Thirty billion dollars ($30,000,000,000) is a mind-boggling amount of money.
That sum could buy dozens of new kindergartens or police stations or whole hospitals with medical schools. It could eliminate poverty or overhaul our decrepit education system. It could way over-fund the National Party’s tax cuts, for decades. It could even fund New Zealand’s yawning infrastructure deficit.
Instead, the Ardern Government in 2021 offered to donate this gargantuan sum to the acquisition of international carbon credits as part of its 2021-30 “Nationally-Determined Contribution” (NDC) under the UNFCCC Paris Agreement on Climate Change.
I use the word “donate” advisedly, because the offer was entirely voluntary and because New Zealand taxpayers receive nothing tangible in return. Ideology and ministerial self-interest were the only winners.
Without any question, that November 2021 Cabinet decision was the largest donation of taxpayer funds ever made by any New Zealand Government to any kind of worthy cause. It may even have been the largest commitment of overseas funds ever made by a New Zealand Government for any single purpose.
This unmatched generosity had no mandate. It formed no part of the Labour manifesto in the 2020 elections. It was not the culmination of public consultation or any kind of public debate. It was obviously not budgeted. Despite its avowed pre-emption of subsequent governments, it made no pretence at all of being multi-partisan.
Parliament – which was suspended at that time because of Covid-19 lockdowns – was not consulted or even informed. Nor was the Labour Party’s own caucus or policy committee.
But, most unusual of all, was the fact that the Cabinet rode roughshod over the unanimous opposition of all of its officials and advisers. The quantum of the donation was more than double the amount recommended by the NZ Climate Commission – the very quango that had been appointed to quantify the country’s achievable level of ambition.
The donation was even higher than the top aspiration of James Shaw, the Minister for Climate Change and leader of the Green Party.
This was a “Captain’s Call” of a scale and scope that had never previously been contemplated under our over-subtle unwritten constitution. All the assumed checks and balances were simply ignored.
Fiduciary Duty
Officials, quangos and advisers do not have to consider the views of the electorate, and are free to pursue technical purity or other priorities. That is why, in a democracy, the final decision is made by elected individuals who have a direct mandate from the people. So, constitutionally, it was quite appropriate that the amount of this ‘donation’ was a political decision.
But delegates or agents have a very strong fiduciary duty to act in the the best interests of their principals. The personal ambition levels of the decision-makers must play no part. Vanity projects are clearly unethical, and probably unlawful.
In this case – with no express mandate, and no budget, and no steer from Parliament – the clear obligation of the Cabinet was to undertake some form of cost-benefit analysis from the viewpoint of the taxpayers they represented. The crossover point where costs exceeded benefits should have been a ceiling for the national ‘level of ambition’.
The costs were straightforward. With 1,420,000 families in New Zealand, the ambition level of a 50% reduction (from 2005 emissions) would cost each family $24,170. This was the ‘donation’ portion, after meeting the costs of the domestic emissions reduction within New Zealand.
How many families could afford this? What would be the consequence, in terms of increased poverty, lower literacy, higher mortality rates, bankruptcies, unemployment, hardships, etc
Calculation of the benefits side is almost as straightforward. The donation would have no discernible effect on the world’s future climate. It would not reduce NZ’s emissions by a single tonne. There would be no quantifiable financial or other return. The future benefit to any NZ family was indistinguishable from zero.
Global heroes
The only visible impact from the nosebleed height of New Zealand’s donation would be the gratitude and appreciation of the recipients. The UN and Davos would be rapturous and most of our trade competitors would congratulate us warmly. Our Ministers would likely be rewarded with a standing ovation at Glasgow’s COP26[1].
None of this has any material worth for the families who would have to pay for it.
Our first Climate Ambassador Adrian Macey, along with leading climate scientist Professor David Frame set out the 2021 NDC process in a series of five articles in NZME’s Business Desk in 2022. They conclude that the massive spend-up was “based on keeping NZ’s global leadership credentials intact.”
They are undoubtedly right – but why did this country’s Ministers need to be seen as “the global leaders”? What’s in it for us, the taxpayers? Why would we want to credential Jacinda Ardern as “a global leader” at our expense – especially when that expense is utterly unaffordable??
