New Zealand: Productivity Commission charts path to low carbon economy

BRIEF COUNSEL

The Productivity Commission has taken the gloves off in its issues paper on making the shift to a low emissions economy, saying that the journey will not be easy and that our current response is not strong enough.

The submission deadline is 2 October.

The Commission's brief

The Commission is tasked with identifying "options for how New Zealand could reduce its domestic greenhouse gas emissions through a transition towards a lower emissions future, while at the same time continuing to grow incomes and wellbeing".

This might be described as a minimal pain approach, but the Commission is blunt:

"[T]he shift from the old economy to a new, low emissions economy will be profound and widespread, transforming land use, the energy system, production methods and technology, regulatory frameworks and institutions, and business and political culture", and
"Given that delaying action will result in a more abrupt transition, [policymakers] will also need to find a path forward that protects vulnerable people, and supports firms and households to adjust in order to make the most of the opportunities that will be on offer".

ETS

The Commission notes that, although designed as an "all sectors, all gases" scheme, the ETS's implementation has diverged from this intention. In particular, agriculture has been excluded indefinitely since 2013 and, although intended to be a cap and trade system, there has been no cap since 2009 when the allocation of NZUs was explicitly tied to retaining New Zealand's export competitiveness.

The result, according to the Ministry for the Environment, is that it has "not significantly influenced domestic emissions or business decisions".

However a more serious approach is clearly on the way. The Commission's inquiry will be an important part of that but the government is also midway through a separate review of the ETS's operation and effectiveness, although this excludes biological emissions from agriculture.

Tools

The Commission considers some of the international models on offer, including the UK Climate Change Act 2008 which the outgoing Parliamentary Commissioner of the Environment also recently recommended. Features include an independent commission which recommends carbon targets and budgets which become legally binding, once agreed by the government.

Labour and the Greens have endorsed this approach but National is holding back pending the completion of the Productivity Commission's inquiry.

Other proposals discussed are:

  • Generation Zero's advocacy of a Zero Carbon Act which is based on the UK legislation but incorporates a "two baskets" approach (which treats long-lived gases such as CO2 differently to short lived gases) and a "firewall" principle (under which targets would apply only to domestic emissions, precluding the use of international trading in permits), and
  • Motu's proposal, again picking up elements of the UK model, that an expert independent committee be established to make the ETS more adaptive by setting sector by sector reduction paths with a price floor and a price ceiling, to be revised every five years in light of new information on prices, abatement costs, technological developments, levels of disruption and emissions trends.

In the absence of these ideas being formally advanced at this time, a number of mitigation sources and opportunities have been identified and submissions have been invited (refer table below). The wider implications of many of these initiatives could be significant for some sectors.

Emissions sources and mitigation opportunities

The Commission notes that the reason many of the mitigation responses identified in the sector analysis are not being actively or sufficiently pursued is that the carbon price has been too low to influence behaviour.

Sector Mitigation sources
Agriculture

Accounts for almost half of total emissions, nearly all from livestock in the form of methane and nitrous oxide gases

New Zealand is at the forefront of international research and several promising technologies are in development – low emission feeds, methane and nitrous oxide inhibitors, a methane vaccine, targeted breeding

But a low cost technology that can deliver a dramatic reduction seems "far off and may not emerge"

Improve farm management practices

Target the amount of methane in rumen

Reduce nitrous oxide emitted from soils

Reduce livestock numbers


Feedback sought on:

  • the extent to which it is feasible to reliably measure biological emissions at farm level
  • the main opportunities and barriers to emissions reduction in agriculture
  • issues to consider in encouraging alternative land uses ?

Forestry
Currently offset around 30% of New Zealand's emissions but the land under forestry is reducing and after 2020 many forests will reach harvest maturity Encourage afforestation
Feedback sought on how to encourage more tree planting ?
Transport
Our second biggest source of emissions, contributing around 19% - 90% of which comes from road vehicles

Encourage switch to electric vehicles

Reduce vehicle use through intelligent transport systems and greater use of public transport

Feedback sought on how best to promote electric vehicles and on other emission reducing options ?
Energy for manufacturing
?Contributes around 11% of GHG emissions through the use of fossil fuels, e.g. to dry milk powder or in the production of chemicals

Improve energy efficiency

Switch to alternative energy sources

Feedback sought on how to reduce the dependence on fossil fuels (although the difficulty of achieving the required heat for some processes is acknowledged by the Commission) ?
Industrial processes and products
Contributes around 7% of GHG emissions. Iron, steel and aluminium production is the largest single source of industrial emissions, followed by hydrofluorocarbons in refrigeration and air conditioning

Potential new low carbon methods of production

Shifting end uses to other low-carbon products

Carbon capture and sequestration

Feedback sought on the main opportunities and barriers to reducing emissions in industrial processes and product use
Buildings
Although the commercial and residential sector account for only a tiny proportion of emissions, generally arising from the use of fossil fuels for heating, this is judged an important area as there is scope for reasonably easy gains

Improve new building design for better energy performance

Retrofit existing buildings

Waste
New Zealand's waste emissions per person are second highest among developed countries. Most of this comes from a large number of small unmanaged waste sites, including farm fills The government already has a number of initiatives in place
Feedback sought on any further actions which might be taken

Target

Under the Paris Agreement, New Zealand has committed to reduce emissions to 30% below 2005 levels by 2030. This sits alongside the commitment in the Climate Change Response Act 2002 to achieve a 50% reduction below 1990 levels by 2050.

Timeline

Submissions close on 2 October.

A draft report will be released for further consultation in February and the final recommendations will be with the government by 30 June 2018.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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