Muddled economics ignore reality

By Bryan Walker 04/11/2009

’The analysis of the NZIER in their latest report is muddled and superficial’  Exactly. I was relieved to see this response from the Parliamentary Commissioner for the Environment, Dr. Jan Wright, to the report the NZ Institute for Economic Research has just published on sustainable development priorities.

The report’s findings on climate change are a challenge to the imagination.  It provides some criteria for measuring priorities which lead to the conclusion that ’the main focus of climate change policy in recent years, emissions reduction, is not the most crucial priority for environmental policy.’

In fact the report demotes reducing greenhouse right to the bottom of the list of priorities.  Top equal are improving urban air quality and reducing pressure on biodiversity and ecosystems. Next, strangely, comes our international obligations on climate change which by some perverse economic logic do not include reducing emissions.  Adaptation to climate change is relatively high on the ranking list.  Here’s some of the convoluted reasoning:

’Maintaining New Zealand’s reputation as a constructive, pragmatic participant in international efforts is a higher priority in climate change policy than pursuing an all gases all sectors carbon pricing scheme ahead of other countries, which poses significant risk of costly short term business contraction and carbon leakage that may take some time to recover from. Focusing action on things that are controllable would give reputation a higher priority than restraining atmospheric emissions, and similarly the risks to land, water and associated infrastructure would imply a greater emphasis on adaptation issues and the avoidance of decisions that exacerbate future risks.’

Apparently the reason why we don’t need to give high priority to emissions reduction is because we contribute only 0.3% of global emissions ’and even reducing these to zero would have no appreciable effect on the climatic changes experienced in New Zealand.’ Why New Zealand?  Climate change is a global matter.  The very next sentence acknowledges that:

 ’Atmospheric composition is a global externality so it requires a co-ordinated international response to effect any change. New Zealand’s interest is in doing what it needs to support the emergence of an effective international response.’

Evidently the writers consider that ’doing what it needs’ doesn’t include reducing its own emissions.  I’m sure that will go down well in world forums. Imagine the NZ representatives announcing ’We’re here to support an effective international response from other nations than our own.’

Some of the report could be straight out of government policy. Emissions reduction is going to hurt the economy, and must therefore be limited to what we judge the economy can cope with. Not a hint of any possibility that there could be benefit to the economy from its greening:

’…pursuing aspirational ’stretch’ targets for emissions reduction which are unlikely to be met without incurring economic and social disruption is hardly going to enhance New Zealand’s reputation for sensible policy or attract other countries to take on binding emission reduction commitments. The ’leadership’ that New Zealand can show is limited by the likelihood that others will follow.’

Economically timorous, internationally naïve, but above all showing no sign of any understanding of the magnitude of the threat from climate change. I had just finished writing the review of Tim Flannery’s Now or Never when I sadly encountered the NZIER report. There are economists who grapple with the reality, as Nicholas Stern and Paul Krugman exemplify.  But evidently not the NZIER.

Last word to Jan Wright:

’Climate change is the biggest environmental challenge of our time. I am shocked and disappointed to see a report suggesting otherwise. The report is fundamentally flawed.’