Is this New Zealand’s Yellow Brick Road?

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Is this New Zealand’s Yellow Brick Road?

Is this New Zealand’s Yellow Brick Road?

June 14, 2021

The Climate Change Commission (Commission) issued its first advice (Advice) to the Government on 31 May 2021, following public consultation on its January 2021 draft.

The Advice will inform the emissions budgets and reduction plans that the Government will adopt before the end of 2021, and which will likely be implemented through legislation over the coming years.

As required by the Climate Change Response Act (CCRA), the Commission proposed emissions budget levels and a number of policies that the Government could adopt, and all of New Zealand would put into practice, to meet those budgets. A Yellow Brick Road, of sorts.

The Commission’s Advice contains proposals for policy direction covering all areas of activity in New Zealand. This newsflash focuses on policies applicable to energy, water and transport infrastructure, including overarching policy proposals that would inform infrastructure decisions in those sectors.

What does this Yellow Brick Road look like?

It is a very long term plan. The Commission stressed that, in preparing the Advice, it took into account the fact that New Zealand would have to not only meet the targets under the CCRA, but also sustain them beyond 2050.¹

It requires fundamental change. The Commission concluded that current policies, while leading to a reduction of greenhouse gas emissions, would not be sufficient to meet the CCRA targets.²

It does not include international aviation and shipping emissions… yet. The Commission will review whether emissions from international aviation and shipping are included in the 2050 targets ³ in 2024.

Cross-sectoral policy direction

The Commission emphasised that a successful strategy to meet emissions budgets will require everyone to reduce emissions. Some of the policy positions proposed by the Commission are an example of this interdependence, straddling more than one sector.

Clear, credible and consistent signal about the transition to low emission economy: The Commission has recommended that the Government provide a clear, credible and consistent signal about the transition to a low emissions economy and how quickly this will happen.⁴ Cross-party support for the Government’s emissions reduction plans – which will lay out detailed policy plans in each area – would provide even greater certainty. Given the recommendations foresee a long term plan up to 2050 and beyond, some consistency in government action (irrespective of the political party in power) would provide the certainty that helps businesses. However, as the reaction to the Government’s latest plans to promote the use of electric vehicles indicates, cross party consensus is still just a pipe dream.

Climate change to be a consideration across government decision-making: The Commission recommended that climate change becomes a consideration across government investments, policy statements, direction to officials, internal policies and directives. This action should ensure that regulatory and policy frameworks and decisions are aligned with low emissions and climate resilience objectives.⁵This is important across all government entities, including those that do not have climate change as their core business, and stresses the fact that action is now needed in all sectors of activity.

Finance low emissions investment: The Commission is also recommending that public investments, including in infrastructure, support low emissions outcomes.⁶

Shadow price government long-lived investments: Another recommendation is for the Government to ensure that investment, in particular long term, long-lived investments that are irreversible once made, such as large infrastructure projects, move New Zealand towards low emissions and carbon neutrality.

Such projects should be shadow priced. This involves incorporating long-term abatement cost values, consistent with New Zealand’s climate change goals, into the cost-benefit or cost-effectiveness analysis for a project.⁷ For the Government to decide whether a project goes ahead, in addition to the usual economic considerations, it would also consider the cost of the greenhouse gas emissions that the project would produce and the cost of covering the impacts of those emissions.

Shadow pricing could also be done by local government and the private sector, with some guidance from Government.⁸

Should the Government accept these recommendations, they will impact all areas of activity – including any decisions around infrastructure, energy and water policy and investments.

Integrating infrastructure and urban planning: The Commission highlights the importance of infrastructure accommodating increased demand. For electricity, for example, increased demand will require more generation capacity and the expansion of transmission and distribution infrastructure.⁹ Urban form and function needs to consider planning for future things such as renewable energy infrastructure, intensification and changes in transport networks.¹⁰

The Government is encouraged to ensure that resource management reform enables low emissions transport and infrastructure across the country.¹¹ Another difficulty the Commission considered the Government could address in the planning system was the weak national direction and a lack of prioritisation of different objectives. This combination makes it difficult for local government to meet climate change outcomes when these are assessed against other social and economic outcomes.¹²

These are welcome acknowledgements of the difficulties that both existing and new infrastructure projects face. Under the resource management legislative framework, as it stands today, it is unclear whether some projects could go ahead quickly enough, if at all.

