The Climate Change Commission should immediately publish the details of its economic models and enable the public to access them.

There is something strange going on with the Climate Change Commission. In its draft report the CCC said

We have looked at the impacts which our budgets could have on the economy and society over the next 15 years. The overall costs of meeting the country's targets and our proposed emissions budgets are likely to be less than 1% of projected GDP. This is significantly lower than what was estimated when the 2050 targets were set.

My intuitive response is that I am surprised that the ‘overall  costs’ are estimated to be only 1 percent lower in projected output in 2050.* The policies almost seem to be offering a free lunch; that ultimately the cost of reducing our carbon emissions to reasonable levels is minimal.

To make it clear, I personally support New Zealand cutting our carbon emissions, but I have always assumed that we will have to make some sacrifices to do so. Apparently the CCC thinks not.

The immediate response is to look at how the CCC calculated the number – which for an economist is the most crucial number in the report (not that there are a lot of economic numbers).

The report mentions some economic models but their details are not published. Even more strangely, they are not going to be published until after the CCC gives the Government its final version in May in June or July 2021.

The story gets even more bizarre. The CCC reports that they consulted a number of experts who supported the model. All but one was overseas. I do not want to seem parochial but overseas experts often do not have a good grasp of the New Zealand economy. I recall having to explain to one that the reason he could not get the grain price to explain New Zealand agricultural output was that our livestock was grass-fed not grain-fed; I do not think he ever really grasped the distinction. Or recall the two who calculated that the tax structure introduced in the 1980s was detrimental to the economy. Their modelling assumed that the rise in unemployment was due to the tax changes and ignored the macroeconomic mismanagement and the structural changes. ‘Fifos’, as we call the fly in, fly outs (after grabbing their fees), often make fools of themselves. Whatever the grasp of a theory, it takes skill and local knowledge to apply it.

The one New Zealander who was consulted was Dr Adolf Stroombergen of Infometrics. Now I have the highest respect for Adolf in this modelling area. (I have to, I suppose. I was one of his doctoral examiners and he has done nothing since to persuade me that we made a bad recommendation.)

As you would expect, his review is professional but troubling in various ways which a couple of economists would probably sort out over a vigorous cup of coffee.

Before reporting the crunch statement, allow me to note that Infometrics are not the only New Zealanders with modelling capacity. Admittedly it is top shelf, but there are others also up there. Why were they not approached as well, instead of going to the uninformed offshore?

The crunch statement is that on 20 December, 2020 – three months ago – Adolf wrote, ‘I haven’t seen anything so seriously suspect about the modelling that it would prevent the Commission from publishing the work done to date.’ Yet, the CCC has ignored this recommendation,

The CCC says it needs to refine the data inputs – Stroombergen mentions the problem – but if it really believes that, it should never have published the claim of a minimal reduction.

Even under the urgency of the covid pandemic, scientists have not been so casual about publishing their findings. One hopes that the rest of the Commission’s scientific work is not so sloppy.

So lots of people are making (often heartfelt) submissions on the draft report in a cloud of economic ignorance. It is not just that the figures may be wrong, but close analysis might provide insights. For instance, it may be that some proposed policy changes are particularly painful and others are relatively painless. Would that not be helpful to know?

Another issue is that effective income seems to be reduced more than output, although no estimate is given. (Who would have guessed that the greenies on the CCC were more concerned with output than wellbeing?)

Ideally, the public should be given access to the model the CCC is using – after all we paid for it – and run their own simulations.

Note too, there is a strange inconsistency in what the CCC is saying. On one hand, they are suggesting that the costs of their recommended policies are negligible while Rod Carr, the chair of the Climate Change Commission, has stated that the shifts required to run our economy without fossil fuels will make the economic changes of the late 1980s ‘look like a trial period’. Both those statements cannot be right; perhaps neither is.

The danger is that the CCC will make its final recommendations following a consultation, the economic contributions of which will largely be irrelevant because, without access to the model, nobody will be sufficiently informed.

The government will then be stuck with the proposals even if further analysis shows they will generate serious economic problems. There would be an outcry which would undermine the integrity of the report and the overall strategy. The government would be stuck with  either going against widespread public opposition, which would probably compromise its political support, or it would abandon the CCC and have to start afresh. Those of us who think some action should be taken would find that eminently sensible policy changes are delayed. 

These are not scenarios that I would look forward to, were I the Minister of Finance. Yet he is trapped because the Climate Change Commission is independent, even when it does stupid things.

* The handout says the one percent reduction refers to 2035, but Stroombergen refers to 2050. I’ll go for the economist. It is probably another example of a journalist/public relations writer not understanding what they were writing about. (I found the report very clunky to read.)