered analysis” has been welcomed by the big emitters. I was interviewed by one of the authors of the report back in June, before HT was published, and in a swift email exchange this morning I promised to read the report thoroughly before rushing to any judgement (unlike some). So, my timely (but not rushed) view of this contribution to the policy debate?

The NZI’s analysis of the issues is deeply flawed, overly simplistic, and their only specific recommendation, the abnegation of our Kyoto commitments, is spectacularly misguided. In other words, I’m not a fan. This will be no surprise to readers of Hot Topic, who will be familiar with my analysis of NZ’s vulnerabilities and strategic options with respect to climate change. Let’s look at a few key points in the report.

Underlying much of the report’s analysis is the stated assumption that the costs of acting on climate change will be high. The only number used in the report is $500 million, being the government’s cost for meeting the projected Kyoto emissions overshoot. Is this really high? Over five years? Let’s assume that the cost of carbon is higher than the government (and this report) assumes, and our liability is $1 billion. Over 5 years, that’s $200 million a year. The economy next year will likely be worth about $160 billion. So $200m is 0.125% of GDP. Given that the economy is expected to grow over the Kyoto commitment period, that cost falls with time. It’s not a high cost, it’s peanuts. (That was the argument of a Treasury official at the ChCh ETS workshop, and though it’s a crude rule of thumb calculation I think it provides a good illustration). Of course, economic costs could be greater (or smaller) than our headline Kyoto commitment as the economy reacts to carbon pricing in the domestic and international market, but the NZI make no case for that. In this case, their “high economic cost” argument, which underpins their strategic judgement, amounts to speculative handwaving.

To illustrate what they see as NZ’s strategic vulnerabilities, they develop two scenarios – Steady As She Goes, and A Perfect Storm. Steady assumes that we don’t do much. International action on climate change is fragmented and slow, and direct impacts of climate change are not driving policy. Storm considers what might happen if there are direct climate impacts in large northern hemisphere economies, and the world takes concerted action. I have no problem with the use of scenarios to illustrate possible change and vulnerabilities – it is, after all, what the IPCC do for the emissions projections that drive climate models – but the problem here is that the scenarios do not adequately illustrate the world of possibilities we confront. If you posit only two scenarios, one that you explicitly take to be status quo, and one relatively extreme, then if you get your scenario choices wrong your strategic analysis cannot be meaningful. You have a false dichotomy. In this case, Steady As She Goes is already removed from the reality of what’s happening, both in terms of international realpolitik, and in terms of its relationship to the emerging impacts of climate change (Arctic ice, anyone?).

Two aspects of this report strike me as being rather “once over lightly”. The first is the consideration of the international scene with respect to climate change policy and business responses (especially the burgeoning growth in carbon trading – and see my link earlier this week to Deutsche Bank’s view that climate change response is an “emerging investment megatrend”), and the second is their discussion of emissions targets and trajectories. The relationship between the two is the crux of future global climate policy and deserves consideration in some detail. This report does not provide that insight.

We’re Right Behind You does make the good point that NZ policy has to be capable of responding to changes in the international perception of the seriousness of the problem. We need to be able to adjust if targets are tightened – or loosened. However, they get the risk analysis wrong by failing to appreciate which way the wind is blowing.

Post-Kyoto negotiations get underway in earnest in Bali next month. To have any real hope of addressing climate change, the international community has to to find a way to get the Kyoto countries round a table with the USA, Australia, India, China and the developing world. With that in mind, the only game in town is “cap and converge”. This means setting a global emissions target for, say, 2050, and then apportioning that around the world – probably by head of population. Countries will then have to design policy (cap and trade ETS’s almost certainly) that will get them to their 2050 target. If that target is – say – 550 ppm CO2e, then the reality will be that the developed world will have to introduce steep cuts soon, while India, China and the developing countries have “room” to grow. Will we get that sort of deal? I think yes, but the economic and political imperatives will probably mean a lax target over 550ppm, or lots of fudge room that amounts to the same thing. From a science perspective, of course, I’d prefer to see 450 ppm CO2 (not CO2e, because we’re there already). I also recognise that getting this sort of post-Kyoto agreement is going to be very difficult, and that does lend credibility to considering scenarios where no deal emerges. But in my view the balance of risk lies in the other direction.

The bottom line? Under any credible international deal, NZ is likely to face steeper cuts sooner, and so taking slow action now is only storing up more difficulty for the future. In that context, the report’s discussions of emissions trajectories and targets is not only simplistic, it fails to take account of reality.

The crux of the report is that NZ should be a “fast follower” rather than a leader in emissions reductions. That is certainly a defensible strategy, but We’re Right Behind You doesn’t effectively make that case, because its one major recommendation is less “fast follower” than “left behind, being lapped”. The idea that we can somehow defer our Kyoto commitment without major international cost is risible. In the context of hard-nosed post-Kyoto negotiations, to take that sort of position would be to place NZ firmly on the outer. NZ has always understood that the only way we can influence our global position is by being a good world citizen. We need multilateral approaches, whether it be to trade or to climate change. Throwing that away would be potentially disastrous. Current policy gets us a seat at the table, and the goal of leading the world in agricultural emissions research and reductions gives NZ a chance to influence at least that aspect of future international policy.
There is however one part of the report with which I wholeheartedly agree:

“The priority now is to commence a more strategic conversation about how best to use this framework [the ETS] and the nature of the most appropriate pathway to reduce NZ’s emissions over time.”

It’s a pity that We’re Right Beyond You is a such a poor contribution to that debate.

16 thoughts on “To boldly follow…?”

  1. Well said Gareth

    I quickly read the report and was struck by the lack of analysis and excess of unsubstantiated verbage.

