Quota management and environmental stewardship

I hadn't seen it put this way before, but it's rather nice. 

Dion Tuuta, Pou Whakahaere (Chief Executive), Te Kotahitanga o Te Atiawa, talked about the NZ Quota Management System at a fisheries symposium in February. The proceedings report paraphrased his comments:

The QMS does something very rare in Aotearoa, as Sir Tipene O'Regan, one of our chief negotiators of the settlement articulates, it blends a treaty right with a conservation system to achieve the outcome of sustainable use, which is a very Māori approach to resource management. So, by virtue of the 1992 settlement, the Quota Management System is the only fisheries management system mandated by Māori.

"The QMS is now 37 years old, and to me that continues to represent kaitiakitanga in action at a national level. It is generally misunderstood, it is maligned by those who oppose commercial fishing, but it has been a tremendous success for New Zealand in moderating unregulated fisheries pressure."

Similar approaches could yet be applied for water and nutrient management.

The tragedy of the anticommons and consenting

Just look at this hot mess. 

Crime, traffic and soft drinks are just some of the social ills Waiuku residents believe a new dairy would bring to their town.

A group of residents and a school in the south Auckland township have railed against a proposed corner shop, making submissions on a resource application by Paramjit and Parvinder Mehami to build a convenience store on View Rd.

“It would attract people hanging around people’s homes right next door, which would compromise everybody's safety,” wrote Samuel Voyce.

One submitter, who identified herself as Bronwyn L, was concerned food stores and hairdressers were “taking over the town”.

“It’s getting ridiculous for such a small town that isn’t deemed big enough to service a Burger King, [to have] more than 20 food outlets. It’s an absolute joke and something needs to be done about it.”

If you set a system that gives stasisists a veto over everything, don't be surprised when it's impossible to do anything.

We can't have nice things because we have a resource management system that finds it more important to consider the views of those worried about hairdressers taking over the town than to allow any development to ever proceed in any timely fashion. 

Afternoon roundup

I cannot count the tabs. A pruning:

• Danyl Mclauchlan on the depressing kludgeocratic budget.
• I still don't like that they're subsidising videogames.
• Peter Dunne expects capital gains taxes and wealth taxes to feature in Labour's platform
• V as classic and excellent antifascism
• Officials are looking at a carbon dividend. I sure hope it's in place before the government stops auctioning NZU. 
• A few bits from me on the budget, over at Interest.co.nz
• Hooked on Phonics worked for the UK. An older piece in AEJ: Ec Policy.
• The San Francisco Doom Loop
• New report out, covered at Newsroom, on failings in freshwater management. There still are better options...
• Don Brash is appropriately scathing about housing policy.
• For a new Great Exhibition.
• One advantage of being at a think tank: I can say what I believe to be true. 
• The government still doesn't fully understand that Covid is airborne. No mention of ventilation in the winter health plan. 
• My column in last week's Insights newsletter, on government public health forgetting there's still a pandemic on and turning back to telling us what to eat and drink...

Carbon capture and storage

Nikki Mandow at Newsroom has a long piece on carbon capture and storage.

It's really getting to be time that we have a regulatory framework in place for it. Sure, there aren't that many huge point-source polluters for capturing from smokestacks, but didn't the government just throw a giant pile of money at NZ Steel while claiming that flipping to an electric arc furnace would have huge effects? They can't both be right. 

And remember that CCS is bigger than just capturing from smokestacks. Lots of techs in development for direct air capture. In Nikki's piece, I mentioned the work Allan Scott's doing at Canterbury on olivine. By coincidence, Works in Progress notes another way of using olivine weathering for sequestering carbon. 

And The Economist figures carbon removal (point-source CCS and direct air capture) could wind up being a trillion-dollar business. 

Nikki gave me the closing word at Newsroom, and I'll post it here. This crap is going to wreck the path to Net Zero. 

A ‘hair shirt’ mentality

Crampton worries CCS has become tied up in an ideological debate between the value of gross versus net emissions reductions.

