Monday, 12 April 2021

Getting to Net Zero

We have not been fans of the Climate Change Commission's draft report.

New Zealand has an Emissions Trading Scheme with a binding cap, and a declining path for net emissions in the covered sector. Measures taken within the covered sector cannot reduce net emissions. NZU not purchased by one sector get purchased and used by another. Regulatory measures around coal boilers or electric cars can affect the price of NZU, and will affect which sectors move earlier or later in reducing emissions, but they cannot affect the quantum of emissions. 

Like, imagine you have a crate of 12 beers and 12 thirsty people, each of whom would be pretty happy to drink 2 or 3. They run an auction to decide who gets the scarce beers. The thirstiest folks drink two, others cut back to a half or none. The money goes into the crate. Then each of the dozen people gets a 1/12th split of the money in the crate when the beers are gone (the heaviest drinkers wind up compensating the rest this way). At next weekend's session, the crate will only have 11 beers - there's a declining cap. And so on. After the first session, all the beers were consumed, and folks split the money. And it's pretty obvious that they'd have been happy to have drunk an awful lot more if there were more in the crate. 

Regulations saying that Jim cannot have any of the beers, or that Mary cannot drink more than 3 of them, or that Fred must go to Alcoholics Anonymous because he's bidding the price of beer up too much - none of those wind up affecting how many beers get consumed on the night. They change who drinks them, and they affect the price at auction, but that crate's going to be empty at the end of the session unless you put in so many rules and constraints that they wind up more binding than the "there are only 12 beers" constraint. If the set of rules ban half the folks there from drinking any beers, restrict three people to having no more than 1, and the remaining 3 didn't want more than two drinks anyway - then the rules would reduce total consumption. But if you had really wanted to knock the amount down by three beers, it would have been easier just to pull three of the bottles from the crate at the outset and pour them down the drain before auctioning the remaining 9.  

The Climate Commission's draft report is rather less tasty than the draught beers in that crate - even if the beer were Rheineck. It's full of regulations saying that Jim is banned from having a coal boiler, that Mary can't plant pine trees, and that Fred is banned from importing petrol vehicles. But all of those are under the ETS cap. Someone else uses the NZU instead if a coal boiler gets banned. And while the Commission claimed that all of it made sense and that the economic costs of overriding the ETS were minimal, they didn't release a lot of the detail that might prove it. 

So our submission, written mainly by my excellent colleague Matt Burgess, went through those issues, urged more transparent costings of the non-ETS policies, and urged the use of a carbon dividend to address equity issues rather than a pile of costly regulatory measures that try to do it by shifting who bears the costs. Matt hits on some of this in the Herald as well

The interview between my former Vice-Chancellor, and current Climate Commission Chair, Rod Carr, and Matt Burgess is really well worth listening to. 

National is now threatening to break up the two-party consensus on climate change because it is dissatisfied with the Climate Change Commission’s Draft Consultation document. 

The party’s Climate Change spokesperson, Stuart Smith, has taken the unusual step for the Opposition of making a formal submission to the Commission highly critical of  its proposals. 

He says they are impossible to support. 

And yesterday, he wrote to Climate Change Minister James Shaw asking for a three-month extension to the consultation period on the report. 

“My concern is the draft Plan would be impossible for us to support and put us in the unfortunate position where we are opposing the Commission’s first Emissions Reduction Plan,” he told POLITIK.

“In order to avoid this, I am requesting the Minister extend the time the Commission has to develop this plan. 

“National first and foremost wants a robust emissions reduction plan that we can support. 

“This, I believe, is a constructive step to create a situation where we may be able to support the final Plan.” 

POLITIK: “Is it fair to say the Government cannot now take National’s support for the Climate Change Commission’s recommendations as a given?” 

SMITH: “Correct.”
It's tempting to think this doesn't matter, because Labour has a majority and may well just legislate everything that Carr recommends, without bothering to go ahead with cost-benefit assessment on individual measures. 

But it does matter. 

The Draft Report recommends banning petrol vehicle imports from the early 2030s. If the Commission can't show that this really is cost effective, and National consequently commits to rescinding any such ban because transport is already in the ETS, the ban becomes nonbinding - there will be a change of government before the 2030s. 

Similarly, reversing bans on other things already covered by the ETS, like fossil fuel powered industrial and process heat, or bans on new gas connections, would also matter in maintaining the viability of those setups (remember - they're all covered by the cap, it won't change net emissions). 

So we then have to plan on going back to relying on the ETS and its declining binding cap, rather than running a pile of other stuff that is unlikely to be helpful. 

