Q&A: Climate change and the price of inaction
"If the world goes down we go too, regardless of how effective our local policies have been," Dr Geoff Bertram says. Photo / File A landmark UN report has warned the world has just a decade to limit global warming to 1.5C and little longer to keep within the Paris Agreement's absolute threshold of 2C. In New Zealand, where two thirds of the population live in areas vulnerable to flooding, scientists say hard calls will have to be made to ensure our country plays its part. Victoria University's Dr Geoff Bertram , whose broad research areas include climate change policy and environmental economics, shared his frank assessment of this week's news with science reporter Jamie Morton . Scientists have told us about the dramatic differences in environmental impact between 1.5C and 2C, which include 400,000 species being lost under 2C and a third to half that number under the 1.5C scenario. What's the economic cost to delaying action? The impact of climate change on the global economy is tough to estimate, but it would definitely involve several percentage points of GDP relative to the world with no climate change. The economic pressure from adjustment to serious carbon taxes will come in the near-ish future if dramatic policy measures are taken now, but if avoided, the damages would be loaded heavily to later years. Because the damages just go on increasing over centuries, and end in oblivion, they would dominate the analysis if allowed to. Yet techniques such as using high discount rates, and putting uncertainty bounds around the damages, are often used to push the damages out of the modelling picture. This is especially when the work is commissioned and funded by big corporate industry or by governments too scared to act for fear of political backlash, as tends to be the case. The price of delay for New Zealand is not especially great in "comparative-static" economic terms, but as global disintegration takes hold, it will probably cost us dearly in political and military terms. Beyond the comparative-static view of the issue, one has to look at the economic dynamics. Getting to "zero carbon" will mean quite massive technological change and economic restructuring, and the costs of achieving that go up rapidly the more quickly it has to happen. So, every year of policy delay is a year taken off the project timeline for transforming the New Zealand economy. Since Labour-Green-NZ First coalition came to power, another year has already been sliced off. The report points out that deep cuts to methane must be made immediately, alongside reductions in CO2 and other greenhouse gases. Industry figures argue the costs of rapidly ramping down methane emissions would have a damaging and disproportionate effect on New Zealand and its primary-based economy. What's the counter-argument? We're going to have to reduce our livestock count pretty drastically, and that will have a "damaging and disproportionate effect" on the farmers whose greed and denial have already had a dramatic and disproportionate effect on the rest of us who wanted agriculture faced with a carbon tax back in the early 2000s. So far as I am concerned, New Zealand's farmers have blown away the goodwill that might have earned them lots of compensation if they had agreed to be part of a progressive strategy a decade ago. Right now they are overdue for a direct hit, which Parliament will have to deliver. I'm not holding my breath though, given the power wielded by vested interests in this country. From an economic standpoint, a genuine strategy to get quickly to zero carbon is going to hurt some sectors and benefit others. The overall economic effect could be either positive or negative, depending on how fast the New Zealand market and population adjust to the new reality. Saving the planet will be the biggest business opportunity of the next couple of decades, with a lot of employment and investment involved. Once the fat cats stop protecting their patch - or are pushed aside - I am optimistic about dynamic economic response, provided the right incentives and sanctions are in place. What implications do you feel the report has for our Emissions Trading Scheme (ETS)? Are there big reforms that must be made to it in order to achieve the efficiencies that this report lays out? Our emissions trading scheme is a dog. It was designed to fail from the word go and has only got worse. The currently-being-considered changes to the scheme add uncertainty and complexity while opening yet more loopholes for manipulation, evasion and rent-seeking. Eventually, I think we shall have to switch to a straight-up carbon tax set at a serious level over $100 per tonne - and with no exemptions. Until we get over that political hurdle, I rate the ETS as an expensive waste of time. What are the economic benefits that come with strong climate action now? Where could we save, or generate wealth? That's tough to answer honestly, because I'm one of those economists who think that markets are pretty creative when confronted with genuine challenges, and it's not easy to guess what they will come up with. Rather than trying to invent fairy-tale stories about what the future holds, my interest is in getting the incentives and rules sorted out so that emissions are penalised, sequestration is rewarded, and defaulters are dealt to by confiscation and imprisonment. If market forces, properly directed, can't sort out the issue of how to get an economic win out of zero carbon, then by all means let's go quickly to command and control. There will be both benefits and costs, but the balance of narrowly-defined "economic" cost and benefit is of secondary importance, faced with the imperative of confronting the problem. Globally, what economic opportunities are there for New Zealand when it comes to green growth? Carbon forestry is top of my list. It's not simple, it involves difficult measurement issues, and it faces all sorts of international squabbling, but it relies on proven and reliable technology: we do know how to grow trees. All the stuff about innovative new low-emission agricultural techniques still has too big a slice of pie-in-the-sky to persuade me that it's necessarily a winner although the R&D is definitely worth doing. We have a real potential advantage in electrifying the economy with 100 per cent renewables, but at present, the biggest opportunities in that direction are blocked by the greed and obstruction of the dominant corporate interests that squat on our big renewable resources and see their profits threatened by distributed renewables. I think we will eventually have to re-nationalise the big electricity generation assets and put them into a totally new electrification policy framework that gets back to the focus on collective good and collective aspirations that the sector had prior to 1986. That's a big culture change. From an economic standpoint, do you feel New Zealand's current policy work - the Green Investment Fund, the Zero Carbon Act, the Climate Commissions and reforms flagged for the ETS - align with the kind of action this report calls for? No, they're not even in the hunt. We are still weaselling around, allowing rent-seeking vested interests to control and dominate the policy debate. There is nothing transformational on the policy horizon at this point. The fiscal straightjacket that Labour has locked itself into pretty well ensures nothing serious happens in this parliamentary term, and there's no party offering itself for election at present that is serious. Even the Greens are settling for self-destructive compromises as the price of sharing power with de facto climate change deniers. The comforting thing is that this is just a little local battle of minimal global significance. The fate of the world won't be decided here, and our big choices are ethical more than they're economic. If the world goes down we go too, regardless of how effective our local policies have been. If the world pulls itself out of this crisis it will be a different world by mid-century, economically speaking, and we'll share in the success. My moralistic self would like to think that if we have acted rather than free-ridden on the global effort we'll be rewarded, but you can never bet on things like that in the real world. Elsewhere in the markets, Synlait bounced back after a big fall yesterday.