“The Government has been sending increasingly mixed signals, but I think more recently it has been wanting more focus on gross emissions.

“I don’t know that the climate cares about whether the next tonne of emissions that failed to be in the atmosphere is because someone failed to emit them in the first place, or because somebody sucked them out of the atmosphere directly. So long as you get to the same atmospheric concentration of carbon, it shouldn't matter how you get there.

“It almost feels like there’s this desire on the political side to wear a hair shirt around this, that it’s not real change unless we can feel the burn. It's like it’s cheating, like in their heads carbon capture and storage is somehow getting away from our obligation to reduce gross emissions.

“Even if it’s going to screw up our path to net zero.” 

The perils of Council-Owned entities

There's a lot of scaremongering about privatisation. If Councils sold off assets, unimaginable horrors might ensue. Just think of what the evil robber-barons might do. 

Worth looking at how Council-owned entities behave. 

Regional councils don't seem to do much to force councils into compliance. Whatever stories you want to tell yourself about cozy deals between private businesses and regulators, whether because of kickbacks, sinecures, or just camraderie, think harder about how those apply when Council is the one that needs to be monitored and regulated. 

Because this is the result. 

Fed-up Bromley residents say they are being tortured by a worsening stench from Christchurch's compost plant, which is aggravating asthma and ruining their quality of life.

Councillors have agreed to move the council-owned Living Earth organics processing plant, and will next month consider a report outlining options for kerbside green waste while staff work to find a new site.

But locals have warned they are at breaking point and cannot put up with the sickening smell under a council timeline of up to five years.

Bromley woman Vickie Walker said the overpowering "vomit-like silage stench" left her feeling sick to the stomach, caused headaches and coughing and stopped her from spending time outside.

"It's torture, it's driving me crazy," she said.

"I just can't believe that we have to live like this on this side of town. It's bloody inhumane."

Walker said she had been treated for pneumonia and a lung infection, and had been diagnosed with a wheeze since the start of the year, while other family members in Bromley were suffering from asthma.

"With composting, they tell you that you need to wear a mask because there's stuff in there that's not good for you," she said.

The plant has been the subject of many complaints since it opened in 2009, although the stink differs from the stench from the burnt-out wastewater treatment plant in the same suburb.

Walker's neighbour Katinka Visser said the compost smell had worsened since the start of the year, despite council assurances offensive odours were being managed.

If this were a private company, it wouldn't happen. Regional council would feel far more free to appropriately enforce the rules. There would at least be compensation for those affected. But if it did happen, there would be hue and cry about the evils of capitalism and the failures of capitalist systems to rein-in the oppressors. There would be demands for nationalisation. 

Shame there's no calls for privatisation here....

Oh. The article notes that Environment Canterbury, the regulator, has thus far assessed a whole $7,000 in fines to Council, and a further $4,000 to Waste Management.

That'll show them. Great stuff. 

Reader mailbag - on circular economies

My column for this week in Newsroom, jointly authored with Otago Uni's Dennis Wesselbaum, goes through the findings from the latest survey of New Zealand's economists.

The survey asked NZAE members whether they were familiar with circular, doughnut, and mission-based economics. It asked whether inclusion of those concepts has improved policy analysis, and whether increased focus on those approaches would improve policy analysis. It finally asked whether those concepts should be included in the core curriculum of economics.

Respondents from academia found these concepts to be of very limited value. Respondents from within government either found the concepts to be helpful, or were uncertain about them. 

For example, here is the pattern of responses to question 3, which reads: 

"Economic policy would be improved by placing greater weight on [each of Doughnut Economics, Mission-based economics & the Circular Economy], even if it meant less analyst time and capability was available for other types of analysis."

The modal academic strongly disagreed that any of these improved analysis. The same was not true for government-employed economists.

I have, for some time, worried about the apparent disconnect between New Zealand's academic economists and people employed as economists by the Ministries in Wellington.

