Thursday, 5 August 2021

Something always allocates

Scarcity is a fact of the world. When demand for something scarce exceeds the supply of it, something has to allocate scarce resources across competing uses. 

The nice thing about using the price system to allocate scarce resources is that it provides incentives on all sides. On the demand side, it encourages those whose effective demand is relatively low to find other ways of meeting their needs. On the supply side, it encourages more production of scarce things that are highly valued. 

If your main objection to all of that is that poorer people can be outbid for those resources, the main way we have of handling that in modern liberal democratic states is by taking money from richer people and giving it to poorer people.  

New Zealand's MIQ system does not work that way. Capacity in the system is very limited. The government manages the booking system for scarce MIQ spaces, charging a price of zero for entry, but with some chance of sending people an invoice weeks after their stay if their stay wasn't to be free. 

Anyone entering NZ has to go through MIQ, so demand is very high. 

What allocates scarce spaces?

Somebody at MBIE decides whether you get priority entry. If you're a person of national significance, like a sports player or a diplomat, then you can get in that way. If you have an exceptionally compelling hardship case to make, you might have a chance - but there are far more such cases than there is capacity to deal with them. 

So entry for the rest then comes down to whether you're lucky in being able to refresh your browser quickly enough to get a slot, or hire an agent to do that for you - whether physically or with a script. 

It isn't a workable system. Those with political pull always seem to find a way in through special dispensation. Those without, cannot. 

If your pull is strong enough, you'll make sure that the rules are written so that you're explicitly allowed through. Heck, America's Cup teams were able to bring a team nutritionist through the system for a short stay at the same time as migrants here were unable to get their families in - no bribes required. That's New Zealand's way: write it right into the rules, and provide discretion for officials to find a way through when the political need is great. 

If money doesn't allocate scarce resources, something else does. And that something else right now is political pull for those who have it, and a broken MIQ booking system for everyone else.  

A year ago, we proposed a better way. Or at least a way we thought was better and that I still think is better (suitably updated to account for better testing and vaccination now). 

  • Let MIQ facilities charge whatever they like. 
  • Let them run their own bookings. 
  • Have the government charge the facilities for the services that the government provides in ensuring safety. 
  • Set audit trails on compliance with all the public health requirements. 
  • Let new facilities enter the system so long as they meet public health standards. If there's a lot of demand to come into the country and room fees are high, hotels and others will find it worth their while to upgrade to serve that market. Heck, somebody might make a big bet that this mess will last a while and set up a purpose-built new facility. 
  • Instead of letting everyone into the system for free and charging some people afterwards, flip it. Returning Kiwis would apply to MBIE for a voucher equivalent to the cost of a stay at a basic facility at an off-peak time. They could top up the voucher with their own money to stay at a nicer facility, or to travel at peak times. They would pay while making their booking, so we wouldn't wind up with the mess of multiple bookings that result in rooms being underallocated and empty spaces. The voucher would be used at time of booking and couldn't be used simultaneously in any other booking. 
The proposal found a fairly warm reception. But we did take a bit of stick on this idea from those who thought it was bad because it would let richer people into the country more easily than poorer people 

This morning we've found out that Larry Page was able to get into the country.

Billionaire Google co-founder Larry Page visited New Zealand amid Covid-19 border restrictions after his child fell ill in Fiji, Stuff can reveal.

Kiwi businessman and philanthropist Sir Stephen Tindall, who knows Page personally, confirmed he visited New Zealand because his young child required hospital treatment in Auckland.

Page, who is reportedly spending the Covid-19 pandemic in Fiji, has since left New Zealand, Tindall said.

Page, who founded Google with Sergey Brin in the 1990s, is the sixth-richest person in the world with a reported wealth of US$121b (NZ$171b).

Various details of the visit, including where Page stayed, whether he spent two weeks in a managed isolation facility and the grounds on which he was granted entry across New Zealand's closed border, remain a mystery.

Immigration and internal affairs ministers won't comment on the case and the Government refused to say whether Page was a citizen.

Immigration NZ border and visa operations general manager Nicola Hogg said in a statement: “Immigration New Zealand (INZ) can confirm Larry Page met relevant requirements to be approved entry to New Zealand.”

It is unclear on what grounds Page was granted entry.

I absolutely do not begrudge Page's entry. Any reasonable system would have granted his entry. Mine certainly would have. Maybe the existing system treated the application in the same way as other medical necessity cases, but even those seem subject to political pull. Or maybe it was entirely political pull. Impossible to tell. 

But I do know that if we used prices to allocate scarce spaces, we wouldn't have to worry about it. Instead we could rejoice in that higher fees for entry paid by folks like Page would help build the capacity that could be used for more people to be able to get through MIQ. 

Tuesday, 3 August 2021

Economists on immigration

What would help boost wages in Australia? An Australian panel of economists evaluated some options.

Boosting productivity growth and business investment are supported. The rest of the options are not. And less than 10% of surveyed economists support cutting immigration as a way to increase wages. 
Michael Keane of The University of NSW said the idea that population growth and increased labour supply were constraining wage growth was “so naive as to not really be worthy of comment”.

Consultant Rana Roy said only a “cultivated amnesia” could ignore the near-uninterrupted growth in real wages in US, industrialised Europe and Australia amid record inbound immigration in the decades after the second world war.

Gabriela D'Souza of the Committee for Economic Development of Australia said the idea owed much to a “one dimensional view of the world” that saw only the direct impact of immigrants on particular wages and not the impact of their demand for goods and services on a broader range of wages.

Dozens of studies had identified the overall impact as “near zero”.

Productivity ‘almost everything’

Robert Breunig of the Australian National University said immigrants appeared to add to productivity rather than detract from it, meaning slowing down immigration could slow down rather than add to productivity and growth.

I wonder what a similar panel of Kiwi economists would say. 

It feels like there's just this massive gulf between what academic economists conclude and what Wellington policy people have convinced themselves is true. One person described the Wellington dynamic to me as the taking of a status-weighted average of the views in the room. It's easy for that kind of process to veer off into weird places. 

Monday, 2 August 2021

Broken bookings

Cameron Conradie has been keeping a close eye on how the MIQ booking system works, or doesn't. MIQ doesn't have nearly enough spaces to meet demand, and has been running well below capacity because the booking system doesn't work. 

Despite the reduction in operational capacity by 500 rooms, based on available data, the average occupancy for April was 67.4% (note a number of day’s data were not published), 57.1% for May, 67.1% for June and 71.1% for the first half (1-15) of July. This is taking occupied rooms against the advertised operational capacity.

By taking rooms actually occupied against full advertised operational capacity, and assuming a 14 day turn-around, I calculate that more than 13000 vouchers were not used/not issued since the beginning of this year. Each of those unused rooms represents a significant economic opportunity cost and an avoidable and unresolved human tragedy.

(Obviously the system cannot run perfectly to capacity at all times, but the scale of the underutilisation is upsetting.)

His tentative diagnosis?

I have chatted to multiple people who have successfully made bookings. Some have been through MI, or are currently completing their 14 day stay.

