New Zealand is committed to be an active participant in the international response to the challenge of climate change (through the 2015 Paris Agreement), principally by making substantial reductions in its greenhouse gas (GHG) emissions. In 2017, the Government asked the Productivity Commission to “identify options for how New Zealand could reduce its domestic GHG through a transition to a lower emissions future, while at the same time continuing to grow incomes and wellbeing”. In 2018, Hon James Shaw, as the incoming Government’s Minister for Climate Change, signalled a more ambitious agenda and asked the Commission to include the target of achieving net-zero emissions by 2050 in its analysis.
The transition will mean that the New Zealand economy will look very different in 2050, and even more transformed by 2100. During the transition, action to mitigate GHG emissions will require real and significant changes impacting on households, businesses, industries, cities and regions. A shift from the old economy to a new, low-emissions economy will be profound and widespread, transforming land use, the energy system, production methods and technology, regulatory frameworks and institutions, and business and political culture. Of course, this transformation is a global phenomenon. It is one of the “mega-trends” that will reshape the global economy over the next several decades (OECD, 2016c; PwC, 2017).
Successful economies are adaptive in the face of change. A flexible and responsive economy can more readily and efficiently re-allocate productive resources from low-value firms to high-value firms and activities. Such an economy has low barriers to firms absorbing and benefiting from new technologies as they become available. Likewise, the education and skills systems are responsive to industry needs and opportunities. These overarching economic competencies will play key roles in determining the success of New Zealand’s transition to low emissions. Yet the Commission has previously found that, in general, the New Zealand economy is not as nimble and productive as it could be. This will need to change.
In the coming years, New Zealand’s governments (central and local), businesses and society will make a series of choices that will influence the structure of the economy and the cost of reducing GHG emissions. The broad purpose of the Commission’s inquiry is to recommend actions that current and future governments might take to reduce New Zealand’s emissions given the levers within their control, and recognising that some influential factors are outside their control. This report provides guidance on how and where the country can best achieve emissions reductions in the most efficient way and the types of policies required to drive the transition. It explores the challenges, opportunities, benefits and costs of alternative transition pathways and makes specific policy recommendations.