Government-employed economists seem to have picked up an awful lot of trendy-sounding things that resonate with Ministers. They rarely talk with academics. And many have no clue or do not care how far they have strayed from the academic consensus. 

It is a problem. 

A lot of angry people in the Newsroom comments section told me how evil I am to be neoliberal and such. But the more useful comments I heard back were via email.

In one case, the correspondent had had no clue that circular economics was anything other than mainstream. Because it's all they'd heard in policy discussions. 

In another case, a Mayor provided this dispatch from a meeting over the past year, edited slightly to anonymise the response. 

It reminded me of a meeting I was at XXXX weeks ago, the aim of which was to discuss regional policy making to deal with the effects of climate change. A number of the sessions were reasonably sensible until we came to a session on "Food Security". The presenter talked for an hour on all the things we should be doing in the future to make sure we and our communities would not starve. We had ideas such as cutting large farms into smaller farms so that more people would be able to grow their own food. We had the (food) productivity growth that would follow more people putting their scraps into their worm farms and so on and so.

 

I waited for a discussion of food chains, markets, supermarkets, growing food at scale so that large numbers of people get to choose what they eat, the wonders of our internal transport mechanisms - and I waited and waited. And waited. It never happened.  These presenters were meant to be planners and I despair. By comparison a donut economy sounds like something I might actually eat and enjoy.

There is an awful lot of woo infecting policy. Normally it's the economists who insist on rigor to stop this. That failsafe is not nearly as safe, in Wellington, as it ought to be. 

And unfortunately the Government Economics Network, whose purpose should be to upskill government-employed economists, mainly seems to highlight heterodox approaches that have less support among mainstream economists but are convenient for rationalising policies that Ministers prefer. 

When I taught Econ 224 at Canterbury, Econ & Current Policy Issues, I included a few things as defence against the dark arts - stuff I thought the kids needed to know so they could bat back woo when they encountered it. 

I wouldn't put any of these three surveyed items in the core. But it would be great if some of our principles classes could remind students that we have an entire field of environmental economics. It isn't that economists don't care about the environment, as fans of circular stuff seem to believe. It's that we want solutions that work. Environmental economics is rigorous. Other options are not. 

A cigarette burn in the Crown Accounts

Late last year, the government passed legislation intended to sharply reduce the sale and consumption of legal tobacco. 

It is also intended to reduce smoking rates; how good a job it will do with that will depend on how efficient the smugglers get. But it will definitely reduce the sale of legal tobacco that draws excise. 

From 1 April 2025, Very Low Nicotine Concentration rules will be in force. Only authorised tobacco products will be allowed to be sold, and only tobacco products with less than 0.8 mg/g nicotine content will be allowed. That's section 57I of the revised Smokefree Environments and Regulated Products Act.

How much is 0.8 mg/g? 

Sources vary a bit. But this CDC study had mean nicotine concentrations in cigarettes of 19.2 mg/g. 

So the rules reduce nicotine concentration by over 95%. 

Or to put it a different way, if a normal beer has 5% alcohol, this is like reducing the maximum alcohol content to 0.21%.

The level is low enough that it simply isn't plausible that people would start smoking a lot more, or smoking more heavily, to try to get those last bits of nicotine. It would be like trying to get drunk on 0.21% beer. It just isn't going to happen. As my most favourite footnote in a tax review put it, you'd die of water poisoning well before you ever hit alcohol poisoning at those kinds of concentrations. [I've snipped the bit from the Henry Review as footnote because it's just so good.]

Ok. So we're all on the same page here right? The intended and near-certain effect of the legislation is to cause a very sharp reduction in the number of legally purchased cigarettes that draw excise.

How big will be the effect? Your thumb-suck is as good as mine, and better than mine if you're a smoker. 

But let's think it through.

In the month or two before the new rule comes in, I expect massive stockpiling of real cigarettes. It will give a surge in excise returns for FY 2024/5. Smokers who can afford to will buy however months' supply is plausible to store. An unopened pack probably stays fresh for at least a year, maybe two? 