  • It is pretty clear that the system has minimal if any controls/cross checks in it’s coding to prevent/deter abuse.
  • It seems it is possible to make multiple bookings for the same passport number. It seems that people create multiple accounts in order to improve their chances of getting flights to match booked room vouchers.
  • Based on anecdotal evidence, It seems the only burden of proof on the traveller in order to finalise the booking within 48 hours of initial booking is to input a valid flight number (final leg of journey) for the corresponding day of arrival. It seems there is no requirement to prove that a flight ticket is held. Interestingly, the flight numbers are even made available on the site. Travellers are emailed, but it seems to be simply to confirm that everything is correct and that their other bookings can be cancelled. I’m not sure at what point this email confirmation is received.
  • I suspect that many people are hedging their bets on travel restrictions lifting and being able to secure flights matching bookings already confirmed.
  • I suspect many are hedging their bets on being granted permission to enter NZ.
  • I suspect that many are on a hamster wheel of repeat bookings in the hope that their travel plans might work out.
  • I suspect that many bookings are not being cancelled if travellers’ plans change or if they are unable to get flights with the flight number used to make the booking, hence the significant discrepancy in bookings vs actual arrivals.

So it looks like folks are making multiple bookings while trying to secure flights and the system doesn't wipe the consequent duplicate bookings when travel plans firm up. 

A year ago, the Initiative suggested flipping the system. Instead of government trying to charge some people for MIQ spaces after they go through MIQ, they should instead let MIQ facilities charge arriving visitors whatever they want. The government would charge the facility for the government's costs. And the government would provide eligible returning Kiwis with a voucher covering the equivalent of the cost of a stay at a mid-tier facility during off-peak times. That would be less than what facilities would charge during times of peak demand, but that's ok. Airlines charge a lot during peak travel periods too. 

Critically, under that system, you couldn't use a voucher more than once. If you put the voucher toward the costs of your coming visit, you couldn't use it again when booking the next room if you were trying for multiple bookings. Facilities wouldn't want ghost or cancelled bookings so would be charging enough up-front to discourage that. And much of the problem would be resolved. 

I wonder how much of the problem would ease if even a quarter of MIQ rooms were just put up for auction at whatever price would clear the market, with the government putting the revenues toward improving the MIQ system. 

It's a dreadful mess and the government just seems to see no reason to fix it. 

Friday, 30 July 2021

Give them residence

Apologise, then make it right.

Oliver Hartwich makes the case for granting residence to those non-residents who have been in New Zealand through last March's lockdown and who have stuck with us since then. 

A few days ago, the Otaki Medical Centre posted about one of their doctors on Facebook: “We’re disappointed to have lost Dr Richards back to the UK after being unable to secure him and his family residency due to a Government freeze in place with COVID-19,” the GP practice wrote.

“Here is an amazing doctor, who cares about our community and wanted to make NZ home. Sadly - after months of fighting - we have had to close the practice to new patients.”

Dr Richards is one of many migrants affected by the government’s restrictive and inflexible residence policies. According to a Newshub report, there are at least 1,000 registered doctors and nurses waiting for a decision on their residence status. It is a nightmarish situation for them and their families.

While these migrants are waiting, they cannot open a KiwiSaver account, they cannot buy a house and, crucially, they cannot bring in their family.

It is not just medical professionals, either. The total queue of applications for residence from migrants already in the country exceeds 10,000 people.

It affects all walks of life, including many of those areas in which New Zealand desperately needs skilled workers.

Many of these workers have been with us since lockdown last year and have been treated terribly. Short term work visa extensions are issued at the last minute, leaving everyone on tenterhooks. Few employers are willing to take on staff whose visas could soon expire.

The government is effectively forcing skilled migrants to leave the country, while trying to find space in MIQ for other foreign workers to replace them. It is madness in a time of skill shortages and MIQ shortages.

There is a simple solution. It would ease some of the backlog difficulties at Immigration New Zealand. And it would go some way toward righting the wrongs suffered by those on temporary visas.

In the first instance, the Government should apologise to the thousands of migrants and their families for the distress caused. It was not the Kiwi way to treat people.

After that apology, the Government should fix the situation. Everyone who was legally here with us through last year’s lockdown, and who has stuck with us since then, could simply be given residence immediately.

If the migrants have dependent children and partners abroad from whom they have been separated for these past sixteen months, their family should be given residence as well, along with priority entry into the MIQ system.

It is that simple. The only question to the Government is: Why not?

Thursday, 29 July 2021

Supermarkets and land use planning

If you're going to read the Commerce Commission's market study on supermarkets in New Zealand, I'd suggest starting with the first half of Chapter 6. 

There, they go through the effective difficulties in entering the New Zealand market. As far as I'm concerned, evidence on margins and such really don't mean much unless there are substantial restrictions against new entry. High profits should motivate entry, if they're real. If they're not motivating entry, what's stopping entry?

ComCom's presentation of the issues in Chapter 6 reverses the sequencing of how I'd think about it, but gets to the same spot. I'll put it in the way that makes sense to me.

They note that opening a new supermarket retail chain requires having a lot of sites near potential customers.

At 6.102, the study starts in with the problem of planning regulations. They do not get into as much depth as would be warranted because Resource Managements is being reformed; I'd suggest that it should be gone into for precisely that reason, so that better RM systems can avoid old problems. 

They note that a site has to comply with zoning requirements within a District Plan. They don't note how few sites might exist that might comply with those zoning requirements. 

They note the ways that consenting processes get used to slow down new entry. It is a giant mess. If you want to open sites across the country, and consenting in some places could be tied up for a decade but move quickly in other places, how do you even start dealing with that as a new entrant? 

So we start from there. As a new entrant, you'd have to find a lot of sites that comply with existing zoning requirements (ComCom doesn't note the extent to which existing zoning knocks back the range of potential sites), and you might spend years with a scattershot of stores as different places take different amounts of time to get zoning permission.

At 6.55, earlier in the report, they go through the site requirements. You need spots that work well for supermarkets. There might not be a ton of those, even if zoning were permissive - but it will depend on your business model. 

But among the sites that might be suitable, ComCom describes at 6.65 rather a few problems. Existing supermarkets either own those sites already, or previously owned them and sold them off with encumbrances on the title restricting any future owner against using the site as a supermarket, or the site is part of an existing shopping centre where the supermarket has an exclusivity restriction. 

Now in a sensible world, this just couldn't be an obstacle to development. Run a proper city set on a grid where a block can be basically anything, and you'd have to buy up the entire city to stop a new entrant. It's impossible. But if planning rules have already sharply limited the number of feasible sites, in part because infrastructure constraints mean few sites may be viable, well, that's another matter entirely. If you set the rules so that only a half-dozen places can be a supermarket, it seems odd to complain afterwards that there isn't much competition. 

There can be very good reasons for exclusivity covenants in leases. If you're setting up a shopping centre and you want a big supermarket as anchor tenant to cover a fair share of the cost, that anchor tenant isn't going to be happy about its competitor showing up after those fixed costs have been sunk. If you can't guarantee exclusivity over a reasonable period, the supermarket will not be willing to bear as big a chunk of those costs. And that can matter. ComCom has some discussion of this at 6.86.