Urban design and emissions: The Commission calls for the development of a robust and consistent methodology to quantify how different aspects of urban design affect emissions. This would be New Zealand specific, and could inform the design of approaches to reduce emissions from urban areas, transport networks, buildings.¹³

Transport

Electrification: The Commission continues to support the electrification of transport as the main way in which transport emissions can be reduced. This is clearly being heard - on 13 June 2021 the Government announced the introduction, from 1 July 2021, of a feebate scheme to support the sale of electric and hybrid light vehicles. The proposed rebate will be supported by fees imposed on the purchase of internal combustion engine cars, in place from 1 January 2022.

Better integration of elements within transport network and planning the transport network: Electrification should happen at the same time as some overarching transport policy changes which require:

optimising existing systems – such as reallocating road space to create low traffic neighbourhoods or streets, something that can happen in the short term.
investing in new infrastructure and services to provide better connections between modes of transport within urban areas to service people.
integrating end-to-end transport planning. This would mean coordinating operations so services function well together, and include first and last kilometre solutions.
designing compact communities with infrastructure that enables easy access to alternative transport.
integrating road, rail and shipping so as to minimise freight movements and enable the use of the lowest emissions freight transport options.

Some of these proposals would require a shift from the current transport planning and funding which is centred around private vehicle use, to a larger proportion of funding dedicated to public and active mobility, including for integrating a national public transport network.

Much of the current funding for transport is already committed to projects that, given the timeframes required to implement them, may not necessarily meet some of these goals. If these policies are adopted in the emissions reduction plans, it will be interesting to see if the Government, through its agencies, chooses to proceed with existing projects that may not necessarily meet these objectives. The alternative is to retrospectively amend them to take into account these objectives, something that may not be easily achieved.

Energy

The Commission recommended the development of a national energy strategy that would ensure all elements of the energy system are addressed coherently, including infrastructure needs.
A renewable energy target would help signal that emissions reductions are required across the full energy system. It would be technology neutral, and could take the form of a percentage of all the energy consumed across the energy system so as not to be distorted by geothermal energy used for electricity generation. A similar tool had been used in Australia, and, while it was in place, encouraged businesses to invest in renewable energy generation projects.

This strategy should be coupled with a push to electrify as many areas of the economy as possible, including transport, process and space heating, while at the same time scaling up investment in energy efficiency (for example in the commercial and residential building sector) to reduce the amount of energy used.

All of these actions would lead to a steep increase in demand for electricity, as well as requiring a network of electricity distribution to support the electrification of different parts of the economy.

To respond to the electricity demand, new energy generation capacity must be built rapidly, something that the Commission acknowledges may not be possible within the current resource management framework. Many forms of renewable energy, especially hydropower, wind and geothermal, have the potential to be stalled during the consenting process due to their impacts on other environmental goals. This is a welcome acknowledgment, although it applies equally to existing renewable energy infrastructure which requires reconsenting, not just new projects.

The Commission suggests that resource management processes should be aligned with the required fast-paced and sustained build of low emissions electricity. Given the current resource management reforms, the Commission’s reluctance to provide a more detailed solution to this issue is understandable. Hopefully this is an issue that will be resolved as part of the reforms.

Follow the Yellow Brick Road?

The Commission laid out a Yellow Brick Road. The question now is – will the Government, and all of New Zealand, follow it?

The emissions reduction plans scheduled to be adopted before the end of 2021 will include all the policies the Government is willing to press forward with, as legislative initiatives imposing obligations on stakeholders – both within the emissions trading scheme and outside of it. While the Government can move away from the Commission’s Advice, it must explain why it has done so.

The Commission has provided a map for transforming New Zealand into a low emissions economy. The next few months will reveal how far the Ardern Government intends to follow that map and how well it can convince the rest of New Zealand to do the same.