Thursday, September 23, 2021

MBIE's muppetry on carbon prices

A while ago I snarked on Twitter about how awful MBIE's carbon price modelling is: in their Energy in New Zealand 2020 report, they made the following assumption:

Apart from the Environmental scenario, carbon prices are assumed to increase from NZD$25 per tonne of carbon dioxide in 2019 to NZD$66 per tonne by 2050 in all the scenarios. In the Environmental scenario, carbon prices rise to NZD$154 (USD$100) per tonne by 2050.
When they published that in August 2020, carbon prices were already above $35 / ton, so it immediately failed the reality test. And since then, carbon prices have risen to $64.50 / ton, the government is valuing it internally at $150, and the Climate Change Commission has said it should be that by 2030, and $250 / ton by 2050. So in the leadup to the release of this year's report, I sent MBIE an OIA request for the modelling behind the carbon prices it would inevitably contain. After a very dubious extension, I finally got the response back today: a refusal as the information was publicly available, in the report. So what does it actually say? sadly, it seems that MBIE is still in denial:
The EDGS 2019’s Reference scenario assumes that carbon prices will increase to NZD$66 (in 2017 dollars) per tonne by 2050. In the updated projection, we assume a constant $35 per tonne in real terms in 2019 dollars and have modelled a sensitivity analysis of a higher carbon price. In this sensitivity analysis, emissions values for carbon reaches $250 per tonne by 2050.
[Emphasis added]

I and a lot of other people have already paid attention to the sensitivity analysis, and what it says about the need for complementary policies. But I'd missed that bit: MBIE's core model of energy use and what will be built assumes a carbon price of just $35 a ton, forever. For the record, when that was published in August, it was already $50, and today its $64.50 (or $61.52 in 2019 terms), nearly twice what they assumed. And MBIE's modellers couldn't even be arsed looking out the window (or on CommTrade) to check if what they were saying was even close to reality.

This matters. The carbon price is now one of the most important numbers in energy policy. The government's entire view of our future energy system - how much we will use, how much we will need, how much we will need to build to get there - is based on this. The cost-benefit analyses of major energy projects will be based on power prices based on this. And MBIE is systematically getting it wrong, by a factor of 100%, year after year.

This sort of incompetence might be acceptable in the private sector. But it should not be acceptable in our public service. MBIE needs to get itself better modellers. Ones who can actually look out a window every so often.