But if those exclusivity arrangements are over a very long period, they can wind up mattering. And, at 6.77, ComCom notes the cumulative effect of these things in places where there isn't much land appropriate for retail grocery and where that land which might be appropriate has covenants on it preventing its use in selling groceries. At 6.86.3, ComCom notes that it's unlikely that efficiency rationales explain exclusivity periods in excess of twenty years, as seem to here be the norm. 

And they note that Section 28 of the Commerce Act would make anticompetitive covenants unenforceable.

Then, from 6.92 they get into land banking. They note the difficulty in determining whether potential sites have been acquired with a view to very long-term growth, or as a way of blocking others' entry. 

In general, as discussed at paragraph 6.82, the preferred strategy from the major grocery retailers appears to be to use restrictive covenants or exclusivity covenants in leases to impede store development by competitors. We have seen relatively few instances of the major grocery retailers buying and holding land for significant lengths of time primarily for this purpose. 409 These sites generally appear to be sold once their purpose is fulfilled (potentially after lodging a restrictive covenant). 410 

Overall, it looks damned hard to open a new supermarket chain in New Zealand. 

You'd have the Overseas Investment Act to deal with in buying properties. 

Then you have to find any properties with the right zoning.

Then you'd find that there aren't many properties with the right zoning where a covenant on the property doesn't ban you from using it for a supermarket.

Among the ones you do find, you'll get crazy lags in consenting that mean you can't just open everywhere. You'll have hit-and-miss opening where things can get drawn out in some places for years depending on the whims of the consenting authority in that District. And not in any way that lets you plan a distribution network. 

Look at all that, consider that NZ is at the far end of the world, and that you'll have capital tied up for years while all the permissions go through, and you could be forgiven if you decided we just aren't worth the hassle. 

Small places at the far end of the world cannot afford to have these kinds of barriers against entry. 

The report has a few suggestions around policy remedy, including potentially mandated access to the supermarkets' owned wholesalers. That one seems an impossible nightmare. How can you prove that access is being provided on the same terms - or otherwise? With telecom, it's easier. You can measure service speeds reliably. Could you ever tell whether a retailer was having its wholesaler send the day-olds to its competitors rather than the fresh stuff? How? What enforcement mechanism would you need to set up around it?

As a first cut, I'd start in instead on the real restrictions against entry. Note that these are draft views on a draft report - they'd be subject to change on more careful thought. 

Begin thusly: "Henceforth, supermarkets are automatically approved under the Overseas Investment Act." 

Get rid of the uncertainty that the OIA provides by wiping it. It seems just stupid to think that Aldi or whoever would need to prove that their entry is in the national interest, and have things held up in those processes, when ComCom has just pointed to that an increase in grocery competition is in the national interest. 

If the covenants really are void under the Commerce Act, wipe them. Make sure that competition and the promotion of competition is in the new RM reforms, and that District Plans have tons of permissive zoning allowing lots of different shops in lots of places. Limit the duration of exclusivity contracts at the malls if those are anticompetitive. 

Let that rip, and see what happens. Doesn't that make more sense than trying to set up some new government-sponsored KiwiGrocer alternative that would have to wrangle its way through the consenting processes too?

Wednesday, 28 July 2021

The post-vaccination future

This week's column in the Stuff papers got me angry letters from the anti-vax people. 

I mostly look out to the US and Canada, and what things they're up to now that vaccination rates are high. There's a lot of support for vaccine passports in helping people avoid venues that have a lot of riskier people in them. 

Majorities of Canadians surveyed in late May, when only 54% of Canadians had had at least a first vaccination dose, and again in July, supported proof-of-vaccination requirements to board commercial airline flights; to travel internationally; to attend public events or large gatherings; to visit public places like restaurants, movie theatres and churches; and, to attend one’s own place of work.

Quebec will be requiring proof of vaccination for entry into high-risk places like gyms, concerts, and festivals in any fourth wave. And, last week, the University of British Columbia’s alumni association urged the university to require vaccination for students in the residence halls – a measure supported by 82% of students.

Across the US border, vaccination rates have plateaued at about 56% and the costs of low vaccination rates are more obvious.

America’s National Football League last week set a new policy. If a vaccinated player returns a positive test, without symptoms, he can return to play after two negative tests a day apart; unvaccinated players must quarantine for ten days.

If a game is cancelled due to a Covid outbreak among unvaccinated players, the team with unvaccinated players does not just forfeit the game. It also bears responsibility for any resulting financial losses.

The League’s policy does not mandate vaccination. It simply ensures that the costs of not being vaccinated fall where they should.

Once vaccination is readily available, I will be happy to pay a premium at venues that cater exclusively to the vaccinated, to use airlines making vaccination a condition of carriage, and so on. 

I would prefer to drink at a bar that allowed smoking but mandated vaccination, than to drink at a bar that forbade smoking but did not require vaccination. And similarly for restaurants, even though the smell of smoke while eating puts me off my food. The risks of second-hand smoke, at any levels to which I might be exposed occasionally at bars and restaurants, are far lower than the risks of fleeting exposure to Covid. 

Before Covid, and during the measles outbreak, I'd written a short bit on compulsion and vaccination

Were I suggesting policy targeting vaccination, rather than playing into other things, I'd be looking at:

  • Compulsory vaccination as employment condition in the state-funded health sector, for both new and existing staff. They impose substantial direct risk. And how many antivaxxers will look at the recent reporting on low sector uptake and take it as reaffirming their beliefs? 
  • Compulsory parental notification of vaccination status of employees at ECE centres, and consider making it a condition of receipt for 30-hours free. Like, the government made it compulsory that piles of workers in ECE have qualifications - even where there's no good justification for it - but we don't even know whether ECE workers are vaccinated? Come on. 
  • Bring back the BPS targets around vaccination, penalise DHBs for vaccination rates less than 90%, reward them for rates above that. The DHB-level vaccination stats are hardly secret, but DHBs have no particular incentive to go and figure out what works or learn from each other. If DHBs faced financial incentives to ensure broad immunisation coverage, they might decide it's worthwhile to send somebody out to see just what Canterbury is getting right - or whatever DHB has population most comparable to theirs but higher immunisation rates. 
    • There are piles of things you can imagine DHBs trying out. Catch-up vaccinations at school for those who missed them. Making sure that all schools get a visit from the nurse with the jabs. Sending a public health nurse along on Plunket visits. Sending public health nurses along to ECEs where vaccination rates are known to be low. How far can you get just by making it really really easy for folks to be vaccinated?
  • Tell the Health Research Council that funding for research in public health, aimed at policy changes or behavioural interventions, should focus on the traditional remit of public health in vaccination and contagious disease rather than noncommunicable disease. I have OIA requests in now with MoH trying to get a handle on whether they've been putting any funding at all into vaccination work. We get piles of HRC grants for stuff like discouraging youth smoking and drinking and advocating for sugar taxes; it's hard to see anything like it for vaccination. It looks like they made a grant to Auckland Uni's immunisation centre. But there just hasn't been much research work there yet on encouraging vaccination uptake. They've done literature reviews, and they have an annual set of charts that come out of the Tier One vaccination stats, but nothing like the research push that HRC makes into noncontagious disease. I suspect that Janet Hoek, all on her own, gets more funding for anti-tobacco work than the government's provided for research into encouraging vaccination. But I'd like to know. 

