If you are a NZ citizen, it is possible that all of the tax that you pay for the next 30 years will end up being set aside to buy nearly a billion international carbon credits just to meet our 2050 obligations under the Paris Agreement.
Not only that – but all of the tax you pay for the next 30 years might wind up being insufficient to cover the cost of the international units.
The below represents my best estimate at assessing how much our 2050 Paris target will cost NZ.
NZ’s Net Greenhouse Gas Emissions Have Increased by 54% from 1990 to 2014
Guess what? Over all these years when we were meant to be reducing net emissions, we were actually increasing them.
Although the upwards trend does show some sign of abating, it never hurts to be negative when it comes to carbon emissions. So for the sake of argument, let’s assume that net carbon emissions will increase by a further 54% on top of current day levels by 2050.
If increased by a further 54%, our net carbon emissions in 2050 would be around 86.85 million tonnes for that year.
Our Emissions Reduction Targets Will Get a Lot Nastier by 2050
Our 2030 target requires us to cut emissions on 1990 levels by 11% by 2030. As aggressive as this goal is, and as unlikely as it is that we will meet it, the 2050 goal is even more aggressive: by 2050, the Paris Agreement requires that we must have cut emissions by 50% on 1990 levels.
1990 net emissions amounted to 36.9 million tonnes. In order to achieve a reduction of 50% on these levels, we would need to reduce net carbon emissions to just 18.45 million tonnes.
To give you some idea, our 2015 net emissions were 56.4 million tonnes – already more than three times what would be allowable under the Paris Agreement 2050 targets.
Why the Shortfall Needs to be Measured Over 20 Years
In an article dated 10 February 2017 on Carbon News, a briefing went to the Climate Minister stating that NZ was on track to fall short of its emission reduction targets by a total of 218 million tonnes, even after factoring in emissions reduction from the Emissions Trading Scheme, forestry, and electric vehicles. While I have not read the ministerial briefing in question, I assume that the difference between this figure and the difference between our annual net carbon emissions and our annual targets is because our Paris Agreement targets are essentially tracked on an annual basis, accounting for each of the years that we are in the Paris Agreement up to the year where our obligations fall due.
What this would mean is that if we have rampant emissions leading up to 2049, and then somehow magically manage to reduce emissions in 2050, it won’t be nearly enough to abate our actual obligations under the 2050 target. In fact, it would do very little.
Therefore, we need to look at the average increase in emissions between the years 2031-2050 and also the average reduction in targets between those same years, in order to discover a meaningful average annual figure that can then help us to deduce what we may owe at the end of it.
We Will Need to Buy International Carbon Credits to Fund the Shortfall
If we fall short of the Paris Agreement targets, then we need to bridge the gap by buying in international carbon credits. The magic of this exchange system is that they prices of carbon units will ramp up over time, so that the full cost of carbon emissions won’t be seen until the last possible moment.
I’ve already discussed how our cost of buying in international carbon credits in order to fulfil our 2030 Paris target would cost a minimum of $1.7b NZD. This is likely to become a runaway cost as each of the vectors escalates dramatically in the run up to 2050.
International Carbon Credit Prices Will Escalate Rapidly
Escalating prices of international carbon units will have a huge impact on our ability to afford our 2050 Paris target, because as the price of individual units goes up, so too does the total bill for our emissions.
The way that this plays out in reality is quite dismaying. For each 10c in Euros that the price of an international carbon credit goes up, the cost of NZ fulfilling its 2030 Paris Agreement targets goes up by around $34m NZD.
Many experts estimate that international carbon prices will go up to at least 100 Euros per credit by 2050, as countries desperately scramble to acquire carbon credits before their obligations fall due.
The EUR-NZD Exchange Rate Could Cause Even More Dramas
For the sake of simplicity, I have assumed that the exchange rate will stay the same. (This will, of course, not happen.)
There is another point to keep in mind about the exchange rate, however – given the large sums involved, even a 5% increase in the Euro would likely have devastating consequences for our ability to afford our 2050 target.
Putting It All Together
Using a bit of simple math we can multiply these components to get a ballpark picture of what our 2050 Paris targets may cost NZ if the current long term trend remains the same.
Number of included years between 2031 and 2050 targets = 20
Current net carbon emissions (2015 figure) = 56.4 million tonnes
Calculate the Average Increase in Emissions Over this Time Period
Expected percentage increase in net carbon emissions, if NZ follows the trend of the years 1990 to 2014 = 54%
Expected net emissions in 2050 (based on the assumption above) = 86.85 million tonnes
Projected average annual net carbon emissions across years 2031-2050 = 71.62 million tonnes
Calculate the Average Target Over this Time Period
1990 annual net emissions levels = 36.9 million tonnes
2030 Paris target (1990 annual net emissions levels – 11%) = 32.84 million tonnes
2050 Paris target (1990 annual net emissions levels – 50%) = 18.45 million tonnes
Assumed average annual required reduction = 25.64 million tonnes
Calculate the Number of Credits Required to Bridge the Gap of 2050 Paris Target
Difference between projected annual average net carbon emissions and the projected annual average required reduction = (71.62-25.64) = 45.98 million tonnes per annum
Multiplied by 20 years = 919.6 million tonnes expected shortfall on 2050 Paris target
Therefore, if the above assumptions are correct, the NZ government would need to purchase 919.6 million carbon credits on or before 2050.
Assumed cost per unit = 100 EUR
Amount in EUR = 91.96 billion EUR
Current EUR NZD exchange rate = 1.58
Assumed cost in NZD of shortfall in 2050 Paris target = $145.3b NZD
2016 Net Assets of NZ Government
As of 2016, the net assets of the NZ Government amount to $95.521b NZD. This is based on $292.679b NZD assets and $197.158b NZD liabilities.
Of course, nobody knows what the future holds when it comes to NZ government’s equity position. It is entirely possible that the NZ government will, instead of selling its assets and increasing its debts, actually increase its assets and reduce its debts between now and 2050. But even if we did narrowly escape bankruptcy, the effect for many years afterwards would likely be very inflationary.
On current year figures, the financial obligations that the 2050 Paris targets would impose on NZ (if correctly stated above), would be more than enough to send today’s NZ government into insolvency.
I would love nothing more than for someone to prove me wrong. I don’t count as a successful argument the claim that ‘NZ will introduce new technology, and that will reduce our emissions’. This has not been done over the last 25 years, and a leopard doesn’t change its spots without undue influence. Sure, the accounting is a bit rough, and the numbers are plucked from recent historical data. But if you can show me how I’m wrong, based on the numbers above, please do so.
