Wednesday 4th April 2018
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The cost to farmers of dealing with climate change will be substantially lower if agriculture enters the emissions trading scheme in a smooth, gradual way, says a report commissioned by Westpac Banking Corp's New Zealand arm.
Combining work carried out last year by UK firm Vivid Economics for a cross-parliamentary group and further analysis by accounting firm EY, the Climate Change Impact Report suggests the cost of a sudden, forced "shock" move to reducing greenhouse gas emissions would cost around $30 billion in lost economic activity between now and 2050.
The analysis also suggests that investment in the dairy sector is likely to peak by 2030 and that there will be a significant shift into forestry planting, although Westpac's general manager for commercial, corporate and institutional banking, Karen Silk, said that was more likely on steeper land, reducing opportunities for beef and sheep rather than dairy farming.
The report creates two scenarios - "central" and "shock" - to model the likely difference that a gradual adjustment to higher carbon prices would have on the economy as a whole, compared with a late decision to act to meet emissions reduction targets that New Zealand has committed to making by 2030, with a target of net zero emissions by 2050.
Under the central scenario, agriculture enters the ETS in 2020 and New Zealand "meets and likely exceeds its Nationally Determined Contribution target by 2030", the report says, even assuming that the country can only buy up to 20 percent of the emissions reductions through carbon credits on the international market.
Under the late adjustment, "shock" scenario, New Zealand would just manage to meet its NDC commitments, with agriculture entering the ETS within two-to-five years.
Taking action earlier would also produce far lower carbon prices by 2050, according to the model, which forecasts carbon at $40 a tonne by 2020, $44 by 2025 under the central scenario and $61 under the shock scenario. By 2030, that gap would have widened to a central scenario carbon price of $52 a tonne versus $92 under the shock scenario - the widest gap the model produces for estimates out to 2050, when it sees carbon at $98 a tonne under the central outlook and $145 a tonne in a "shock" situation.
"A more managed transition ... in the central scenario creates an additional $30 billion of gross domestic product through to 2050," the study says, stressing that impacts would be felt more acutely in the agricultural sector than many other parts of the economy.
"It's not a level playing field," said Silk, noting the bank's farmer customers were increasingly discussing how their businesses should manage climate change impacts.
"Deferring on agriculture for another 10 years before taking action could have a much more significant impact on that industry than on, say, growth in renewable energy."
However, Westpac was not as yet factoring climate change adaptation risks into its lending decisions, she said.
The report focused on the impact of climate change in five main sectors: agriculture, tourism, transport, forestry and electricity.
Transport, electricity and agriculture would feel the greatest physical impact of climate change, especially through sea level rise, extreme temperatures, and both heavier rainfall and more severe droughts in different parts of the country.
The greatest risk to the forestry sector is likely to be from forest fires created by extreme temperatures and high winds, while the tourism sector is more at risk through loss of amenity at tourism hotspots such as beaches that undergo change as sea levels rise or at glaciers, which are receding as the earth warms.
While introducing agriculture into the ETS should be a priority, Silk called for discrimination between different types of agricultural greenhouse gases, given that some are longer-lived than others and some, such as the intense but short-lived GHG methane, have no current technological fix.
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