It applies in the current case as well, particularly around BPS targets for DHBs to encourage them to find what works in encouraging vaccination. I note that in my old home province of Manitoba, they're sending out vaccination teams into the provincial parks to find people where they are at the weekend and jab them. Here it's all bookings. And that'll be great for those who are happy to get a booking. What happens after that?

Thursday, 22 July 2021

Afternoon roundup

If I'm lucky, this will close a third of the browser tabs.

Wednesday, 21 July 2021

Not a systems problem?

Were you aware that all the queues outside the old Soviet shops weren't a systems problem, but a problem of demand just being too high?

Here's the head of MIQ, last week, on the MIQ booking system. 

The joint head of MIQ has responded to allegations the booking system is broken, saying a current high demand for rooms explains the difficulties travellers have had trying to lock down a spot.

Speaking from Parliament on Wednesday, joint head of MIQ Megan Main said high demand had put pressure on the room allocation system for the 31 MIQ facilities across New Zealand - although the Government was looking for a solution.

“This isn’t a systems problem so much as a demand versus supply problem. Right now, the demand is high.”

Meanwhile, the Ministry of Health finally admitted that its vaccine roll-out graph was just made-up stuff intended on illustrating their high-level intentions, despite it being made to look like there were more thought through numbers and projections underlying it. 

Emails show one official, faced with six different reporters asking for the data behind the graph under the Official Information Act, wanted to claim the figures were commercially sensitive.

"The data doesn't match that illustration as that illustration was a smoothed and high level visual of our plan," he wrote.

"Can we please go with the approach that the picture is an illustration at a high level and the underlying data is subject to commercial sensitive information as an approach?"

But a staff member from the Director-General of Health's office knocked back the idea.

"To say that the numbers doesn't match the illustration would require us to say under the Act that the information didn't exist (section 18(e)). Given I have seen the numbers that underlie the diagram, and you've noted that it does exist, I don't think this would stand scrutiny should the requesters complain to the Ombudsman, which I suggest they would probably do. Refusing on the grounds that the information is commercially sensitive doesn't appear to be a strong reason either."

The ministry eventually responded to journalists saying there was no specific data that informed the graph and declined the Official Information Act requests. Forecast data was released, but it didn't match what was in the illustration, or split out forecast first and second doses.

RNZ sent a further Official Information Act request asking for communications regarding the graph but the response was delayed. When a second deadline went unmet, RNZ complained to the Ombudsman.

The Ministry of Health released the information before the Ombudsman investigated the complaint.

RNZ asked the Ministry of Health if it had updated internal guidelines regarding the creation or release of graphs or illustrations following the incident.

A spokesperson responded: "As with any piece of information we publish, we take care to ensure that the information is helpful and accurate.

"As noted in our OIA response, the original graph was based on forecasts and was created to be a visual representation of what the vaccine rollout would look like. Our vaccination programme is largely tracking in line with these projections."

The ministry has since released a new graph that makes sense.

Monday, 19 July 2021

Treating migrants badly

When we moved to New Zealand in 2003, the contrast between the US Immigration system and New Zealand's was stark. 

They were near opposite, really. 

The US system seemed designed to discourage entry. 

New Zealand's was far better. 

I had received the job offer from Canterbury by March 2003. I accepted and put in for a skilled migrant visa. There was no need for an immigration lawyer because everything was simple. The only complication happened when the Canadians took forever to run my police background check. The FBI ran my prints and took about 3 weeks to say I wasn't known to be a criminal. The Canadians got my prints at the same time and took 4 or 5 months. They took so long that my medical certificates from the US expired while I was waiting. 

So I had to redo the medical check while on a post-doc in Germany. 

All of it meant that my paperwork was only fully completed for the Kiwis far later than I'd have liked. Our worldly possessions were in a 40' shipping container on their way to NZ; we were in Germany and set to leave for NZ in a bit over a month. But a phone call to Immigration NZ had it all sorted; they rushed the paperwork through to make it all work. It wasn't their fault, it was the useless Canadians. But they still jumped to help, so we wouldn't be stuck.

That's just how things worked here. 

After we got here, we put through our paperwork for residence as quickly as we could. You had to be in country for a period first, and then the government revamped the points system for residence and we had to wait a few months while that was bedding in. But it was obvious that it was all going to sort out. 

It ain't like that any more. 

Dileepa Fonseca goes through some of the ways that it just isn't working any more.

It is easy to pull the rug out from under thousands of migrant workers, but nobody ever tells you the carpet might just bounce back and hit you in the face.

The country is now overwhelmed by a wave of economic capacity issues most of which are linked in some way to severely reduced migration and border flows.

Which is why, after scrambling to let migrants know they are not welcome the Government is frantically moving in the opposite direction.

If you were a migrant and feeling angry about how things have gone since lockdown you might take a strange sort of comfort in the way inflation has spiked, job vacancy advertisements have soared, job re-training budgets have proven woefully inadequate to the task of retraining people, and employers have been unable to fill vacancies.

... The Government tightened the screws on these workers last year when it started renewing their visas in short six-month increments at a time when they were at their most powerless.

What were they going to do? Back then no vaccine had been approved in the United States and flights were few and far between. Even if you caught one, any place worth flying to was probably still in lockdown. The only rational decision was to suck it up, live with the uncertainty, and await a new press release from the immigration minister (first ​Iain Lees-Galloway then ​Kris Faafoi) every few months.

Fonseca has a few bits from me in the piece as well. 

I used to be about the strongest advocate there is for moving to New Zealand. I'd constantly berate people for not having moved to New Zealand. Under Helen Clark, and under John Key, it was just a great place to move to. 

I can't recommend that any more. 

The first term of the Ardern government saw Immigration NZ's job change from facilitating migration to stockpiling applications and using bureaucratic process to discourage people from moving here. They should have been up on charges for fraud, really. They were taking applications and charging fees for the applications while knowing full well they won't be processed. I expect that a private company doing anything similar for any service would have been hit by the consumer protection side of MBIE. 

The government now says it wants to attract skilled migrants. Well, if you're considering moving here, caveat emptor. Read everything about how Labour has been treating the migrants who are here. And choose somewhere else. Being here is fine if you have residence. But coming in and trying to get residence now seems a bad idea. 

Friday, 16 July 2021

Bomb the city to save it?

The ongoing difficulties with heritage restrictions in Wellington are a bit of a problem. Can't build houses where people want to live. Can't bowl earthquake-prone defunct old buildings. And can't even get decent ticketing systems at the rail station because somehow the turnstiles would impede the heritage stuff

When you get this level of institutional ossification, well, the bombers may be the only solution.

This week's third column in the Initiative's newsletter. The third column is meant to be satire. Or despair. 

