Productivity Commission on a low-emissions economy – Expert reaction

A draft report from the Productivity Commission has made a series of recommendations for how New Zealand can transition to a low-emissions economy.

The draft report, released today, is open for submissions until Friday 8 June – the final report will be presented to Government in the second half of 2018. The Commisson has made a series of recommendations, including include emissions pricing that includes agriculture, more resources for low-emissions research and development, especially for agriculture, and consideration of a ‘feebate’ scheme for imported vehicles to reward energy-efficiency.

The report has been covered by local media, including:

NZ Herald: Productivity Commission: Time for agriculture to join the Emissions Trading Scheme Productivity Commission prescribes more trees, fewer cows to meeting carbon emissions targets
Newshub: Low-emission economy difficult but essential – report
Radio NZ: Higher prices needed for low carbon economy
TVNZ: NZ can be carbon-neutral by 2050 if people buy electric cars – Productivity Commission
Newsroom: Carbon price may have to rise ten fold
Productivity Commission calls for drastic carbon price increases, the inclusion of agriculture in the ETS, huge land-use changes, and rebates for clean vehicle imports

The SMC gathered expert reaction to the report.

Associate Professor Bronwyn Hayward, Political Science and International Relations, University of Canterbury, comments:

“The Productivity Commission draft report on a low-emissions economy is very welcome. The new challenge that this report reveals is how we will ensure the transition to a low carbon economy is just and fair for all the community. Two key issues stand out. First, agriculture like other industries will need certainty in planning, it is not yet clear that the ETS system can ensure stable long-term pricing signals or whether another system, for example, carbon taxation, might effectively achieve the same outcome with more certainty for farmers. This is a question that may frustrate economists who have worked for a long time to make an ETS work in New Zealand, but we can’t fall in love with our policy tools, we have to keep asking ourselves, are we sure this is the most effective way to achieve a just and fair transition?

“Secondly, the Productivity Commission draft report on a low-emissions economy highlights a number of ways we can mitigate greenhouse gases but it also underscores New Zealand’s worrying slowness around adaptation planning. Effective adaption is part of cutting greenhouse gases, but it also ensures we consider how changes in both climate and our policy will impact on communities and businesses. People are already struggling to cope with some of the recent effects of a changing climate. New Zealand productivity will require that close attention is paid to adaptation to ensure not only that all policy changes are fair and possible impacts on the community reduced, but that the impact of climate change on the vulnerable, on children, on the elderly, on local businesses and on homeowners, is reduced as quickly and effectively as possible.”

Conflict of interest statement: Bronwyn Hayward is a lead author of the IPCC special report on climate change at 1.5 and newly appointed coordinating lead author for the IPCC Assessment Round 6, co-leading the Cities and climate change chapter in Working Group 2. However, she makes these comments as an individual NOT as a member of IPCC.

Professor Ralph Sims, Professor of Sustainable Energy, Massey University, comments:

“The timing of the Productivity Commission’s draft report released for public consultation is impeccable. Their work over the past year or so will feed neatly into the efforts of the newly-established Interim Climate Change Committee. The Productivity Commission’s task was set by the previous Government, and the Interim Committee stems from policies of the current Government seeking to introduce a ‘Zero-Carbon Act’. This serves to give hope that gaining cross-party agreement on climate change policies will be possible. Indeed it is essential: the issues are long-term, businesses need some certainty, and all sectors, including agriculture, will need to play their part.

“If New Zealand is to meet its international climate mitigation obligations by 2030 and strive to reach net zero emissions by 2050, then as confirmed in the report, urgent actions are needed.

“Even after additional analysis, the options and recommendations contained in the Commission’s document largely reflect those in the Royal Society’s Low-carbon report (2016), the Vivid Economics report (2017), and the recent Westpac NZ report. So there are no surprises in terms of the opportunities presented for low-carbon technology uptake to reduce domestic emissions (including agriculture), the policies needed to achieve social change including adding agriculture to the ETS, and the clear understanding that planting more forests, and purchasing carbon credits from off-shore, can only be temporary options to buy a little time at the most.

“The challenge for Government on accepting the recommendations will be to remain bold in their convictions since many industries, businesses, and members of the public have yet to come to terms with what a low-carbon future for New Zealand implies.

“The recent furore over the Government’s statement that no more permits for off-shore oil/gas exploration will be issued is but one example.

“Yet we have no choice but to transition away from all fossil fuels starting from now. We will have to reduce not just carbon dioxide but all greenhouse gas emissions. We will not be alone but will be working alongside the vast majority of countries in aiming to reach near net zero emissions in around just 30 years time in order to keep the climate of our planet from becoming untenable.

“This independent analysis by the Productivity Commission will serve to give confidence to the Government, the Interim Climate Committee, and all political parties, that there are solutions and opportunities, but that urgency is required. Reducing our emissions can only be achieved by strong leadership.”

No conflict of interest.