Friday, 9 April 2021

In praise of paper roads

My column in the Stuff papers this week went through the merits of unformed legal roads - the paper roads that sit, waiting to be used.

We may need a few more of them.

New Zealand, like Canada, has road allowances, or “unformed legal roads”. But remaining unformed roads are not part of any systematic grid. They rather were set to ensure access to pieces of land that might otherwise be landlocked, to provide access along waterways, and to provide access to the coast.

Designating corridors for urban growth here has consequently been more difficult.

Manitoba’s land survey, 150 years ago, preserved space for roading. Here and now, it requires designating a corridor on top of land already owned and already in use. If the corridor comes to be used, the owner will be compensated under the Public Works Act. But the designation itself can impose uncompensated costs by introducing uncertainty. It is hard to make full use of your property if it hangs under the risk of compulsory acquisition for a road or highway.

Retrofitting a full prairie grid onto a topographically difficult country might not work.

But there could be promise in designating more corridors for growth well in advance of their being needed and compensating the owners of the designated land for the inconvenience. Then, when there is need for a road or busway, and the funding is lined up, council could exercise its option and use the corridor.

Here's what it looked like in Southern Manitoba. Our old farm is on the map there, south of Notre Dame. Every one of those big squares is one mile by one mile. You can see the quarter-sections within a lot of them. In a few places, like around Cardinal and Babcock, the terrain didn't allow the gridded roads to continue. So the road would wiggle a bit before snapping back to grid as soon as practicable. 

I love the bloodymindedness of it. There will be a road on the mile every mile, or allowance for one, and topographical disruptions can have only local effect. The grid must go on. 

You'll also notice an offset in the grid just north of Notre Dame de Lourdes. That's a correction line. Because a square grid doesn't sit well on a sphere, you need correction lines. As you move North from the US border, fewer square miles fit into the next row up. So the sections all offset by a bit at the correction lines. 

Morning roundup

The morning's worthies, from the accumulated browser tabs:

  • A Manhattan Institute roundup, from last January, on the problems with rent control. What would be a fair price on iPredict for a contract paying $1 if Labour brings in rent controls. $0.60? Higher?

  • Otago's tallying of the border system failures as at 30 March. Add to it this week's case of a border worker who caught it, and had somehow managed to miss vaccination appointments due to personal reasons. Minister Hipkins could issue a Public Health Order prohibiting unvaccinated workers from being at the front lines. DG Health Bloomfield could issue the same order, covering workers in Auckland. Neither has done it. They don't know which border workers are unvaccinated. The data systems are still being developed (they had to have known that they would need one since at least May of last year) and are currently a bit of a mess. Oh - and they're still not considering daily saliva-based PCR testing of everyone in MIQ, even though the capacity to do it is ready to go, right now. Instead, they're cutting down the number of MIQ spaces to reduce risk. Fundamentally, I think the problem is the one Jo Moir points to: lots of Kiwis are very happy for the country to turn into a hermit kingdom.

  • NZ's unaffordable housing makes Bloomberg.

  • NZ has a travel bubble coming with Australia - finally! Remember though that Taiwan has even fewer cases than NZ or Oz. We could add Taiwan to the bubble. Why aren't we adding Taiwan to the bubble? But keeping the bubble requires better practice at the border to keep the virus out.

  • Jacques Steenkamp at BusinessDesk says that the government isn't bothering to process hundreds of investor visas, with billions of dollars consequently not making it here. Australia is making a better fist of it, as you'd expect. 

  • I've seen a lot of snark about what counts as skilled in the skilled migrant immigration category. Brittany Keogh notes that NZ's Barista of the Year had a very hard time getting her skilled migrant visa - INZ had a hard time appreciating her skills. The result was that her employer had to go to market locally and prove that nobody local could do the job she could. It's a terrible way to run a system. It would have to be tempting to bring the award over to INZ HQ and wave it around saying "I told you!".  

  • The government banned oil exploration at Taranaki. MBIE warned them that doing so would have consequence well before new fields would have started proving up. MBIE said, "any material change to the exploration side of their business may have an impact on how they view their existing producing assets, and vice versa. Should exploration opportunities be removed, it may have an impact on how oil and gas companies consider their overall presence in New Zealand, potentially incentivising them to either sell their existing producing assets or not to invest further in extending its production life." The government banned it anyway. Now, in a dry year, we're having production issues in the existing fields and gas shortages. That means old coal generators are being brought online and the cost of power has skyrocketed. And Minister Woods is shocked! that power prices are high and wants an enquiry into why. Would an official be fired for telling her that she caused it, that they warned her it would happen, and that uncertainty over the whole sector caused by this kind of policymaking combined with the potential effects of Onslow are hindering the investment in new generation that might possibly get us out of it? 