Japan’s post Second World War economic growth was astonishing. Despite widespread devastation, Japan produced an economic miracle.

Economist Mancur Olson provides the most compelling explanation.

I wonder whether his lessons might apply to continued difficulties in Wellington.

Olson argued that political institutions become ossified over time. Entrenched interests block improvements. Wiping out existing political hierarchies and veto players enabled sustained growth.

Ideally, that kind of change is possible without the bombers. But one does wonder.

Wellington’s draft spatial plan debates a month ago were bad enough.

Some councillors did their best to prevent owners of old wooden tents in Mount Victoria from redeveloping their properties into modern townhouses and apartments.

While Council reduced the extent of heritage protection, substantial bans still prevent building new housing in places where people want to live – despite a massive housing shortage.

But it gets worse.

Wellington enjoys a heritage rail ticketing system, complete with paper tickets to be punched by conductors. While the bus system has electronic payment, getting that system onto the trains has been slow.

This week, Kāpiti Coast District Councillor Gwynn Compton found one reason why. Gwynn requested correspondence between Heritage New Zealand, Greater Wellington Regional Council, and KiwiRail regarding the rollout of any integrated ticketing system.

The response ran to three volumes and 128 pages. Heritage Impact Assessments needed to be prepared for necessary infrastructure. Comment on the Heritage Impact Assessments needed to be assessed. The size, colour, and location of six temporary posts checking electronic fare cards needed to be considered. Bold colours that might let commuters tell where to find things were considered too intrusive.

If you think that the Wellington rail station is a museum piece, fair enough. But it does also try to be a working commuter rail station. Britomart in Auckland somehow managed to integrate electronic ticketing into its heritage facilities.

But everything heritage in Wellington is simply too hard.

And that brings us back to my bomber-based solution. Every two years, Wairarapa has an airshow. When we are lucky, an American B-52 flyover delights the crowds.

It flies over Wellington on the way, on a well-advertised flight path providing plenty of notice.

Next time it could have payload.

Clearing Mount Victoria, the Gordon Wilson Flats, the unfixable-at-any-reasonable-cost library, and a few other spots could kickstart an economic and housing miracle for the Capital.

I wish there were an easier way.


Thursday, 15 July 2021

Another day, another J-curve

From the Mayo clinic:

During a median follow-up of 8.9 years, we documented 8652 incident cases of all-cause death, including 1702 cases of cardiovascular disease death, 4960 cases of cancer death, and 1990 cases of other-cause death. After adjustment confounders and amount of alcohol consumed, higher DHS was significantly associated with a lower risk of all-cause mortality, cardiovascular disease mortality, cancer mortality, or other-cause mortality (Ptrend<.001, Ptrend=.03, Ptrend<.001, and Ptrend<.001, respectively). We observed that the amount of alcohol consumed have different relationships with the risks of all-cause mortality and cause-specific mortality among participants with distinct drinking habits, grouped by DHS. For example, in the joint analyses, a J-shaped association between the amount of alcohol consumed and all-cause mortality was observed in participants with unfavorable DHS (Pquadratic trend=.02) while the association appeared to be U-shaped in participants with favorable DHS (Pquadratic trend=.003), with lower risks in those consuming greater than or equal to 50 g/wk and less than 300 g/wk.

DHS here means a Drinking Habit Score based on whether one drinks with meals and drinking at least 3 times per week. 

So all-source mortality risks are minimised by drinking with meals at least three times per week, with consumption no less than 5 standard drinks per week and no more than 30 standard drinks per week. 

The benchmark I keep in my head, from the older DiCastelnuovo metastudy, is that risks are minimised at about a standard drink a day (a bit less for women, a bit more for men), with risk back up to abstinence-baseline at around 4 standard drinks per day (a bit less for women, a bit more for men). And remember that the "sick quitter" confound is already considered in the DiCastelnuovo work. 

The latest from Mayo is entirely consistent with what we'd expect, for those who pay attention to the literature rather than the prohibitionists. But it's great to see this work continuing to bear up in repeated studies. 

Wednesday, 14 July 2021

For a better price cap

New Zealand's ETS has a price cap. It needs a better one.

When the carbon price hits $50, the government releases more units into the system. Some of those units are ones that are already within the cap. The government reduces the number of units auctioned each year within the cap to account for stockpiled older units it expects to be redeemed that year. If those stockpiled units fail to be redeemed and are instead held, there will be price pressure. So the government then auctions more units. And again - this is still within the cap. If the stockpile isn't run down this year, there will be more stockpile left next year, and we'd then expect fewer units auctioned by the Crown to account for that. 

After that runs out, the government can release more units - units that are over the cap. These over-cap units don't actually break the cap as they are backed: each unit released must be backed by an equivalent emission reduction elsewhere. 

But that does introduce risk to the Crown - it has to come up with ways of backing those units. 

The government has signaled that it won't change the price cap this year. If we hit the cap, nobody quite knows what the government would do to back units. 

Last year, we suggested tying the NZ price cap explicitly to prices in the European market so that, at worst, hitting the cap could mean buying credits there to back units released here. A better approach could instead have the government ask the Climate Commission to assess which ETS are robust, then take a weighted average of prices across those systems as constituting the NZ price cap. The price cap would move around but that's okay. If people needed to, they could hedge against European prices on European markets; a weighted average based on volumes will mostly follow Europe anyway. But the government could then just buy credits in whichever market is currently cheapest to back units at the cap. That would mean it would make gains rather than losses when hitting the cap. Right now, they'd lose a lot if they had to go to Europe to buy credits to back units - prices there are about double what they are here.

My column this week went through the case:

The Government could use that surplus to reduce global emissions even more quickly by buying more units. Or it could rebate more money back to households to offset the equity effects of higher ETS prices.

But perhaps more importantly, an explicit link to international prices, combined with securing permission to purchase credits elsewhere, brings credibility to the price cap. The price cap is not credible if the Government is promising to lose a lot of money by using it. A non-credible price cap encourages buying credits at $50 in the expectation that the Government will increase the cap rather than continue losing money.

The Government needs to update the price cap before the next ETS auction. Rather than choose some new price level, like $70 or $100, it should set the cap to follow international carbon prices. It would make for a better, and more durable, path to net zero.

Minister Shaw has since ruled out updating the cap this year. It's defensible: there are also credibility risks in changing the settings hastily. And prices here have risen more quickly than anyone expected. 

But it's still worth building that better cap, and updating to it when possible. 