Professor Shaun Hendy, Director of Te Pūnaha Matatini at the University of Auckland, comments:

“The Commission’s report makes clear that science and innovation will be a necessary part of New Zealand’s transition to a low-carbon emissions economy. The report also makes a compelling case that government will need to take a role in stimulating green innovation. Sitting on the sidelines is not an option. We will need to be fast adopters of green technologies if our high-emissions economy is to remain competitive, and we risk missing new economic opportunities if we don’t invest in our own green science and innovation.

“I hope the government takes the report’s recommendations on strengthening green innovation seriously. I would go further by establishing a green science and innovation fund, giving Callaghan Innovation the mandate to take a lead in this area, and invest in the innovation ecosystem more broadly to support commercialisation of green technologies in New Zealand.”

Conflict of interest statement: I am an Associate Investigator in the MacDiarmid Institute, which is named in the report as a research provider in this area.

Associate Professor Anita Wreford, AERU, Lincoln University, comments:

“This is a comprehensive report and identifies the main issues clearly. I strongly agree that having policy certainty and clear commitment from the Government is critical.

“My main expertise is in the primary sector so most of my comments are focused here.

“While this chapter (10) and the transition pathways synthesise the current situation accurately, the focus is almost exclusively on our established land uses and maintaining current sectoral silos; however, the necessity to decarbonise our economy also provides an opportunity to use our land in much more innovative and diverse ways. The analysis assumes current land uses will remain broadly the same over the coming decades, with shifts in their relative sizes.

“There is an opportunity here to begin to think about more radical mixes of land use that provide much wider environmental as well as social, cultural and economic benefits. I do agree that it is definitely time to factor the environmental costs of agriculture into decisions, and including agriculture into the ETS will help to level the playing field for systems with a lower carbon footprint.

“While our international commitments under the Paris Agreement provide a strong driver for decarbonisation, it is important that other environmental impacts are also recognised when designing policies. Greenhouse gas emissions should not be considered in isolation from water and soil quality or biodiversity.

“The report places a strong emphasis on forests for decarbonising. While trees certainly have an essential role to play, it is important that we consider carefully which types of trees are planted and where (and that this will remain suitable under a changing climate) in order to maximise all the benefits that trees provide in addition to carbon sequestration and timber production (such as biodiversity, cultural, and recreational values).

“The report does acknowledge this but it will be important to ensure that there are appropriate incentives for forests beyond monoculture systems, and that a strategic approach to planting is undertaken.”

No conflict of interest.

Dr Nigel Isaacs, senior lecturer, School of Architecture, Victoria University of Wellington, comments:

“A timid, backward focused approach to a problem requiring a bold, future looking vision.

“This report, commissioned by the previous National-led Government, views the problem of reducing New Zealand’s Greenhouse Gas (GHG) emissions through the framework of economic policy. Climate change is not a conventional economic problem, so while economic policy may play a role in helping New Zealand deal with it, many other tools are needed.

“The terms of reference envisaged the need for different tools, asking the Commission to consider ‘different pathways along which the New Zealand economy could grow and develop’ (p ii), yet the report ignores the many opportunities this could provide and focuses on the economic policy responses.

“Although the scenarios consider some of the interactions within and between the different economic sectors, there are opportunities for further, more detailed analysis. Neither electricity or petroleum fuels are valuable without a use – yet these uses are what drive the production of GHG.

“For example, while the report focuses on light transport, Statistics NZ’s energy use surveys identified five industry groups having 90% or more of their energy coming from petroleum – logging (99%), aquaculture (87%), fishing (100%), road freight (97%), road passenger (96%) and construction (89%). If these industries are going to continue to exist, they will require far more than just policy instruments to support their shift to a low carbon future. Increasing prices through an Emissions Trading Scheme (ETS) may have an immediate effect, yet it will take many years to change the fleet structure – including vehicle size and technology

“On the positive side, the report suggests a move away from the policy emphasis in recent years on transport, land-use and waste stream options that have not reduced GHG emissions. It recognises the limits to shifting the electricity system, although it does not explore in any detail opportunities for making major structural changes to the energy supply system.

“The report also recognises the need for high-quality data, not only on the supply but also the demand. The lack of end-use data is a major constraint to helping develop the most appropriate strategies to reduce New Zealand’s GHG emissions

“The report notes there are likely to be benefits from a future reduction in GHG which include cleaner air and water, and opportunities for increased employment, exports and productivity. It is interesting to speculate that if these reductions are cost-effective today (and many are no-cost or low-cost), the same benefits could be achieved without a focus on GHG – the question is why has the market not taken these opportunities?

Built Environment – Buildings

“The report uses New Zealand’s high renewable electricity generation to conclude that sectors with high electricity use are not important for reducing GHG emissions. When coupled with the comparatively small proportion of GHG emissions coming from the built environment, this sector has been largely ignored by the report or its supporting scenario analysis (Chapter 3).

“A consequence of this is that opportunities (and hence consequential benefits) for shifting demand have also ignored e.g. could the built environment make greater direct use of low-GHG emission fuels (e.g. biomass) and hence free up renewable electricity for more productive use? What impact might this have on the expensive peak electricity generation? What technology investments would be required to create low emissions space heating? What changes could be made to existing buildings to reduce their grid-electricity demand? These questions, and many more, are relevant to all building types – residential, commercial, industrial and agricultural.

