Monday, February 27, 2023

Climate Change: The cost of not cutting emissions

Rod Oram has a piece of Newsroom this week, calling for this year's election to be a referendum on climate action, and specifically looking at the National Party's policy hole in this area. Oram lays out a long list of questions national needs to answer to gain any credibility, but the TL;DR is right at the beginning: "says it is committed to climate. But it has never articulated a comprehensive or convincing suite of policies. And the little it has said on climate is hedged one way or another". The party simply lacks credibility, and it is hard to see how the current lineup, packed with climate change deniers and foot-draggers and cow-lickers, can ever gain any.

But in passing, Oram also mentions this horrifying factoid:

Currently the price of carbon is only $70 a tonne, compared with €100 ($170) in the EU.
[NZ carbon prices have in fact dropped to NZ$67.50, which shows what the market thinks of the chance of Labour actually acting to reduce emissions].

This is horrifying because the climate policy of successive governments has been to make promises of emissions reductions they have no intention of meeting, backed by a pledge to "simply" buy credits on the international market to meet any shortfall. This is problematic for a number of reasons - it is basicly a commitment to shirk our commitments - but purely in practical terms its a failure. The idea of an "international market" is currently a complete fantasy, so there's nowhere we can actually buy these "credits" from anyway.

But imagine for a moment that an international carbon market was not a Treasury fantasy. The current EU carbon price is a very bad sign for that fantasy, because it suggests that the cost of meeting (or rather, shirking) our climate commitments will be far higher than expected. The government currently prices carbon at $150 / ton internally to reflect the expected cost of buying credits. The EU carbon cost is already higher than that, so it seems unlikely that it will be cheaper by 2030. Instead, it seems like it will be significantly more expensive (I've seen numbers like €140 (NZ$240) / ton required to meet the EU's 2030 carbon targets, but projections have tended to be significant underestimates). The upshot: even if it wasn't a fantasy, Treasury's policy looks like it will be even more staggeringly expensive than expected.

(But then, part of the fantasy was always that foreign reductions would be cheaper. In other words, Treasury was betting on fraud and bullshit to make the numbers look good, without caring about the actual underlying emissions situation. Typical bean-counters.)

The policy implication in turn is that we need an even stronger focus on domestic emissions reductions. Every ton of carbon we cut is one we don't have to pay for. The best way of doing this is to free the ETS and cut credit supply so prices can rise. But also the internal price the government uses to assess the costs and benefits of policy needs to increase significantly to ensure emissions are costed correctly. Otherwise, we're effectively committing to a high emissions pathway, and a very expensive bill post-2030.

...but I guess the government is betting that that will just be somebody else's problem.