Morning roundup

The morning's browser tabs:

  • Newsroom picks up on BusinessDesk's prior reporting on MIQ ghost rooms. Much credit goes to Cameron Conradie's constant reporting on the numbers. BusinessDesk pointed out that the MIQ system is constantly overwriting its own data so that it is impossible to get, from them, the prior track. I wonder what the Archivist would make of this because it sounds like deliberate destruction of Official Information which may have to have been backed up by a Disposal Authority. Anyway we're losing skilled migrants who rightly view there as being no chance that the government will fix the system, because the government starts by hating migrants and viewing allowing any of their families in as actually being a bad thing. While it is still good to live in NZ as a permanent resident, I could not recommend that anyone try moving here, unless their utility enters negatively into my utility function - and I don't have that kind of utility function. 
  • The government is going to run into real problems in maintaining nursing staffing. If I've understood the state of play correctly, nursing salaries in NZ are similar to salaries in the UK but Australia has some of the highest pay rates going for nurses. Training nurses here in a common labour market with Australia can result in outflow. NZ has made up the gap by importing nurses - some from the Philippines, some from the UK. But while there's provision for entry through MIQ for nursing staff, it's still a big constraint. Australia is far richer than NZ and can afford to pay more. It's entirely plausible that the government here is behaving as monopsonist in keeping nursing wages down, but even if that weren't the case there would still be a problem. 
  • NZ is importing and burning a lot of coal currently. In one sense, this is not a problem at all: the Emissions Trading Scheme sets a binding cap, the current ETS price roughly doubles the cost of using coal, so any coal that's used is very likely in spots where it would be real expensive to substitute away from. But there are still two more substantial problems. First, some of the coal burning is because Megan Woods banned gas exploration in Taranaki, reducing capacity in those fields. So we're being forced to use a worse alternative because the government set very bad policy. Second, optics. While all that coal is accounted in the ETS, nobody understands the ETS, and seeing coal imports makes people think the ETS isn't working. And that builds pressure for even worse interventions. I wish that National would aim for less political point scoring here and instead be looking to underlying causes. 
  • The government is going to be having an inquiry into crypto. I kinda knew what was going on in crypto 3 years ago; that tech is moving crazy fast and keeping up with it would be a full time job. I hope Auckland's Alex Sims helps them out a bit, and I also hope they seek some of the expertise over RMIT. Parliament's Select Committee couldn't figure out how the Uber app works a few years ago. This won't end well unless they get some serious help. 
  • NovaVax also looks pretty good. Seems futile to hope it will get evaluated and considered for roll-out here, where dose availability is a binding constraint. We are sitting ducks here if Delta gets out. 
  • Environment Minister Parker is holding off on nitrate limits on waterways - for now. I still think cap and trade solutions can get that job done. Report on that will be out soon. 
  • The government's reluctance to have effective vaccine mandates for border workers - it's just incomprehensible. There can be practical difficulties that need to be overcome; sending nurses out to worksites over a few shifts could make a lot more sense than trying to get all those workers separately to make long commutes out to places where they can be vaccinated. If compulsion is warranted anywhere in public health, it's in vaccination. There are very real and substantial negative externalities from not being vaccinated - and especially among workers who are at risk of contact. We wind up with a health system happy to ban soda in the hospital cafeteria but that can't manage to get workers vaccinated. It's nuts. 
  • Another for the "is government actually evil?" file: The Ministry of Ed refuses to fund a teacher's aide for a special needs student (limited budgets; understandable) but also refuses to allow the parents to privately fund the aide
  • Industrial policy as casino economics. Do you feel lucky?
  • Cuba's health policy successes are wildly exaggerated and based on bad data. Here's hoping that the new revolution brings down the communist dictatorship. 
  • Remote work won't work for everything. Face-to-face still matters. Planet Money interviews Enrico Moretti
  • Not crazy to worry about inflation. But if you have strong opinions about it and you think you're right, well, here's the data series on nominal bonds and here's the series for inflation-protected bonds. If you think inflation is going to go through the roof, make the appropriate play. If you think that everyone else is just way too worried about inflation, take the opposite appropriate play. 

Tuesday, 13 July 2021

The Grand Deal

Josh Gans explains how getting vaccines developed and delivered is supposed to work, and how Australia (and NZ, though he doesn't mention us) have failed. 

I worry that NZ is set to repeat this particular kind of failure. We need to be getting orders in right now for the delta-variant shot that Pfizer's developing. Pay a pile for it up front. Order twice as much as we need, for rush delivery at the actual front of the queue. Give the doses we don't need to whichever other country looks like they most need it. It's still a bargain, and it's the right thing to do. 

Here's Josh:

Let me explain the grand deal because I don’t think it is commonly thought about and it is certainly not explicitly written down. But it goes like this. If we were to think purely ethically, we would want every person in the world to have an equal chance of being the first to be vaccinated. That is we would take scarce supply and randomly allocate doses.

That doesn’t happen for lots of reasons. First of all, it is cheaper to surge vaccine doses in particular regions — aka countries — rather than send them out willy nilly. Second, some countries can actually get doses to people quicker than others which tips the balance. But the final consideration is: someone needs to pay for all of this. We don’t have a world government etc and so we have individual governments. Every single one of those has opted for some version of the ethical distribution (with adjustments) locally so it isn’t like this isn’t understand. But it is also understood that there were some billions of dollars to be paid for all of this and not just the vaccines we ended up using but the ones that didn’t work out.

When you have this type of problem — how to allocate fixed costs — you then move from ethics to economics. The social planner facing a budget constraint is going to allocate the funding of most of those costs to the groups most willing and able to pay for them. That means that everyone is happy to participate but also that if you happen to be poorer you are not obliged to pay more than you can afford. Now we could do this the fully ethical way world-wide if we just had a global tax system to sort out the allocation of costs but, as I mentioned, we don’t. So we just make do with what we have.

The thing you do then is the same thing many businesses do. You price discriminate. In this case, if you are a drug company, you set the prices of earlier deliveries many times higher than of later ones. Then you approach the groups you think might (a) afford to pay for those early deliveries and (b) might want to. This is what Pfizer and every other vaccine developer did. (Yes, even the ones from China and Russia).

The idea was that those countries would lock in deals and then the companies would go down the list with lower prices until the market cleared. From a global perspective, the rich countries get the doses sooner which means that it doesn’t look like the ethical outcome but hidden away there is the fact that the rich countries are, in effect, paying for the main costs of this. None of the companies is doing this as a charity. Ultimately bills need to be paid. So that must be happening.

Canada was a great example of a country that went with this deal. It bought country sufficient doses from many comers and then, when so many vaccines worked out, looked like it had embarrassingly ordered 10 times more than it needed. But the folks in Ottawa could actually add and they knew what they were doing. The doses they didn’t need would be gifted to other countries. This is the most transparent kind of way of dealing with the grand deal.

Australia’s cut and run

Australia didn’t do that. They won’t even reveal what they did do citing “national security” which is odd. Did they low-ball? It looks that way. Did they fail to diversify? Absolutely. Was that a crazy thing to do? To anyone who has thought for two seconds about the costs and benefits of any pandemic expenditures, it would seem so.

Monday, 12 July 2021

Afternoon roundup

The browser tabs...

Holes in the MIQ bucket

Thomas Coughlin reports that the reason the government cannot expand MIQ capacity is that they can't source enough nurses and haven't enough testing capacity. 

Now documents released to the Herald under the Official Information Act show officials have been considering long-term purpose-built MIQs since July last year.

But each time a new idea was floated, it hit a brick wall: the country does not have the health or security staff to sustain more MIQ places and building new purpose-built MIQ spots could create as many problems as it would solve.

...

