Our new emissions target: Can we do it and what will it cost?

MartinJenkins
Jun 17, 2019 · 9 min read

With Bryan Field / 17 June 2019

Strike 4 Climate Change on Lambton Quay, Wellington. Source: Bryan Field

I took this photo while walking on Wellington’s Lambton Quay on my way to a client’s offices. My walk coincided with the Strike 4 Climate Change, which saw thousands of school students march to the Parliament lawn in protest against governments’ inaction on climate change. There were around 8,000 kids marching, all part of a global movement initiated by a 16-year-old from Sweden. They were chanting: ‘What do we want? Climate justice! When do we want it? NOW!

Although it made it tricky crossing Lambton Quay, this action made me very hopeful for the future. The kids chanted with passion, and at Parliament they really took some of the politicians to task on their answers to questions. We should all care this much about climate change. The kids have it right: they’ll inherit this planet, and the longer we jawbone and delay action, the more ruined it will be for future generations.

The Government’s new Climate Change Response (Zero Carbon) Amendment Bill, introduced in May, sets an ambitious emissions target that will be vital to our transition to a low-emissions economy. It should set us on a path to meet our obligations under the Paris Agreement, and it will mean that New Zealand will be doing its share of the global effort to limit global warming to below 1.5 degrees Celsius.

In this blog I’ll talk about why the new emissions target is structured the way it is, whether it’s an achievable target, and what it might cost New Zealand if we do it (and what it might cost if we don’t).

The target is in fact two targets — reducing emissions of short-lived gases (biogenic methane) by 24–47% from today’s levels by 2050, and reducing net emissions of long-lived greenhouse gases (basically everything else, including carbon dioxide, nitrous oxide, and fossil methane) to zero by 2050.

The distinction drawn by the targets makes good sense because of New Zealand’s particular emissions profile and the atmospheric chemistry of the different types of gases.

Our emissions profile is a bit different from those of most developed countries, which consist almost entirely of CO2 emissions from the energy sector, caused by things like electricity generation, transport, and heavy industry.

By contrast, just under half (48%) of New Zealand’s gross greenhouse gas (GHG) emissions in 2017 were from agriculture (for example, sheep and cattle, and fertilizer) and are methane and nitrous oxide, not carbon dioxide. The rest of our gross GHG emissions in 2017 came from the energy sector (41%), industrial processes and product use (6%), and the waste sector (5%).

Not all greenhouse gases are created equal. Image source: Ministry for the Environment

Not all greenhouse gases are created equal. The reason why gets very technical very quickly, but the short version is that some GHGs are better than others at trapping heat in the atmosphere, and they stay in the atmosphere longer. The methane produced by our agriculture sector (mostly from sheep and cattle digesting their food) doesn’t stay in the atmosphere as long as carbon dioxide – only about 12 years, compared with 50 to 200 years for carbon dioxide.

This has led New Zealand to take a ‘split gas’ approach to its 2050 target. The IPCC (Intergovernmental Panel on Climate Change) also agree with this approach. Their 2018 special report into limiting global warming to 1.5°C says that to do this carbon dioxide emissions must reduce by 94–107% from current levels by 2050, and agricultural methane emissions must reduce by 24–47% from current levels by 2050. (Our own target follows the IPCC in specifying a range for methane emissions.)

If you’d like to explore New Zealand’s emissions profile in more detail, the Ministry for the Environment has a cool website tool that allows you to access data on GHG emissions. And if you’re interested in comparing our profile with other countries’, take a look at the website of the UN Framework Convention on Climate Change .

Our new target seems ambitious. Is it even possible for New Zealand?

A bunch of modelling has been done recently by different organisations to try to answer this question. Each modelling project deals with particular parts of the jigsaw, and we can piece them together to get a picture of whether the transition is possible and what it may cost the New Zealand economy.

A study by the Productivity Commission suggests that meeting the new target is possible, but it will be challenging. It explored three transition scenarios:

  • a policy-driven scenario, with slow technological change evenly spread across sectors
  • a technology disruption scenario, where rapid technological change disrupts current economic structures
  • an optimistic (or ‘stabilising’) scenario based around technology developments in existing industries that reduce the need for major shifts in economic activity — methane vaccines for cows in the agriculture sector¬, for example.

Under all three scenarios the Productivity Commission concluded that a net-zero emissions future is possible. They also found that the lowest cost transition (as indicated by carbon prices) would result from a smooth policy-driven approach. This indicates that strong, early decision-making and action is important in limiting the cost of the transition.

Another key insight from the Productivity Commission’s modelling is that the range of carbon prices modelled for all scenarios are within the range of prices that international researchers estimate to be necessary to limit global warming to 2°C. It seems, in other words, that the costs of the transition for New Zealand are similar to those faced by other developed countries.

The Productivity Commission’s work also suggests that changes in land use are going to be vital. All three scenarios require very high levels of afforestation (converting land to forest) as carbon prices grow and make our traditional pastoral agriculture relatively less profitable as a result. The modelling suggests that around 1.3 to 2.8 million hectares of land will need to be planted in trees. Forests are great because they absorb carbon dioxide, but sustaining the rate of planting needed to meet this level by 2050 will be a real challenge.

