Rod Oram: Why earlier is better for climate change action


Many sectors gain, a few suffer in the transition to a low carbon economy

Rod Oram looks at a new report on the economic benefits of taking climate change action and finds plenty of reasons for taking action earlier rather than later.

Westpac’s report this week on the economic impact of climate change performs a useful service. It shows the direction of travel for five major sectors, concluding they would all benefit from beginning to adapt to climate change now rather than later.

On our long and hard journey to a low emissions economy, the electricity and forestry sectors will be the biggest winners of the five; agriculture, particularly dairy, the biggest loser; and transport and tourism in the middle.

The chart above, though, gives a high level view of many more sectors. It shows the vast majority of them will enjoy greater growth from adapting to climate change. Those that have the easiest transitions, gain the biggest benefits.

Conversely, those with the toughest task because of the nature of their current technology will fight the hardest for the status quo. The two fiercest holdouts are agriculture and fossil fuels, as we’re seeing here and around the world. Both are powerful lobbyists for the status quo. Yet, the more successful they are in holding back the inevitable tides of change, the greater the cost they impose on themselves and the rest of the economy.

But there is a crucial different between the two sectors. Agriculture has a bright future if it significantly reduces the adverse climate impacts of dairy and red meat production, while also diversifying to plant-based proteins and other crops with much lower climate impacts.

The greatest pressure for such change is coming from outside the sector thanks to new, non-farm food technologies, as my March 18 column discussed.

The Westpac report shows that agriculture could greatly limit the reduction in its gross value added if it came into the Emissions Trading Scheme sooner rather than later. The financial discipline would incentivise changes in technology and farming practices.

However, our dairy sector is strongly resisting change. It argues that its technology options are severely limited, and anyway its pasture-fed cows already have a lower greenhouse gas footprint than feedlot cows overseas. Thus, any reduction in output here will result in high production and emissions elsewhere. This is Fonterra’s climate change fudge, as my column of November 19 described.

But there is plenty our dairy sector could be doing to reduce its emissions faster, as the Parliamentary Commissioner for the Environment and others have identified. The longer it holds out, the more likely it will lose this small advantage to dairy producers elsewhere. The latter’s bigger emission profile gives them a greater incentive to change.

The fossil fuel sector, however, has inherently no pathway to zero, or even low emissions, technology. Its one holy grail - capturing the carbon emitted from burning its fuels and pumping it back into the ground - remains an economic and technological chimera. Meanwhile, the cost/technology performance of truly clean and renewable sources of energy such as solar and wind keeps improving dramatically.

A clean burning fuel?

Yet, our fossil fuel lobbyists, Petroleum Exploration & Production New Zealand (PEPANZ) argue the opposite in their submission to the Productivity Commission’s investigation into our transition to a low carbon economy.

It calls gas a “clean burning fuel”. That’s nonsense. Gas still produces carbon dioxide. The best that can be said for gas used in electricity generation is it produces half the greenhouse gas emissions of a modern coal-fired plant.

Likewise, PEPANZ argues for introducing “a comprehensive regulatory framework for carbon capture and storage to enable the deployment of CCS in New Zealand.”

And PEPANZ pushes for lots more gas production on the grounds this is a big export opportunity for New Zealand; and, like our dairy industry, it argues if we fail to contribute this somewhat lower carbon product to the world we would be setting back global efforts on climate change.

Many problems arise with its proposition. First of all, where’s the gas? Extensive exploration over the past decade or so, onshore and deep offshore, by major and minor multinational oil and gas companies, plus some tiny domestic ones, have failed to find a single, economic, giant gas field.

Even if they eventually succeeded, the cost of developing such and field would be daunting. It would have to compete in export markets with enormous, easier to develop, close-to-shore fields. One example in our part of the world is the Gorgon field off the northwest of Australia. Chevron has spent some US$60 bn to bring it into production.

PEPANZ also argues that more exploration is essential because our current gas reserves will likely run out in a decade or so. That’s far too pessimistic. Small-scale inshore and onshore exploration in the well-established Taranaki basin will likely add to reserves.

More importantly given exceedingly low gas prices overseas, a modest rise in our gas prices would render uneconomic Methanex’s conversion of gas into methanol. This currently consumes about 45 percent of our gas production for an export product of severely limited economic value to New Zealand. Absent this low value export, we’d have a lot more gas for domestic consumption.

PEPANZ also argues for gas as a vital contributor to the fuel mix for electricity generation here by providing power at times of adverse weather conditions for renewables. While there is some short-term merit in that proposition, Westpac’s two scenarios show gas declining from 15 percent of electricity generation in 2015 to 1.5 percent or zero by 2050.

PEPANZ also says oil and gas royalties contributed some $300m a year to government revenues over the 10 years to 2015; and generates many thousands of jobs.

The reality, though, is the oil and gas industry is in decline even in Taranaki, its local home. But other sources of energy and economic activity will more than make up for that there and across the country. That will be just one of the many beneficial transitions to a low carbon economy over the coming decades.

The Westpac report sheds valuable light on this transition. But as one of the first attempts to analyse this extremely complex and long-running revolution, it is understandably superficial and limited. Consequently, it could encourage powerful incumbents such as the agriculture and fossil fuel sectors to self-servingly argue for delay and inaction.

Not enough for 2 degrees C

For example, Westpac uses two scenarios. The first sees technological progress across the economy from today, while the second sees less change until some form of shock around 2025 triggers faster change. But neither scenario, a footnote says, would enable New Zealand to reach the goal of net zero emissions by 2050. Yet, that’s the global benchmark for keeping the global temperature rise to 2 degrees C.

The economic outcomes are likewise uncompelling. The base forecast for economic growth without any climate change is 2.04 per cent a year out to 2050. Under the first scenario of early action on climate change, the rate falls to 2.015 percent. Under the second of a delayed response followed by a costlier catchup the rate falls to 2.005 per cent.

The difference between the two scenarios in terms of GDP is only $30 bn cumulative to 2050, by which point GDP would be $450 bn under the more encouraging scenario.

Still, Westpac is right to argue for early action across all sectors of the economy. The more we learn about the negative impact of climate change and the positive benefits of responding by transitioning to a low emissions economy, and the more adept we get at that, the greater the gains we will achieve.