Early climate action to save $30b
Climate change is ‘‘a serious long term threat’’ to New Zealand’s economy and delaying action to address it could lose the country billions, a banking leader says.
Moving to a low carbon economy sooner rather than later would allow NZ to reap up to $30 billion in economic benefits, a report commissioned and publicly released by Westpac found.
The bank commissioned the report so it would know the financial risks climate change posed to the country and its business. Modelling was undertaken by EY and Vivid Economics.
The report modelled two different paths to meeting NZ’s obligations under the Paris agreement: A proactive ‘‘central scenario’’, in which the transition to a low-carbon economy was quick and smooth; and a reactive ‘‘shock scenario’’, in which the transition was slow at first with a dramatic cut in emissions from 2030.
The economic benefits of a fast transition were significant, it found. While short-term growth would be stronger under the ‘‘shock scenario’’, the economy would take a hit once sharp carbon reductions were required later on, potentially as a result of trade tariffs or other sanctions.
Based on the projected economic growth rates of both scenarios, an early transition would have a cumulative economic benefit of about $30b by 2050. Agriculture, in particular, would take a financial hit if the transition to a low-carbon economy was delayed and everyday household costs would likely go up.
‘‘If we wait to take action on climate change it may mean a very slightly healthier economy in the
"[Climate] risks are going to translate into financial risks for the country." Westpac New Zealand chief executive David McLean
near term, but this gain would be lost in future as emissionsintensive sectors were forced to play catch up,’’ said Westpac NZ chief executive David McLean.
The Paris agreement sought to limit global warming to 2 degrees Celsius above pre-industrial levels by 2050. The agreement requires NZ to reduce emissions to 30 per cent below 2005 levels.
The target has been called unambitious, given NZ is the fifth highest emitter per capita in the OECD and one of the few developed countries where emissions are still rising. It is also not legally enforceable.
The Government plans to introduce a Zero Carbon Act, which would forge a path for an economy with net zero emissions by 2050. It has also proposed an independent climate commission to provide expert advice.
The private sector has been proactive in responding to climate change issues due to the economic risk it poses to many industries.
The insurance industry has repeatedly lobbied for action on climate change, due to the risk of extreme weather events. In February, Air NZ said climate change was already affecting its business: ‘‘We can see from our own airline weather statistics over the past 20 years that more frequent extreme weather events are very real and are now the new normal,’’ chief executive Christopher Luxon said.
For Westpac and the country as a whole, the financial risks posed by climate change were significant, McLean said.
‘‘From our point of view, climate change is the biggest environmental issue this country faces. We’re pretty clear on that. It is a serious long-term threat to our economy, the country’s wellbeing, and if we don’t get it right, to the bank ourselves. [The report] shows climate risk is financial risk – we tend to talk about it in a different part of the conversation than when we’re talking about economics, but what this report is telling me is that these risks are going to translate into financial risks, for the country and for Westpac.’’
The bank had been ‘‘dialling down’’ its exposure to fossil fuel industries in recent years, he said, while growing its investment in green industries.
Climate change would affect some industries worse than others and its impacts would not be spread evenly. In NZ, the worst affected industries would be agriculture, energy and transport.
A major issue is agriculture’s inclusion in the Emissions Trading Scheme, the primary mechanism for controlling greenhouse gas emissions. Nearly half of NZ’s emissions come from agriculture, primarily in the form of methane from cows burping (the proposed ‘‘fart tax’’ was a misnomer as nearly all cow methane comes via burping).
The Government has proposed a staged introduction from 2020, in which farmers would have to pay for their animals’ emissions, likely to cost the industry hundreds of millions per year. The Westpac report, however, said this transition should be done sooner, allowing the industry to adjust.