“The report is concerned that the New Zealand Building Code ‘does not present barriers to building technologies and materials with lower embodied emissions’. There are now many years of New Zealand research showing that while the embodied energy and emissions are important, the lifetime use of the building is at least, if not more important. There is little value in focusing on one aspect (possibly because it is easily measurable) while ignoring the overall performance – the consequences of which may be higher overall emissions.”

Nigel Isaacs was one of the co-authors of the Royal Society of New Zealand’s 2016 report “Transition to a Low-Carbon Economy for New Zealand”. He has led research projects into energy use in New Zealand houses (HEEP), offices and retail buildings (BEES), schools and hotels.

Dr Anna L. Berka, research fellow, Energy Centre, University of Auckland, comments:

Overall assessment

“This is a comprehensive, objective and fair analysis of New Zealand’s mitigation options that builds on New Zealand’s existing capabilities and institutional frameworks.

“The institutional framework it proposes to govern and co-ordinate emissions reductions is based on the UK model, which since 2008 when it was put in place has been by and large successful (although UK targets to date have been achieved largely through development of renewable electricity, and not without problems).

“It fully recognises our historical failure to develop stable and effective demand pull and supply push policies, and provides strong support based on both empirical analysis and public consultation processes for some obvious and necessary reforms, many of which have been on the table for some years.

Potential risks and aspects missing from the report 

“The success of this plan will stand or fall on cross-party consensus for legislated long-term GHG emissions reductions targets, as well as a long-term commitment from the government towards the proposed independent advisory body that will measure progress over time and inform ongoing policy decisions.

“While it states that ‘significant adjustment to the current distribution pricing and electricity regulatory regime’ are necessary’ (F12.4, p. 340), it falls short on making detailed recommendations for the electricity sector, delegating energy policy decisions to the Electricity Authority but at the same time acknowledging that the Electricity Authority is merely a regulatory authority with a narrowly defined role that is limited to ensuring energy security and low-cost electricity.

“This means that this report leaves important questions around fair and viable access to the grid, ability of non-utilities to sell power or ancillary services (such as frequency and inertia services) within the current market context in hands of the EA consultation processes. It does not provide an independent assessment of how proposed reforms (F12.4, p. 340) affect the speed of transition towards 100 per cent renewable electricity.

“While the report provides a framework for emissions governance, it is unclear whether and how energy policy making would be allocated across the Electricity Authority, at ministerial level by MBIE and MfE, or also/instead fall in the hands of the proposed independent Climate Change Commission.

“It does not provide clear arguments for why it singles out electricity as an area where policies to reduce risk (i.e. demand-pull or supply push policies) are not needed on the basis that it would distort the beneficial effects of the ETS (as opposed to land use change, agriculture and transport – all of which are likely to see substantial technological change in the next few decades).

“Despite a focus on afforestation and land use change, it is largely silent on potential synergies of these objectives with bioenergy and biofuel development as well as mechanisms to ensure multifunctional and sustainable forest use (e.g. tourism and recreation).

What policy changes are New Zealanders likely to see, based on this report?

  • High emission, older vehicles will become more expensive and newer, low-emitting vehicles relatively less expensive.
  • Better charging facilities for electric vehicles (EVs).
  • More EV fleets in public organisations.
  • More public investment in non-road (rail) transport infrastructure.
  • More pro-active management of road congestion.
  • Higher charges for waste disposal.
  • Targeted finance (grants, loans) for research institutes, businesses and start-ups in forestry, horticulture / agriculture, housing, transport and industrial processing efficiency domains, but not for distributed generation, grid integration, demand side management, bioenergy or biofuels.
  • It will become easier for consumers to connect generation and storage assets to the grid and they are likely to see new mechanisms to compensate them for grid injection, load-shifting, balancing and ancillary services (depending on outcome of ongoing EA consultations).
  • Time-of-use pricing for residential electricity consumers

In which ways is this report most ambitious?

“By including all land use including agriculture in New Zealand’s Emissions Trading Scheme. (This makes the ETS the primary policy tool to incentivise necessary land use change, in combination with R&D investment).

What are the main recommended mitigation measures?

“The report sets out a raft of demand pull and supply push policies, primarily in agriculture and transport but also extending to other domains, each embedded in legislated and quantified GHG emission reduction targets.

“The main interventions proposed are:

  1. A reform of the ETS (emissions trading scheme) to ensure that carbon prices that will influence the behaviour of large emitters, and provide a stable policy mechanism on which long-term investment decisions can be made, in particular: to drive investment towards increased renewable electricity supply.
  2. Afforestation on marginally profitable beef and sheep farms (at comparable rates as to conversion rates in the past 30 years).
  3. Support programmes for low emission farming practices.
  4. A feebate scheme imposing taxes or rebates based on emissions intensity on imported vehicles.
  5. Continued public procurement in EV and public investment in EV infrastructure.
  6. More ambitious building standards.”