    I have read similar comprehensive analyses from other ‘independent’ think tanks. Heavy of the costs of doing something and light on the costs of doing nothing.

    Cheers Doug

  2. A good analysis, thanks. It was good to see the claimed ‘cost’ put into perspective. I read the report and was struck by the way it treated climate change only as a phenomenon of consumer and government reaction, not as something real requiring to be addressed with urgency. This made its evasion of responsibility easier I guess. Economists can do better than this – Nicholas Stern started his report with a clear understanding and acceptance of what climate science was predicting.

  3. Funny how (non-peer-reviewed) reports from think tanks get bandied around by interested parties as gospel.

    Something that struck me as odd with it was its claim that reducing our emissions would be hard because they’re so high by OECD standards. Eh?

    Given how far behind we are to (say) Europe in terms of building standards, vehicle efficiency and public transport, I would have expected there to be plenty of low-hanging fruit to be available — just by fast-following now.

  4. I particularly like the way they are the New Zealand Institute. Not the NZI *of* anything.
    e.g the first 10 entries for googling on “New Zealand Institute of” gets
    Economic Research
    Chartered Accountants
    Quantity Surveying
    Food, Science and Technology
    Professional Photography

    I feel comforted to know David Skilling covers EVERYTHING to do with NZ. Funny thing is though, looking at the membership list I didn’t see any scientists. Only business people. Oh well. Naturally they know what is best for us.

  5. *cheers*

    Well argued. Much more coherant than my outraged scribble in the ‘Your Views’ bit on the Herald’s website. The Stern Review was a year ago, arguing about the economic impacts of climate change action NOW doesn’t make us anything other than an extreeemely slow if not slightly retarded follower.

  6. Also, I notice that members of the NZ Insitute include representatives of Contact Energy, Solid Energy, Fonterra, Mainfreight, New Zealand Post, Air New Zealand and Vector — all of which could hardly be said to be low emitters. Self-interest, self-interest, self-interest.

  7. Hooray !! Finally some common sense prevails. Kyoto is about as useful as a fridge to an eskimo. And by 2020 (I’d say well before) you lot will be embarassed to be associated with your past views on AGW sitting in front of your heaters wondering how you could have been so gullible.

  8. Bats,

    your cultural prejudices speak volumes.

    As for being embarrassed, well, I have hesitated to say this but perhaps now is the time:

    There are many very good reasons to remain anonymous and many less good reasons like simple cowardice and an unwillingness to be held to ones statements in the future. You have mentioned looking at my picture twice now. If it gives you pleasure I can send more photos. I believe what I say so I say it in my own name.

  9. And bat, recent events suggest that the Inuit may well be in need of fridges as their summers warm and the ice melts.

    (Although the sea ice is now refreezing, it’s doing so slowly. The anomaly (the difference between current value and the 1979-2000 average is bigger now than it was at the record minimum…))

  10. (Posted by GR for report co-author Danielle Boven)

    In response to a few of your blog points
    – do you think it is fair to assess the costs prior to 2012, particularly without also assessing the meager reductions that will occur over that time? Recall that we are discussing scenarios in the 2030s and targets to 2050 so were working with greater reductions and greater costs. Consider, your reductions come at a cost of $200m pa and Parker expects the ETS to reduce the Kyoto liability by about 20m CO2e so that is $50 a tonne – is that peanuts?
    – scenarios do not have to be ‘right’ – official futures do. Scenarios are potential futures which are useful because they can be used to test a strategy once designed
    – there are some strong subcultures around climate change, and your take on the international environment is much different than mine, so ensure you are accessing diverse sources. I suppose Bali will be telling, and I hope you are right.

    Regarding some of your commentators
    – I did not name the NZ Institute, but thanks for the….advice?
    – Yes, climate change is real and should be addressed
    – Really, we are independent and if anything I approached this project with the expectation that New Zealand could distinguish itself in this area, but couldn’t find the numbers to support an argument of being an emissions reduction leader – happy to consider it if you can demonstrate the benefits outweigh the costs
    – I concur with Stern’s analysis and similarly accept climate science
    – I agree there are low hanging fruit, I think the point is it will be difficult and expensive to become a world leader given that we are so emissions-intensive
    – And, finally, yes, we are independent, but if you see self-interest everywhere, why do you think New Zealand charging ahead is going overcome self interest and make the world unite in action?

  11. Doug

    “your cultural prejudices speak volumes.”

    please elaborate.

    “simple cowardice” Doug, what a low blow. Hope I didn’t hit a nerve with you or are you just a sensitive type ? Relax fella there’s nothing wrong with your pic.

    Gareth, As I’ve said before, I’m well aware of the changing climate however that doesn’t mean it’s due to AGW as you lot believe. There are a lot of weather events around the world happening which could make one wary of the whole warming theory and it’s possible continuation. I aliken the CO2 theory to that of the WMD argument used for Iraq. As Colin Powell admitted, they new it was bull but it was something everyone could agree on. And yeah, it came back to bite them in the bum but the agenda / damage was alreay done.

  12. bat: I aliken the CO2 theory to that of the WMD argument used for Iraq. As Colin Powell admitted, they new it was bull but it was something everyone could agree on.

    Sadly, bat, the only people who “know” that CO2 doesn’t cause global warming are a few who allow their politics (or paymasters, in some cases) to affect their judgement.

  13. Sadly, Gareth, the only people who “know” that CO2 does cause global warming are a few who allow their politics (or paymasters, in some cases) to affect their judgement.

    Are you guys here really that afraid that just like all the fuss in the 70’s the ‘consensus’ was WRONG !!! ???

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