Conclusions and recommendations
Scenario analysis is an invaluable tool in planning for an uncertain future. By developing internally consistent scenarios of how the future might evolve, and how policy will affect this evolution, it is possible to identify key strategic pivot points, possible perverse outcomes, and strategies that are robust to uncertainty.
Scenarios present the future as a series of discrete alternatives; in practice there are typically many more variants. While scenario analysis can be invaluable, it is important to stress that, typically, the development of a small number of discrete alternatives will not capture all possible futures – nor is it intended to. Rather the aim is to starkly illuminate key strategic issues and trade-offs. In practice, when seeking to manage these trade-offs, there are a wide range of options available. In many cases, it will be possible to choose between elements of different scenarios.
The possible scenarios and appropriate policy responses will also change over time. The scenarios presented in this report represent an interpretation of the current evidence base on the opportunities available for New Zealand to reduce its emissions, in the context of the current scientific understanding of the possible severity of physical, economic and social impacts of climate change and the current global commitment to addressing it. However, all of these variables are subject to both evolutionary and disruptive change. This calls for regular assessment and adaptive decision-making approaches that can flexibly respond to unforeseeable changes in circumstances.
In using scenario analysis to explore how New Zealand might adjust in order to substantially reduce its domestic emissions, a number of crucial conclusions emerge.
- Any pathway to substantially reduce the country’s domestic emissions will involve changes to patterns of energy supply and use. Substantial energy efficiency improvements, moving towards a 100 per cent renewables grid, and electrification of the passenger vehicle fleet will be requirements for almost all countries in moving to a net zero world. For New Zealand the adjustments that need to be made are comparatively small, likely to be low-cost, and/or will help realise substantial co-benefits.
- It is possible for New Zealand to move onto a pathway consistent with domestic net zero emissions, but this will require altering its land-use patterns. Our analysis suggests that maintaining current land-use patterns, even if with optimistic projections for technology development in both the energy and agriculture sectors, will not place the economy on a domestic net zero pathway.
- If New Zealand does seek to move its domestic economy onto a net-zero consistent trajectory, there is a choice between the extent to which it makes use of new technologies and the patterns of land use. If a slew of new low emissions technologies become available in both the agriculture and energy sectors, and successfully penetrate the New Zealand economy, then a variety of rural land-use patterns can be sustained. However, to the extent that these technologies do not become available, increasingly aggressive rates of afforestation will be needed. While our choice of scenarios shows this trade-off starkly, in practice a wide range of combinations of technology penetration and afforestation will be consistent with a domestic net zero economy. With some constraints, there will be an opportunity to adjust the rate of afforestation as the pace of new technological development and deployment becomes clearer.
- If it chooses to substantially afforest and is fortunate enough to benefit from the extensive deployment of new technologies, then it could be possible for New Zealand to achieve domestic net zero emissions by 2050. This analysis has not considered this scenario in detail. However, as interest around the implications of the Paris Agreement’s 1.5°C temperature goal grows, more detailed analysis of this and similar scenarios that deliver net zero emissions for New Zealand by 2050 may be warranted.
- The more New Zealand relies on forestry sequestration to reduce its emissions in the period to 2050, the more it will need to rely on enhanced technologies in the period beyond 2050 to ensure emissions neutrality. Afforestation represents a relatively low-cost way for New Zealand to reduce its emissions, albeit with a range of other implications, both positive and negative. However, assuming (as our scenarios do) that most of the timber is ultimately harvested, a given amount of land provides only a temporary reduction in emissions, with additional emission reductions possible only through converting further land to forestry. In our Resourceful New Zealand scenario, the amount of land that is generally considered to be socially and politically feasible to convert to forestry is exhausted in 2050, thus eliminating this source of abatement for the period beyond 2050. In this case, further emission reductions will be possible only from the development and deployment of other technologies, including those that are as yet unknown.
From these key conclusions, we also draw a number of key policy conclusions, for further development.
- New Zealand should develop a trajectory for emissions price policy values, to factor into all government assessments and analyses, that is consistent with the international evidence on what is required to deliver the objectives of the Paris Agreement. This will imply significantly higher values than seen in today’s market prices and the trajectory of prices will rise over time. The trajectory of these prices will rise over time. By factoring in these emission price policy values, the New Zealand government can substantially reduce the risk that it will make long lived infrastructure investment decisions that either lock the country into a high emissions future, or which could be threatened by asset stranding at a later date.
- A robust, predictable emissions price is vital in encouraging the private sector to make investments consistent with a low-emissions future. The precise policy instrument through which this signal is provided – ETS, emissions tax or a hybrid of the two – is of secondary importance. In scenarios that envisage substantial changes to land use, the extension of the emissions price will help promote land use decisions that take account of the emissions implications of that use.
- The emissions price needs to be accompanied by a range of changed market and regulatory arrangements, infrastructure deployment mechanisms, and specific support to address additional barriers and market failures. Globally, there is increasing recognition that an emissions price needs to be buttressed by a coherent set of other instruments to maximise effectiveness. There are a number of areas where New Zealand’s policy suite could be strengthened:
To support energy efficiency – where there is a particularly strong evidence base for a need to complement emissions pricing – an array of policies can be developed including vehicle fuel efficiency standards, standards on lights and appliances, changes to building codes, and targeted support for industrial consumers to improve energy efficiency
Agreeing on the strategy, and developing the associated regulations and market arrangements, that encourage the roll-out of electric vehicle charging infrastructure. This planning needs to start in the near term.