The Ministry for the Environment tried to estimate the impact on the New Zealand economy of several transition scenarios using CGE modelling done by NZIER (CGE stands for ‘Computable General Equilibrium’ — basically a mathematical simulation of the New Zealand economy, based on historical economic behaviour).

The scenarios modelled by NZIER include:

  • a baseline scenario — carrying on as usual
  • a status quo scenario — where we meet our previous 2050 target of reducing net GHG emissions to 50% of 1990 gross emissions levels
  • scenarios with more ambitious targets — including net-zero emissions for all gases. Comparing these scenarios with the status quo scenario provides an estimate of the economic impact of the proposed targets.

Across all these scenarios (including the baseline and status quo) NZIER modelled that New Zealand’s GDP would grow by 1.6 to 2.2% per year between 2020 and 2050.

This is an important finding: the economy is projected to grow regardless of how ambitious the target is. Under all scenarios we will be wealthier in 2050 than we are today — it’s a question of how much wealthier. Gross National Disposable Income (GNDI), the model output that indicates average household incomes, is projected to grow by 78–112% from 2017 levels in real (inflation-adjusted) terms.

It needs to be said that each scenario was modelled using a large set of assumptions, including around technology and innovation. Some of these assumptions are based on some significant domestic action — for example, that 95% of the light vehicle fleet and 50% of heavy vehicles will be electric by 2050.

The more ambitious the emission reduction target, the greater the potential cost. The most ambitious scenario is for net-zero emissions by 2050 with enough forestry sequestration to absorb 30 million tonnes of CO2. In that scenario, average GDP growth is projected to be lower than for the status quo scenario (1.7% per year from 2020 to 2050, compared with 2.1% annually over the same period for the status quo). In that net-zero emissions scenario, absolute GDP in 2050 is projected to be $51 billion lower than in the status quo scenario.

But the modelling results also show that higher levels of forestry, higher levels of innovation, and access to international carbon markets can all reduce the macro-economic impact of the target.

For example, if we assume a higher level of forestry sequestration for the net-zero emissions target (a third higher than the forestry assumptions from the net-zero emissions scenario discussed above), then absolute GDP in 2050 is only $4.5 billion lower than for the same period in the status quo scenario, rather than $51 billion lower.

The most ambitious scenario is for net-zero emissions by 2050 with enough forestry sequestration to absorb 30 million tonnes of CO2. Image source: Unsplash

As you’ve probably gathered, the costs of the transition really depend on what you’re comparing against.

All of the models used for the analysis of carbon targets are imperfect — there’s a limit to how accurately they can project a transition three decades into the future, and so the uncertainty is immense. But the models are also incomplete in that they don’t consider the co-benefits of strong climate action or the costs of inaction.

These additional benefits and costs could be huge. A recent report by New Climate Economy (NCE) estimates that:

‘Transitioning to this low-carbon, sustainable growth path could deliver a direct economic gain of US$26 trillion through to 2030 compared to business-as-usual.’

That NCE report attempts to estimate the co-benefits and the costs of not acting. If these are considered in the modelling we get an estimate that the transition to a low-emissions economy poses a net economic benefit compared with business as usual.

Our Ministry for the Environment has also attempted to quantify some co-benefits and inaction costs. It wasn’t feasible for NZIER to incorporate those factors into the modelling it did, but if it had been we would have expected the baseline and status quo scenarios to show much lower GDP growth.

Put simply, the baseline scenario assumes that strong economic growth is possible in an emissions-constrained world, when in fact much of our economy relies heavily on factors that will be affected by climate.

For example:

  • Agriculture depends on the weather — climate change will mean we have more frequent storms and droughts, affecting our ability to grow food for exports
  • Sea level rises will impact on low-lying coastal communities — these communities will need to move inland, which will be very costly
  • Continuing to power our transport system on fossil fuels will cost New Zealand through poorer air quality and associated health costs.

The new Bill’s emission target is intended to set New Zealand up to carry our share of the water in keeping global warming below 1.5°C, consistent with the Paris Agreement. The Bill puts in place the tools and institutions necessary for achieving this transition — but individuals and organisations will also need to make choices that are consistent with this future.

Like the Strike 4 Climate Change kids said on 15 March, we need climate action — and we need it now.

About the author

Bryan Field is a Senior Consultant with professional services firm MartinJenkins. He is an experienced researcher with a penchant for distilling information from data, and insights from information.

Bryan specialises in communicating complex information to non-technical audiences. He has deep experience in the Energy Sector, and on Climate Change issues gained from leading the Energy and Building Trends team at the Ministry of Business, Innovation and Employment (MBIE) for several years.

Since joining MartinJenkins in 2017, he has also worked on projects for the Ministry for the Environment, Interim Climate Change Committee and MBIE. Bryan has particular skills in modelling and analysis of Energy and Climate Change issues, and of the economic impacts of policy changes in these areas.

Bryan holds a Master of Science degree in Physics from the University of Otago.

Senior Consultant Bryan Field

Please give this article a clap, email MartinJenkins at admin@martinjenkins.co.nz and follow us on LinkedIn and Twitter.

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