Higher emissions pricing needed now - Productivity Commission

The Productivity Commission has underscored the need for “early, strong action” in the form of higher emissions prices “from now to 2030”, in its low emissions economy prescription, released today.

The Commission has put its weight behind what is known as the “two baskets” approach.  This would set a net zero target for long-lived greenhouse gases (GHGs) - CO2 and nitrous oxide – but would seek only to reduce short-lived GHGs like methane.

Broad strategy intact

The Commission’s broad strategy has survived the second consultation round.  This strategy relies on a carbon price of between $75 and $200 per tonne of CO2e equivalent and some major changes across the economy, including:

  • a large afforestation programme
  • electrification of transport and industrial processing, and
  • changes to agricultural production, away from sheep and beef farming and toward horticulture. 

For further details, refer to our earlier commentary A prescription for carbon neutrality by 2050.

But the Commission has also responded to the nearly 200 further submissions received.  In particular, it has strengthened its discussion of investment and innovation and has sharpened its sector level analysis.     

The Commission gets a bit cuddly

Although the final report continues to emphasise the need for urgency, the Commission has softened the message in a “strategic assessment” which identifies the advantages New Zealand has in meeting the climate change challenge.  These include our light population, extensive land available for forest planting and high proportion of renewable energy.

However, on the other side of the ledger, is the age and slow turnover rate of our vehicle fleet and the limited scope to make large emissions reductions on livestock farms without reducing output.

Immediate priorities  

The Commission has made 79 separate recommendations affecting almost every aspect of the economy, but has identified three broad areas of “particular priority” for implementation within the next two years.

These are:

  • strengthening the Emissions Trading Scheme (ETS) and introducing biogenic methane separately into the ETS emissions pricing system – either by creating a “dual cap" ETS or through an alternative quota mechanism
  • providing through the Zero Carbon Bill for long-term GHG emissions reduction targets with accompanying “emissions budgets" supported by an independent Climate Change Commission, and
  • significantly increasing government investment in promoting innovation.

Complementary policies

In support of these “three foundations”, the Commission recommends that the following policies be prioritised “to avoid investments that lock in emissions for an extended period”:

  • emissions standards for imported cars
  • a feebate scheme to accelerate the uptake of electric vehicles
  • limits on the installation of new fossil-fuel powered heating systems, and
  • the use of shadow pricing in government investment decisions (adding a hypothetical surcharge to market prices for goods or services engaging significant emissions).  

It also wants early action on:

  • regulatory changes to speed consenting times and facilitate the expansion of grid-scale and distributed renewable energy generation
  • reducing barriers to innovative technologies that allow consumers to better manage their electricity demand during peak times, and
  • recognition in the ETS for the carbon sequestered in harvested wood products.

Two baskets

The Commission’s advocacy for the “two baskets” approach will reinforce perceptions created by both Labour and National that this will be the target enshrined in the Zero Carbon Bill. 

In terms of ambition, it sits in the middle of the three targets offered in the public consultation on the Bill.  The other two were net zero carbon dioxide (less ambitious) and net zero emissions (more ambitious). 

However, as a note released by the Parliamentary Commissioner for the Environment last week makes clear, even stabilising (as opposed to reducing) the warming effect of livestock methane would require emissions to be reduced by at least 10% to 22% below 2016 levels by 2050.  

Strong message to the politicians

National has indicated a willingness to support the Zero Carbon Bill but there seems little agreement beyond that, and there will clearly be political points to be won in opposing some of the more painful adjustments that the Commission's transition pathway would require.

But the Commission is emphatic that these temptations must be resisted – not only in the political sphere but also in the boardroom and in the home, saying:

“While challenging, the transition is achievable given concerted commitment and effort across government, business, households and communities – up to and beyond 2050".

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