Wednesday, December 15, 2021

Climate Change: Funding the transition

Finance Minister Grant Robertson released his annual Budget Policy statement today, which included a $4.5 billion fund to fight climate change:

The cornerstone of this new focus will be a Climate Emergency Response Fund (CERF), made up of $4.5 billion in proceeds from the Emissions Trading Scheme (ETS). Half of the fund will go to capital expenditure and half to ongoing spending.

Already, some $840 million to fund the Government’s increased international climate aid commitments has been allocated from the CERF. That leaves about half a billion dollars a year for capital spending over the next four years and about $300 million for the operating costs of new schemes.

The CERF will also bankroll efforts to adapt to the coming impacts of climate change in Budgets after 2022, in addition to reducing emissions.

Taking climate aid out of it suggests not all of the spending will be new (I'd expect top-ups to the clean car rebate scheme if it works and people buy fewer utes to come out of it as well). But that's still a big pile of cash. And you can do a hell of a lot with half a billion of capital funding a year. For example:
  • For $300 million a year, we could build a 150MW windfarm or solar plant every year to help decarbonise electricity generation and drive Huntly out of business;
  • For a one-off-cost of roughly $500 million, we could clean up Glenbrook and transition it to clean steel production;
  • For $50 million a year, we can scale up biofuel production to reduce transport emissions;
  • For $75 million a year, we can put solar panels on 10,000 state houses a year, reducing the power bills of the most vulnerable while expanding renewable generation capacity. Or we could run a subsidy scheme along the lines of the insulation subsidy for twice that many homes;
  • For $50 million a year, we can plant 2500 hectares of native forest as a permanent carbon sink, increasing biodiversity while returning carbon to the biosphere;
  • For $100 million a year, we could fund or subsidise 50,000 e-bikes a year to boost uptake and build towards giving free e-bikes to everyone (though arguably this should be funded from the same pool as the clean car rebate, by increasing fees on polluting utes).

There are other options where the costs are less obvious: funding rail transport or coastal shipping to get trucks off the roads, or funding the transmission line upgrades which are limiting industrial electrification, or building the network of EV charging stations. And there'll be all sorts of little things we can do as well. Many of the ideas above are already cost-effective at the government's internal carbon price, meaning they are a long-term saving for New Zealand which we should fund anyway. Having a dedicated pot of cash for these things means we can start actually doing it. Obviously, more money would be better, and allow a faster transition. But this is a good start, and hopefully when free allocations are cut and agriculture is bought into the ETS, we'll see more money to push things faster.