Ironically, MIQ, which is often held responsible for restricting the flow of labour into the country, was itself a victim of the labour shortage.

A "key constraint for increasing capacity for MIQ is the availability of workforce to provide wrap-around services, such as health care workers and security guards.

"Appropriate health workforce, and laboratory testing capacity needs to be available to MIQ facilities without undermining the provision of broader health and disability services," officials said.

"Even if additional new types of accommodation can be found, these workforce constraints remain and are likely to place an absolute limit on the supply of MIQ spaces unless they can be addressed," they said.

It's impossible to believe that security guards would be the binding constraint; training more can't be that hard. They may have to offer higher pay to attract more people but that's fine. 

I've heard the worries about bidding nurses away from the rest of the health system before; it had been raised when we'd suggested some of the kinds of options Coughlin canvasses. 

But there are two big problems with this. 

First, and most obviously, the government is acting as a monopsonist. The government is the largest employer of nurses. It is worried that MIQ facilities offering higher pay to attract nurses would bid nurses away from the rest of the health sector, and then force the government to pay nurses more to avoid that happening. For all the government's push for Fair Pay Agreements and utterly implausible arguments about 'monopsonistic' employment conditions requiring a benevolent state to come in and force new pay relations under an Awards system, the only parts of the labour market that work like that are the ones where the government is the monopsonist: teaching and nursing. And in those sectors, the government behaves exactly as you would expect a monopsonist to behave. Maybe that's why the government sees monopsonists everywhere - it extrapolates from its own conduct.

But second, and more currently important, you can scale up MIQ without massive increases in nurse demand. MIQ puts a lot of demand on nursing and testing because the government has chosen to keep going with massively resource intensive swab testing. Rako has been ready to deliver swab testing at scale since January. It doesn't require nurses to take the samples, and the test capacity can scale up to whatever is needed. 

BusinessDesk reports on the latest in that saga. It looks to me like the government ran a near-corrupt tendering process resulting in contracting with a provider who doesn't even have a validated test, because the Ministry of Health was embarrassed that Rako showed them up. It hasn't been deployed at anything like scale, and nobody knows whether the test would actually work. 

This article all on its own is worth the BusinessDesk subscription. Please subscribe and read it. 

I have a short snippet here but the whole thing is damning. 

The covid-19 saliva test being rolled out under a health ministry contract constitutes “a risky strategy” in which “border workers must pay the price” if it fails, says one of the country’s top saliva testing experts.  

In a June 21 email obtained by BusinessDesk to Sue Gordon, the health ministry’s deputy chief executive for covid-19 health response at the time, Victoria University’s associate professor of biological sciences, Janet Pitman, claims health officials “actually have no idea whether the test(s) will indeed work accurately". 

Pitman is the principal academic adviser to Rako Science, an unsuccessful bidder for the national saliva testing contract let by the ministry in late May to Asia Pacific Healthcare Group (APHG). 

“The saliva tests to be rolled out by the MoH are not diagnostically validated and the accuracy of these tests are completely unknown,” wrote Pitman (her emphasis) on June 21. “I remain at a complete loss to understand why these unvalidated tests are being used on our most vulnerable people at the border.” 

Anyway. 

We can't expand MIQ capacity because the government doesn't want MIQ to be pushing up the cost of nurses for the rest of the health system - and again the Commerce Commission can't go after this kind of anticompetitive practice, because State protects State. 

And we can't have better testing methods that won't put pressure on nursing and current testing capacity because the Ministry of Health is embarrassed that Rako could do something that ESR couldn't manage, and because demonstrating competence in delivery just isn't the way things are done in New Zealand.  

Remember that old "there's a hole in the bucket" song? It's that, except there's a bung for the hole sitting right there, and MoH refuses to use it and prefers to bleat endlessly about the axe not being sharp enough, the whetstone being too dry, and there being a hole in the bucket preventing getting the water to wet the stone.  

Sunday, 11 July 2021

Hazeldine on the ETS

I can't disagree with anything Auckland University's Professor Tim Hazeldine has to say about climate policy.

Also mostly pointless, are the multitude of policy recommendations that pour forth from the report. If the real decision-makers in the economy (i.e. all those listed above) are getting the correct price signal from the ETS, then there is generally no justification for further government intervention. What should be done will be done.

The main exception will be in the provision of what economists call "public goods" – in particular research results that can be freely used by everyone, such as how to breed better-mannered cows.

But, in any case, with the emissions price signal sorted, all proposed programmes and policies should just go through the Treasury's standard cost-benefit analysis. The commission is no help here.

And - not so incidentally - the expensive scheme to subsidise purchases of electric vehicles that the commission has foisted on the current government will almost certainly fail the cost-benefit test. Around 90 per cent of the well-heeled beneficiaries of the scheme's largesse would have purchased an electric car anyway - we have just given them an $8000 present.

Along the same lines, but harder perhaps for non-economists to grasp: none of the large sums of money that will be raised by auctioning emission quotas or (the alternative) imposing a carbon tax should be diverted into climate-related programmes in addition to those which will be done anyway because they pass the social cost-benefit test.

These funds should be revenue-neutral. They are incurred by the team of five million, and they should be returned to them, Each billion of carbon tax or quota money would fund a $200 Christmas present for everyone on the team.

Our climate change policy should be solely about climate change. "You can't kill two birds with one stone" is a cliche but it is not trite. It is true and important in almost every policy context. Yet the Commission considers it should in future "consider broader well-being factors, like eradicating poverty, safeguarding food security and addressing other environmental outcomes". Wrong, wrong, wrong and wrong.

I wonder if Tim had my colleague Matt Burgess in mind here: 

So, what to do? The Climate Change Commission has, in just a few months, seriously outgrown its boots. The Government should step in, and with polite thanks for their efforts, de-commission the commission. It should then persuade a super-smart mid-career research-grade Kiwi economist – tough-minded but humble (they do exist) – to take the reins of a slimmed-down secretariat.

Saturday, 10 July 2021

To Arms

The Janssen vaccine is now approved for use in NZ; AstraZeneca should be close behind. As best we can tell, the Pfizer vaccine slowly being rolled out is better than either, but availability of doses seems to be a binding constraint.

There's some evidence now that AZ as a first shot followed by Pfizer may be better than two shots of Pfizer, or at least no worse. If we could get AZ faster, then that could speed up the vaccination roll-out. 

There are NIH trials currently underway checking what Janssen-based combinations are like. Safety data should soon be available. If Janssen followed by Pfizer is safe, and if NZ could get doses of it, then we could think about rolling out Janssen as first doses. That too could speed up the vaccination roll-out. Adding a second dose of Pfizer later, at the time that it would have been being rolled out as first doses, would give more protection in that interval. See also the Washington Post on it.

The Conversation summed up the case a few weeks ago:

Emerging coronavirus variants are one of the most intriguing reasons to consider mixing vaccines. Administering vaccines that target different variants would provide broad collective immunity and limit emergence of new possibly more dangerous strains.

It’s possible that people who are currently fully vaccinated will need a third shot to address genetic differences in new variants. Changing platforms for this booster shot – for instance, if your first round was viral-vector based, switching to mRNA or one that is protein-based – could help bolster your immune response.