I do not think it crazy to expect this. Remember that, when government used to do big increases in excise, it would do them on very short notice specifically with intention of avoiding stockpiling of cheap pre-hike cigs. We have two years to prepare for this one. I expect everyone will be fully responding to incentives: there will be ample supply to meet stockpiling needs ahead of the rule change. 

Households will stockpile their own cigs. Many households that smoke will be unable to afford to do so. Others will stockpile real cigarettes on their behalf, and sell them illicitly afterwards - a greyish market competition to the black market that will be out there. 

So FY 2024 will see a surge in tobacco excise returns, much of which will be a bringing forward of excise returns that would have obtained in FY 2025. 

Cigarette sales will plummet in April 2025. 

Some who'd been completely unaware that the change was coming will buy the new cigarettes and learn whether they want to keep buying them. 

As others work through their stockpiles, they'll do the same thing: buy a pack of the new cigarettes, then decide whether to flip to something else or try another pack; try that next pack, decide whether to stick with them or flip to something else. And so on. There'll be incoming new-tryers and a decay function. 

Say that stockpiles are largely run-down by October 2025. We're likely to be at steady state or close to it by April 2026. Some proportion of current smokers will have quit; some will have shifted to vapes; some will have shifted to the black market; and, some will continue to smoke VLNC cigarettes. 

A VLNC cigarette is like a 0.2% beer. What do you think steady state looks like?

Well, MoH gave what it thought the answer was. It's in the 2021 RIS. They expect that it would take two years for smoking rates to drop by 73%. 

If half of that drop is in the first year, then they're expecting the sale of excised cigarettes to drop by about 36% in the first year.

So the Ministry of Health's Regulatory Impact Statement on its SmokeFree intentions had VLNC rules reducing smoking rates by about that amount. We can safely leave aside arguments about black market or whatever else. This is just the Ministry's projections assuming no shifts to the black market, which doesn't pay excise anyway so doesn't matter.

What do you think happens to collected tobacco excise if the legislation works in the way that the Ministry of Health intended and projected?

I think it's safest to assume that tobacco excise revenues, in 2026, after we've gotten through whatever surge and trough was due to stockpiling, are going to be a lot lower. 1 April 2026 is one year after the law comes in. Sales of excised tobacco should be 36% lower at the start of the year and decline by another 36% over the course of the year. 

That means excise will be about half of what it otherwise would have been, for 2026, and much lower after that. 

Recall that Minister Robertson promises a return to fiscal surplus in 2026. OBEGAL of $600 million. 

But let's have a look over in the notes. It's always good to look in the notes. And there we see Treasury figuring that the government will collect $1.710 billion in tobacco excise. They've projected a slow and steady decline in tobacco excise revenues, in line with overall declines in smoking rates. They've obviously not factored the VLNC rules into their workings yet. 

And fair enough. It can take a while to run the figures. This has taken me about 20 minutes, but it's very thumb-suck. 

As a rough cut, I expect tobacco excise in 2026 to be about half of what it otherwise would have been. So a drop in revenue of $855 million as compared to forecast. 

So a $600 million 2026 surplus becomes a $255 million deficit. 

This isn't a criticism of the SmokeFree policy. It's the just working through the implications of the policy as promised.

The government is trying to have it both ways here. It wants the reductions in smoking, but wants to pretend there won't be any effects on revenues. It cannot have both. It's one or the other. 

I've called it the cigarette burn in the Crown Accounts.

What really really does puzzle me is why Treasury didn't bother including it as a substantial fiscal risk in BEFU. It's a lot more than the $100 million threshold for inclusion. 

Had a short column over in The Dom on it. 

Update: ASH had had serious critique of the modelling work on the reductions in smoking with VLNC. The critique makes sense. But then you'd have wanted both the smaller numbers on expected tobacco decline, and commensurate figures on excise, in support of the legislation. Can't pass the legislation claiming massive effects on smoking, then backtrack when running the excise implications, right?

FOOTNOTE

Finally, the bit from the Henry Review. So fun.