How global climate change talks affect you financially
IF YOU think the ongoing international negotiations about how to deal with climate change are a waste of time and won’t cost you anything, think again. Although not all aspects of the issue are important, some have the potential to hit us hard in the pocket – and others could deliver economic gains.
This article looks at the longterm (to 2050) economic implications for New Zealand of three issues: how different greenhouse gases are converted into carbon dioxide equivalents; global participation in international agreements to reduce emissions; and the inclusion of agriculture in international agreements.
About half of New Zealand’s greenhouse gas emissions are agricultural methane and nitrous oxide. This proportion depends on how those two gases are converted into carbon dioxide (CO ), which is the reference gas for measuring emissions. One hundred-year ‘‘global warming potentials’’ (GWP) are used almost universally to compare emissions of CO and other greenhouse gases. The GWP metric currently values a unit of methane at 25 times the value of a unit of CO , meaning that one tonne of methane produces as much cumulative atmospheric warming over 100 years as 25 tonnes of CO . The corresponding conversion rate for nitrous oxide is 298.
An alternative conversion metric uses ‘‘global temperature change potentials’’ (GTP), which are based on the actual warming caused by an emission. When measured over a 100-year period, GTP convert methane and nitrous oxide to CO at rates of seven and 318 respectively.
Switching from GWP to GTP would reduce New Zealand’s total CO -equivalent emissions by about 24 per cent, and farming emissions by about 48 per cent. As might be expected, this has led to some farming interests suggesting that methane be assigned a lower weight.
We have recently looked at the validity of this argument and come to a number of conclusions.
First, one cannot look at the costs and benefits of climate policy choices without considering the implications of international choices on commodity prices, which flow back to farmers’ pockets as directly as any carbon price.
Second, if agriculture worldwide were to face a carbon price, New Zealand would, regardless of conversion metrics, gain economically because higher commodity prices outweigh the domestic costs of reducing emissions (to the tune of $2900 per person by 2050 in today’s dollars).
Third, the gain is slightly better under GWP than GTP, because New Zealand’s greater emissions liability under GWP would be offset by greater increases in world commodity prices. This is because, globally, agricultural production costs would be higher. However, the overall difference between the two metrics is small, at about only $300 per person.
Fourth, one might argue that agriculture should be excluded globally from all mitigation obligations, because producing food is just too important. However, our modelling shows that New Zealand would be better off if everybody reduced agricultural emissions than if nobody did. With global participation in reducing carbon emissions, including from agriculture, the lower carbon prices and higher commodity prices that eventuate mean that New Zealand’s economic welfare is higher than if agriculture were excluded from global agreements, as the latter would result in higher carbon prices and lower commodity prices. The difference here is worth about $2400 per person by 2050. This finding is irrespective of whether GWP or GTP gas exchange rates are used, although it is marginally stronger under GWP.
Fifth, either of the two previous situations would be better for New Zealand than if countries were liable for agricultural methane and nitrous oxide emissions but chose to shelter them from a carbon price, because doing so would reduce the increase in world agricultural commodity prices, from which New Zealand would be a net beneficiary. Under this scenario, the cost to New Zealand would be $7100 per person by 2050, relative to full global participation.
Sixth, the higher global carbon prices are (such as in response to tighter worldwide emissions reduction targets), the stronger s each of the above findings.
Overall then, whether or not other countries impose an explicit price on agricultural methane and nitrous oxide emissions has a bigger effect on New Zealand’s economic welfare than the choice of greenhouse exchange metrics.
Our results also show that, over the next decade, even the worstcase scenario (where New Zealand is the only country to do anything about its agricultural emissions) would have only very small negative effects, as long as countries at least became serious about collectively reducing nonagricultural emissions.
It is in New Zealand’s interests to push for more countries to participate in global agreements to reduce greenhouse gas emissions, and to push for agriculture to be included. Focusing our attention on the wrong issues and making the wrong concessions could cost us dearly. Dr Adolf Stroombergen is the chief economist at Infometrics.