  • After the government banned Taranaki, they held an utterly tone-deaf "Just Transitions" conference in New Plymouth. There, film subsidy mogul James Cameron said that Taranaki's dairy industry also needed to end, while highlighting his own more enlightened approach to farming - where he grew flax, industrial hemp, and vegetables. He now has hundreds of cows grazing in his paddocks, because what he was pitching at the conference doesn't stack up. 

  • And now they're banning coal boilers. Recall that coal boilers are in the Emissions Trading Scheme. Every tonne emitted by one of those boilers is a tonne that cannot be emitted elsewhere. They're also suggesting banning other fossil-fuel boilers. Meanwhile, there's an electricity shortage caused by the Taranaki ban. So they're loading more pressure onto the power grid at the same time as they've screwed up electricity supply. The ban is in response to the draft recommendations from the Climate Commission. The Commission will barely have had time to start reading submissions on its proposals. If this government's last term includes mandating electric ambulances in the middle of power blackouts, it wouldn't surprise me. 

Thursday, 1 April 2021

Afternoon roundup

The browser tabs, there are so many.

Tuesday, 30 March 2021

You Had One Job

The Economist questions the expansion of central bank remits to cover rather more than price stability and prudential bank regulation. 

As all this has occurred, both governments and central bankers have also taken a more expansive view of the latter’s mission. Many central banks were handed new financial-stability responsibilities after the financial crisis. Now another rethink seems to be under way. Last month the Reserve Bank of New Zealand was instructed by the government to take account of house prices when setting monetary policy. Some monetary officials are paying more attention to inequality and the welfare of marginal workers. The Fed recently revised its policy framework, partly in recognition of the fact that premature tightening tends to impose disproportionate harm on black and Latino workers. Climate change has become a hot topic. In January Ms Lagarde said the ecb was assessing how it might contribute to European climate goals. Mark Carney, a former governor of the Bank of England, was also vocal on the matter of climate change. As a consequence of Mr Sunak’s announcement, the bank will adjust its corporate-bond-purchase scheme so as not to subsidise firms with large climate footprints.

Some of this new expansion of horizons is defensible. Where climate change poses financial-stability risks (by threatening systemically important insurers, say) central banks are right to take note. Had the Fed worried more about joblessness early in the 2010s it might have been less eager to tighten monetary policy—and more likely to hit its inflation target. But, where they were once granted independence because governments could not help but inflate, central banks now plead for more government spending to help reflate depressed economies. Meanwhile, central banks’ insulation from politics makes them a convenient place to delegate jobs that elected officials would rather not handle. Politicians seem as though they’re ducking their responsibilities—and, in the process, make central banks seem like political actors. The ambiguous and occasionally conflicting nature of tacked-on goals encourages a view of central bankers as multi-tasking dilettantes, rather than stolid guardians of the currency.

I worry that RBNZ is going rather beyond checking that banks and insurers don't fall over if carbon prices or sea levels rise. 

From RBNZ's submission to the Climate Change Commission: 

There's suggestion the Commission should make recommendations around re-engineering financial systems to ensure that finance is available for green projects:

Given the importance of finance and investment as an enabler of change, and the interlinked nature of policy and investment flows, it may be beneficial to draw together these threads in a discrete chapter (or expand the current section 6). 

This could include the quantum of investment required, the environment required to facilitate these investments and the interplay between the economy, investment/finance and policy (mutually reinforcing or at odds). It could review the efficacy/efficiency/equity of different investment/financial instruments (e.g. subsidies, government bonds, ETS) in particular contexts. It could also highlight the risks to the broader economy/finance system should finance flows fail to be redirected in a timely manner or New Zealand fail to meet its international targets.

There's pushes for disclosures regimes that seem less about making sure that investors know about potential balance sheet risks if carbon prices rise, and more about enabling activist investors to target and punish companies that aren't hewing to net-zero financed emissions. Remember that if you're in a place with an ETS that's targeting Net Zero, financing emissions doesn't increase emissions. 