The whole public sector seems really not to see any urgency about getting doses in arms. I don't really understand why. Is it just fatalism and resignation, figuring it's impossible to get more doses so no point in thinking about it? Too much trust in that we've not had a real bad breach so far, so it'll be fine next time? 

Australia is getting a delta outbreak, and our border protocols are really not very good. 

They still haven't gotten all border workers vaccinated. They're not bothering checking Covid test results for incoming passengers. Our contact tracing system still isn't up to the job

There's no decent roll-out of saliva testing, and what looks like a near-corrupt tendering process. Access to vaccines across the country seems haphazard, with no access in Canterbury (and see here) but easy access in parts of Auckland. [Update: oh - and border workers really do want the saliva tests.]

Getting piles of doses ordered for fast delivery gives us options. At worst, if the NIH trials don't look so hot, pass the Janssen doses on to other places. 

Pfizer is working on a new booster aimed at the Delta variant. Shouldn't we be getting a big order in right now, before the thing's approved, so we can have delivery of it as soon as it's ready rather than being back of another queue? 

Monday, 5 July 2021

Morning roundup

The morning's closing of the browser tabs:

Friday, 2 July 2021

Biofuels mandates

The government is taking submissions on its proposed biofuels mandate.

It's an interesting one.

From the consultation document:

Over the first three years, 2023–2025, the Sustainable Biofuels Mandate would reduce emissions by 1,342 kilotonnes. In 2025 annual transport emissions would reduce by over 4%.

They then provide a tallying of potential cost:


They're proposing to reduce GDP by $1,245 million over three years for a three-year cumulative emission reduction of 1,342 kilotonnes. 

There are a thousand kilos in a million. 

So the policy costs about $927 per tonne of reductions. 

The current ETS price is $43.

You could buy 20 tonnes at the next auction and shred them for less than the cost of a single tonne of reductions through this policy. 

Why is this even going out for consultation? Isn't this the kind of thing that, in academia, would get a giant desk reject? Like "Hey, this is just so stupid we don't want to waste the referees' time on it. It has no chance of being accepted for publication. It would insult the referees to ask them to provide comment. Who is the person in your team who thought this was a good idea to start with? It is just so obviously terrible that we want to pre-emptively desk-reject anything else coming from that person, so the editor doesn't even have to open the envelope next time. And we might want to give a warning to whoever gave them a grant to study this too."

We should at least give thanks that the consultation document put numbers on it. I wonder whether they will continue to do so. 

The consultation document grasps for a few straws:
The modelling shows the upper bound of the impact on GDP. In reality the impact is likely to be lower because the:
  • projections assume that there is no further technological progress. It is likely that the global long-term policy commitment to biofuels will lead to higher investment in cost-reducing biofuels research and technology
  • economic impact is highly dependent on the prices of biofuels and fossil fuels. The modelling’s sensitivity analysis shows that when biofuels are relatively less expensive, and/or fossil fuels are relatively more expensive the economic costs of the Sustainable Biofuels Mandate fall. Emissions reductions are also slightly higher
  • Sustainable Biofuels Mandate will protect future levels of GDP. Currently, key exporters like the food and fibre sector are concerned that their businesses will lose access to some international markets if we fail to take timely action to reduce emissions18
  • estimates do not include the potential positive impact on economic activity, and regional economic development, arising from any domestic biofuel production.
While there will be an economic cost, New Zealand has made a commitment to decarbonise and become a net zero emission economy. Moreover, stakeholders have suggested that after electrifying light vehicles, biofuels are likely to be the next lowest cost carbon mitigation opportunity for transport.

Sure. Costs could change such that biofuels become less terrible. But if that happens, the ETS will already encourage fuel companies to pick them up. The policy is a one-way bet on failure. The status quo gets us biofuels in the states of the world in which they pan out; the proposal then only ensures that we also get them when they're really stupid.

And if the government is worried about getting emissions down to maintain access to international markets, maybe, just maybe, it might make sense to cut the ETS cap more quickly, getting you twenty times as much emission reduction as a biofuels mandate would get you for the same amount of effort? 

Heck, they could just go out to the folks who hold stockpiled credits and offer them $50/tonne for them just to get them out of the system so the government doesn't have to account for them. That's way cheaper than a biofuels mandate. 

Markets can fail. There can be spots where policy can get to better outcomes than the ETS alone, if it's addressing some other real underlying market failure that isn't addressed by a carbon price. 

Apologists for a policy-heavy approach to mitigating emissions like to cast ETS proponents as having idealised views of how markets work.

As with the overall reliance on the ETS, however, detractors say the simplicity of this policy could be its greatest weakness.

"The thing about Eric and the New Zealand Initiative is that they take an extremely purist approach. Actually, the world demonstrably just doesn't work that way," Shaw says.

Diaz-Rainey says: "It seems theoretically very, very appealing. In a very clean and idealised world, that seems very appealing, but I just don't see it happening."

That ain't it, though I can see why they'd want to paint their critics as unrealistic idealists. 

It's rather that ETS proponents are realistic both about market failure and about government failure. Both will cause different sorts of problems. 

The political world throws up policies costing >20x as much as the current ETS price, and multiples of any estimates I've seen on the social cost of carbon. 

I think it takes an extremely purist and naïve view of political processes to want to rely on Ministerial and bureaucratic discretion to solve a problem as big as getting to net zero. 

And it seems crazy to think that you can maintain political support for net zero while hell-bent on pushing policies costing twenty times as much as necessary to get there, that have no in-built mechanism for compensating those bearing the cost. At least the ETS generates revenue for the government that can be given back to people right? Biofuels mandates don't do that. 

Anyway, Kate MacNamara asked me for comment on this thing

Eric Crampton, chief economist at the New Zealand Initiative, said cheaper ways to achieve the same level of emissions reductions would mean less harm for those who bear the costs.

"The numbers here [in the consultation document] suggest a sustainable biofuels mandate would reduce emissions by 1.342 megatonnes at a cost of $1245 million. When I pull out my calculator, that gives me a cost per tonne of $927. The ETS price is currently $43. So if the numbers presented in the report are correct, the Government could achieve more than 20 times as much emission reduction, at the same cost, by buying ETS credits and shredding them – at current prices. Simply reducing the [ETS] cap, without the biofuels mandate, would be better."

Crampton said that as total credits are reduced the scheme naturally abates emissions in the most cost effective way; this is because carbon emitters must bid at auction for credits that allow them to emit.

The Government, however, seems determined to target emissions reduction in transportation in particular, and remains concerned that New Zealand's uptake of electric and hybrid vehicles is too slow (the transport sector contributes some 21 per cent of gross domestic greenhouse gas emissions).

If you want to submit, the forms are here

You might suspect that nobody in the current government is listening to anybody about anything, but submitting on it may be cathartic. 

You might as well at least enjoy yourself while telling them what you think about it. 

And buckle up to be poorer in 2025 and thereafter, to no benefit to the climate because fuel is in the ETS anyway and the binding cap on net emissions is a binding cap on net emissions.