Monday, May 22, 2023

Climate Change: The uncertainty problem

When the government announced its $140 million carbon-reduction subsidy for NZ Steel yesterday, practically everyone's first thought was "why aren't they paying for it themselves?" The National Party based their entire response on this, denouncing the deal as corporate welfare, and arguing that the ETS should incentivise companies to reduce emissions. So why doesn't it? In Stuff, Luke Malpass off-handedly mentions one of the barriers: "In global companies, the internal rate of return required for new capital expenditure (in items such as furnaces, for example) can be high to ensure that capital is profitably employed". In other words, they refuse to invest unless the payoff is large and immediate (like next-quarter-immediate), because of (unrealisticly) high expectations of return. A cynic might argue that there's also a business culture problem here: returns have to be immediate so the right executive gets the credit and the bonus before they skip off to their next job; long term investment is thus discouraged because IBG YBG (this is arguably also a problem for Ministers, though at least they think in three year chunks rather than quarters).

But the bigger problem is certainty. This means a lot of different things (often, weirdly, it means that a long-established and therefore certain policy must change, because business does not like it), but in this case it means that policy must be stable enough to ensure that when businesses invest, they make the profits they expect, without having their calculations ruined and the rug suddenly pulled out from under them by things like "democracy" or "insufficiently capitalist government" (the fact that this is framed as a problem for government rather than a problem for business tells us who owns our media and who they think is in charge and who is subordinate). In the case of price-driven climate policy like the ETS, it means two things: that the price needs to keep existing, and arguably that it needs to keep rising (or at least not fall significantly). If these two things are true, then businesses can invest in decarbonisation, secure in the knowledge that their calculations will hold and that they will in fact profit.

You don't have to look too hard to see the problem here. Firstly, there's the government, which is constantly undermining its own policy for fear it might actually work and put some filthy polluter out of business or something (you know, what it is meant to do). And then there's the opposition, which is chock-full of climate change deniers, has a track-record of gutting policy when in government, and constantly opposes any policy whatsoever. For those in doubt about the latter, National is on-record as opposing agricultural emissions pricing, the clean car discount and standard, the GIDI scheme to reduce industrial and process emissions, and the offshore oil and gas exploration ban. And ACT, National's only coalition option, are even more extreme. If elected, its pretty obvious that they'll do what they did in 2009, trash climate change policy, fuck the carbon market, and in the process, ruin any business who invested in reducing emissions. And since they'll get elected sometime - if not this year, then in three years' time - then they are a huge risk and a huge deterrent for any investment in decarbonisation. They are the biggest barrier to their own stated policy.

Imagine for a moment that National was actually serious about that policy, and that they wanted to actually fight climate change, rather than just ruin the world for the profit of the rich (or, more accurately, stand by and let it happen and shrug their shoulders and say "what can you do" because they're ideologically opposed to the idea that government can do anything beyond collect a Ministerial salary and cruise round in the back of a Ministerial limo). What would they need to do? Most obviously: signal that seriousness. Stop opposing policy, and start demanding more. Stop criticising it as "bad for business" and start criticising it as too weak. Demand faster action and stronger targets. Demand lower ETS amounts and higher carbon prices. Stop engaging in climate denial, and violently defenestrate their existing cadre of deniers. Shoot the cow in the room and tell Federated Farmers that they will have to play their part and pay their way and cut their emissions like everybody else, and that there will be no special treatment for our dirtiest, most inefficient sector. Otherwise, anything they say on climate change will basicly be a failure, because it will have no credibility, and the businesses they want to do the work will have no certainty.

I don't for a moment imagine National will do this, at least not until they have no other option. Climate change denial and knee-jerk anti-environmentalism is just too ingrained in their party, even though the preservation of the ecosystem is as conservative a policy as you can get. Which means the risk that they will get elected and unravel everything is a real constraint on policy, requiring the government to de-risk decarbonisation by paying up front for it. If National doesn't like that, they have only themselves to blame.