Despite these challenges, in our view further disclosure regarding financed emissions makes sense. It would help identify transition risks in the economy and is in step with demands from investors who increasingly see climate risk as investment risk.15 For example, Climate Action 100+, a group of over 500 institutional investors controlling over $47 trillion of assets, is demanding that the world’s 161 highest emitting companies (representing 80% of industrial emissions) publish strategies to reduce emissions by 45% by 2030 and to reach net zero by 2050. Internationally, there is significant momentum in large financial institutions pledging to reach netzero financed emissions by 205016 including Barclays, Morgan Stanley, HSBC and JPMorgan Chase.17

They also suggest tax breaks or subsidies for green bonds - again, remember we have an ETS.

New Zealand’s market for green bonds may continue to grow organically but it is difficult to see how this would happen at the scale or pace required. Some form of intervention may be required to grow capital markets to attract green investment, beyond investor preference. This could be in various forms of incentives or disincentives such as tax breaks, guaranteed backing or liquidity provisions. However, any intervention would need to be weighed carefully to avoid unintended consequences such as the risk of crowding out other investments or fund raising capabilities.
Adding a 'with regard to the effect on house prices' into the RBNZ's mandate on monetary policy seems rather small in comparison.

Imagine, if you will, an incoming government that shares a commitment to net zero, but does not share the Climate Commission's dirigiste preferences, endorsed by RBNZ, and that thinks central banks should focus on core business. That government would clash immediately with the current Governor on matters unrelated to monetary policy. Interesting times. 

Monday, 22 March 2021

User fees and park access

I attended Otago University's tourism policy conference held in Queenstown last week, giving a brief keynote opening to a panel session on covering the costs. 

New Zealand's policy has generally been to charge a price of zero for access to congestible resources, then to get really mad about tourists overwhelming those places. Charging access fees, where possible, makes rather more sense. 

I wrote it up for the Stuff papers; it was in this morning's Dom Post and is online as well. A snippet:

Last week, Otago University’s Tourism Policy School held its annual conference in Queenstown. I attended, ready to make the case for charging for access to places that suffer from overcrowding. But I found I was hardly the only one arguing for it.

The Parliamentary Commissioner for the Environment’s report on tourism, released in February, had also made the case for charging for access. The report highlighted the fees charged for park access abroad, and that those fees often differentiated between international tourists and locals. International tourists then can help fund better infrastructure, environmental remediation, and a better experience for local visitors.

Tourism Minister Stuart Nash also found it absurd that New Zealand just gives away some of the most scenic experiences in the world. He pointed out that charging for access can solve some of the problems.

It is pretty easy to see how the country got itself into this situation, but that makes it no less frustrating. For most of the period since colonisation, visitor numbers really have not been high enough to substantially degrade either the environment or the experience at New Zealand’s most scenic places.

When there is no real scarcity, there is no real need to try to manage scarcity. Kiwis came to see zero-price access to national parks as something of a birthright. But visitor numbers quadrupled from 1990 to 2019. And while tourists came to contribute some $1.8 billion in GST per year while here, central government only recently allocated $25 million per year to improve infrastructure in places tourists visit.

Tourists, overall, may well be more than paying their own way. But they’re doing it in ways that don’t wind up helping to preserve and restore the places that they, and we, care about. The Tourism Infrastructure Fund seems only a drop in the bucket.

The overall setup almost guarantees conflict.

I expected brickbats; I've received a few when previously recommending charging fees for this stuff.

Instead I received a friendly note by email in response to the column, reproduced with permission:

I read with interest your article on paying for access to tourist sites and I'm grateful you felt moved to take the time to put that together.

In November 2020 my wife and I with another couple cycled the Otago rail trail, and it never occurred to us that there wouldn't be a fee for using this tourist attraction. So at the end of the trail and in amongst the normal chit-chat we asked trip organisers how much of the fees was for access to the trail itself - '...nothing it's free....'

We were in disbelief that there was no charge for using this resource, but then of course we thought back to the degraded track, parts of which are dangerous because of lack of or poor maintenance, and we could see that actually there is no money being reinvested, and I guess some local farmers do a little bit of work to keep it rideable. 

It is a complete nonsense that people can use this and not pay any money to be put towards maintenance and development of the attraction. On our last night and Clyde we happened to run into the area manager, for I think Fulton Hogan, and spoke with him in the bar about this issue. He said that civil engineering companies periodically spoke to DOC about a maintenance contract - which would be relatively easy, but there was simply no meaningful response from these people. 

So we are left with the hopeless situation of this government department being unable to even set up a contract to have a contractor drag a couple of angled brooms behind a quad bike along the track once or twice a week. 

Anyway thank you for taking the time to put something into the media, and I hope something comes of it. If we can't organise some fee and ticket system utilising the be digital world we seem to live in, then we may as well pack up and close it down. 