Although wind and solar are low cost in New Zealand, new measures to encourage investment, beyond the revenues that can be accessed in the existing electricity market, may be needed to achieve high rates of deployment and the strategic location of generation assets. Case studies of market-based mechanisms such as renewables auctions and portfolio standards, increasingly deployed internationally, provide an indication of what works in different contexts and whether it can be transferred to New Zealand. Further work is required to investigate the precise objectives for a new mechanism in New Zealand and key design parameters.
New investment in back-up plant and grid infrastructure is needed to support higher shares of variable renewables. Potential measures to encourage investment include improved market access for demand-side response and an incentive for investment in batteries. Detailed modelling is needed to determine the additional services that are likely to be required to ensure reliability of the New Zealand electricity system.
In the waste sector, regulation of unmanaged facilities and greater use of anaerobic digesters at farm dumps would facilitate improved methane capture. For managed sites, increasing separation at source can help divert biodegradable household waste and construction and development waste from landfill sites.
Reducing emissions in the agricultural sector requires continued support for R&D to enable the technological developments necessary to cut emissions. In addition, government support to overcome coordination problems will also be needed – for instance, to facilitate collaboration on breeding lower-emissions livestock. There may also be a role for government in disseminating information about new technologies and educating consumers around the use and implications of these technologies
Additional policies may not be required for the forest sector, although applying a floor to the emissions price would encourage investment in forestry as it could other low-emission investments.
- Globally, there is a case for further investment in R&D into low-emissions technologies; given the attractiveness of the Innovative scenario, New Zealand might contribute further to this. It makes most sense for New Zealand to focus on those technologies most critical to its own emis To support energy efficiency ions future and where it is most likely to find comparative advantage. Options for collaborative research and experimentation across government, business and research institutions should be explored, while further international collaboration can facilitate rapid adoption of new approaches in local contexts. While there are considerable resources already devoted to agricultural R&D, the abatement potential from methane vaccines makes this a continued priority and potential area for increased focus.
Political parties should actively seek to identify and articulate areas of common agreement on climate policy, in order to enhance policy coherence and predictability. Moving to a low-emissions pathway will take many decades and involve large amounts of investment in long-lived infrastructure. The creation of a stable regulatory and policy environment is essential for ensuring that this investment is delivered at low cost. By seeking to explicitly identify and articulate areas of agreement, political parties can play a crucial role in reducing the risks and costs of the transition. This can be supported by forums such as GLOBE-NZ. At the same time, there will always need to be room for informed debate and party differences over the speed and specifics of policy direction.
- Independent institutions can help steer New Zealand’s low-emissions pathway development. Building on the recommendation above, an independent statutory climate commission could help anchor expectations regarding the stability of climate policy, just as the Reserve Bank of New Zealand helps to anchor investor expectations regarding price stability. This might include, for instance, identifying expected trajectories for the emission prices to help private-sector investors make informed decisions over long-lived investments that reduce the risk of lock-in to high emissions assets and/or the risk of asset stranding, or identifying whether there may be tensions between New Zealand’s plans to reduce its emissions and other elements of the government’s economic development strategy. The body could also provide a platform to support ongoing, more detailed scenario analysis to inform New Zealand’s low-emissions pathway planning and support subsequent coordination and implementation. A dedicated body of experts focusing exclusively on climate change and the appropriate policy response can also help facilitate flexible, adaptive decision-making.
- Policymaking should adopt a holistic approach including both economic and cultural interests. While the scenarios in this report have been developed from an economic perspective, New Zealand has a diverse range of cultural interests which should form part of a more holistic approach to policymaking, particularly as it relates to land-use planning. Chief among these considerations are obligations under the Treaty of Waitangi, and to the mana whenua of a specific land area. All stakeholder groups should be taken account of in the designing of policy, including a process of meaningful consultation with iwi and hapū, as per the Treaty’s principle of partnership, to acknowledge their interests and aspirations.
- There is an important need to upgrade the evidence base to support New Zealand’s low-emissions pathway planning. The most acute needs are for an energy and land system modelling tool(s) that generates bottom-up estimates of abatement opportunities and costs (to complement existing top-down macro economic estimates) and of the interactions between sectors (such as the power system implications of electric vehicle uptake, or bio energy availability given different scenarios for land use and forestry). Specific studies on heat and agriculture would also be valuable:
In relation to buildings and heat, greater evidence on the potential and costs of electric heating technologies across low-, medium- and high-grade heat, and on the costs of a low- or zero-emission homes standard for new-build properties.
In the agriculture sector, further efforts to narrow the cost ranges on key abatement options by exploring costs in specific contexts within New Zealand.
- A particularly important area for further research and policy development is understanding and addressing the distributional implications of differing low emissions scenarios, and the policy responses that might help alleviate any concerns. The transition to a low-emissions future provides a wide range of exciting opportunities to reduce New Zealand’s emissions in a way that, in aggregate, supports diversified economic activity and can improve overall living standards. It also carries costs: the price of energy may rise, while changes in land-use patterns could imply significant dislocation in rural communities. Importantly, these costs and benefits may be distributed unevenly across New Zealand society. This analysis has been able to consider these issues at only a very high level. Future work is needed to understand in more detail the distributional implications of different scenarios, including impacts on Māori communities given the large changes envisaged to the rural economy. It should also focus on how any negative impacts on vulnerable communities and households can be best addressed. International experience points to a range of strategies that can be used effectively, including social transfers through the welfare system; increasing skills and re-training; and targeting interventions such as improvements to the energy efficiency performance of the housing stock towards the most vulnerable. The robustness of these approaches to the high emissions prices and significant changes envisaged within some of our scenarios needs particular attention.