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Assessment of zero carbon costs

The government’s discussion paper on the Zero Carbon Bill failed to communicate the real impact on the economy from meeting the proposed 2050 target, New Zealand Steel says.

The $6.7 billion reduction in annual GDP estimated using the most optimistic technology scenario employed by the New Zealand Institute of Economic Research is close to the $7.8 billion the dairy industry contributed to the economy in 2016, the steelmaker says.

If lower levels of innovation are achieved – in areas such as forestry planting, methane vaccines for livestock and mass electrification of transport and industry – the annual loss increases to $26.6 billion.

Even using the bottom of that range, NZ Steel says the magnitude of the loss would be roughly half the impact of the 2008 global financial crisis every year until 2050.

“NZS does not consider that the discussion document adequately highlights, nor does it adequately communicate, the extent of these economic impacts to the New Zealand public,” the company says in its 15-page submission.

“New Zealanders must have access to full and frank information about these matters so they can make informed decisions about any proposed legislative changes with an `unvarnished’ appreciation of the trade-offs involved.”

Full modelling for economic studies by NZIER and Vivid Economics weren’t available when the discussion paper was issued in June.

At the time, the Ministry for the Environment noted the difficulty in assessing the net impacts of the proposed policy change over a long period, particularly given the New Zealand economy was likely to continue adjusting during that period anyway.

It observed that under the harshest scenario, annual growth during the forecast period only slowed to 1.5 percent, rather than the 2.2 percent growth assumed under a ‘do-nothing’ scenario.

New Zealand's economy expanded 2.8 percent in the year ended June, Stats NZ said last month.

NZ Steel, part of BlueScope Steel, operates the Glenbrook mill, the country’s biggest coal-using site. Like other major manufacturers, most of its emissions are excluded from the emissions trading scheme. That is because of the competition it faces from international rivals operating in countries without carbon sanctions and the lack of alternative, low-emission technologies for making steel.

The discussion paper sought views on a range of issues, including the role of the proposed independent Climate Change Commission, whether the country’s emissions target should be set by the commission or the government, and what gases should be included in the target.

The ministry received more than 15,000 submissions, with a strong majority in favour of a 2050 target to have net zero emissions of all gases, including carbon dioxide, nitrous oxide and methane.

NZ Steel says a target should be legislated, but not yet. It says all the analysis to date relies on “substantial and unsupported” assumptions on what can be achieved.

“It is also important to keep in mind the desired outcome is to build a prosperous low-emissions economy, not to destroy prosperity in a crusade for low emissions.”

NZ Steel also believes it will be critical to ensure that emission reductions are not claimed when domestic production is replaced by imported product with the same or higher emissions.

It cited the example of the UK, which produced 15.2 million tonnes of steel in 2000 and consumed 13.1 million tonnes domestically. By 2016 steel production had halved to 7.6 million tonnes, but consumption only fell by 18 percent to 10.7 million tonnes.

Rather than transition to low-emissions materials, the UK had reduced production and became a net importer, it noted. Emissions globally were not reduced.

NZ Steel says any local emissions target must be economically credible, achievable and meaningful.

“If New Zealand sets a long-term target but then is unable to meet that target or can only meet that target through pushing emission-generating activities overseas, it would be likely to cause considerable damage to New Zealand’s international reputation and would also discourage other countries from taking similar action.”

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