I hope Minister Nash makes progress on this one.

I always learn interesting things at these sorts of industry events. 

I don't think that I've ever been to one that more closely fitted Adam Smith's warning: 
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.

I heard calls for reductions in the number of cruise operators in Milford, not to address environmental consequences but to reduce capacity and increase prices from $100 per ticket to $200. I heard calls for DoC concession licences to include piles of provisions around living wages and net carbon zero measures [even in sectors fully covered by the Emissions Trading Scheme!] that seemed well designed to raise rivals' costs. 

Only one of the sessions was like that, but it was a bit jaw-dropping. 

Friday, 12 March 2021

And to the Ombudsman again

Ages back, MoT came out with some ridiculous work on the merits of subsidising electric vehicles. 

Treasury provided some rather decent advice about it, released under OIA at the time, but with some substantial bits excised because it was still under active policy consideration. 

Treasury were not fans of these measures, recognising that transport is already covered by the ETS and that petrol emissions are consequently already accounted for. 

In January, I emailed the section manager who was responsible for the advice asking whether I could now see the redacted bits. I got an email bounceback because it had shifted to a different manager, so I immediately emailed him.

He replied 12 February saying it would have to be an OIA request and asking whether I wanted to go ahead with it. I replied that I would, and appended one additional and separate request:

Thanks for your reply. Please do send my request in the prior email through into the OIA system.

As additional and separate request, please provide any discussion by Treasury of the relative merits of regulations pertaining to car emissions, including but not limited to bans on the import of petrol-powered vehicles, or fuel economy or emission standards, as compared to relying on the binding cap in the Emissions Trading Scheme for emissions that will entirely be covered by the binding cap in the Emissions Trading Scheme. The matters sought would include any advice provided by Treasury in these areas, Treasury internal discussion documents, and draft work comparing the costs of these various alternative measures.

Please treat this as a separate request, so that if one of the requests takes longer than the other, it won’t hold both of them up. 

So that all went into the OIA system.

Today I received a reply saying that everything would be delayed for consultation until it was kinda useless for the Climate Commission's consultation process. Recall that the Climate Commission proposes banning petrol vehicle imports. And recall further that the Climate Commission refuses to share its workings until after its final report, and potentially after government has legislated to effect its recommendations. I've written on the importance of this stuff being shared

And so today this went to the Ombudsman (with a couple minor bits redacted):

Dear Office of the Ombudsman,

Submissions on the Climate Change Commission’s draft report are due on 28 March.

The Climate Change Commission has proposed bans on imports of petrol vehicles.

Treasury produced advice years ago on work by the Ministry of Transport relating to the costs and benefits of such policies.

Treasury has extended the deadlines on these OIAs until such time as they will not be able to affect the submissions process. The first has been extended to 24 March. We might be able to incorporate the relevant information from that request at that point, but it severely hinders the submissions process. We are already circulating our draft submission to others for feedback and for them to consider in their own submissions.

The second OIA is extended until April. Treasury here began by misstating the date of my request – I requested the information on 12 February, not 19 February. I have attached my email of 12 February to [redacted] making the request.

I have a question on how dates should here be considered.

My first request was sent to Treasury on 28 January. I sent it to the relevant section manager. You can see that in the email trail. He replied 12 February saying it would have to be treated as an OIA request, and I replied immediately asking that it be sent into the system. Does the clock on this stuff really then start on 12 February? Or does it start when I made the initial request? [And I have no clue where 19 February came from].

In any case, I argue there is compelling public interest in this information being available in sufficient time for it to feed into submissions in the Climate Change Commission’s process.

Many thanks for any assistance your office might provide.

It's getting just a little frustrating.

The Climate Commission refuses to share its workings. We suspect that they've screwed the pitch with assumptions about the costs of EV transitions that don't mesh with reality, and that there's something off with their economic modelling that seems to have very little sensitivity of GDP to carbon prices. But we can't know for sure. And who knows what other mistakes might be hiding in there. Piles of it are in Excel. 

The Ministry for the Environment, who stewards the ETS, has a CE who fronts by Zoom to a meeting of economists at Waikato last week and manages to have an internet failure preventing her answering my question on why they support weird bolt-on regulation to address equity issues when they could just provide a carbon dividend out of the money the government collects when it auctions units.

And when I ask Treasury for the work they'd previously done on the costs of EV subsidies, it all gets punted until after the submissions deadline for the Climate Commission.  

Is this really good enough for a policy process of this scope?