Was this a vanity project? Was the ‘national level of emissions ambition’ intermingled with personal ambition? Is it over-cynical to suspect that PM Ardern, and perhaps others, could see past their current positions to longer and more rewarding careers under the auspices of the UN or WEF?
Dare we ask – were international fame and star-studded future prospects more important to these Ministers than their fiduciary duty to New Zealand’s tax-paying families?
No other explanation seems to be on offer
Background
The 1992 Rio Earth Conference established the UN Framework Convention on Climate Change (UNFCCC) which aims to mitigate dangerous anthropogenic global warming (DAGW) related to human-caused greenhouse gas (GHG) emissions – usually measured in millions of tonnes (Mt) of carbon-dioxide-equivalents (CO2-e).
DAGW is essentially a G7 issue. Just the top 4 emitters (China, USA, India, EU) currently account for over 50% of the world’s total – ie more than the lowest 150 countries combined. Tiddlers like New Zealand – contributing a barely noticeable 0.154% of the global total – can obviously make no material impact on worldwide reduction goals.
UNFCCC parties agreed that every country should “do its best” to reduce its future emissions trajectory. But, recognising the priority of mitigating world poverty, the primary onus understandably rests upon ‘developed’ (OECD) countries.
In 1997, the Kyoto Protocol called upon each OECD country to reduce its emissions during 2008-12 to 5% below its 1990 levels. But New Zealand was granted a 5% dispensation, because our unique “disadvantages” were recognised:
a. over 80% of our electricity generation was already renewable, being hydro and geothermal;
b. half of our attributed emissions came from our major industry, agriculture, and there were no technologies available to reduce enteric methane
A third ‘disadvantage’ was that New Zealand had very little heavy industry which could be closed down. Countries like UK and Germany achieved their Kyoto targets by de-industrialising at home and buying their industrial goods from China instead. While this offshoring did nothing to reduce global emissions, it did give bragging rights to EU countries.
New Zealand’s GHG emissions peaked in 2006, and it ended the Kyoto period with a large credit In 2013, the John Key Government – declaring that “we will do our fair share” – adopted a 2020 target of 5% below 1990 levels.
In December 2015, the Paris Agreement asked countries to declare an “Initial Nationally-Determined Contribution” (INDC) for the period 2021-30. The previous month, Hon Tim Groser had already announced a net 30% reduction from our peak) gross levels of 2005 – ie a decrease of 97 million tonnes of CO2-e.
Although the 2015 INDC did not distinguish between domestic and offshore mitigation, it took account of the fact that we already had a large Kyoto credit. Further, in the words of Adjunct Professor Adrian Macey:
“we were awash at that time in ‘hot air’ credits - many from Ukraine - that could be purchased for as low as 20 cents per tonne, meeting targets in a legal and accounting sense but doing absolutely nothing for the climate”
Labour/Green/NZF Government
The first Ardern Government accused its predecessors of “lacking ambition” and vowed to make New Zealand a “world leader’ in emissions reduction. It did not say why.
World leadership was to be achieved mainly by legislating ‘net zero by 2050’ and by appointing a Climate Commission to increase future ambition. Another notable step was the ban on offshore oil and gas exploration.
Importantly, this Government also wrote-off New Zealand’s accumulated Kyoto credit and foreswore the future use of any international credits to meet its commitments under NDC1.
NZ Climate Change Commission
The 2021 Commission was rightly seen as a ‘ginger group’ which would maximise the Government’s ambition to reduce emissions. Its five members include four full-time climate change careerists and campaigners indistinguishable from Greenpeace or Friends of the Earth.
Pursuant to its statutory function to recommend 15-year emissions budget, the Commission had studied the economic pain thresholds of all New Zealand sectors and confidently declared that the maximum domestic mitigation potential for 2021-30 was a reduction of 47 Mt. That level was clearly a very considerable stretch and relied upon assumptions of both future good fortune and advances in technology.
The 47Mt domestic ceiling being widely accepted, it became clear that the extra 50Mt of the 2015 NDC1 would have to be “offshore mitigation”. But this had now become a big ask – given that the Kyoto Credit and all the ‘hot air’ credits had been ruled out, and there was no approved source for future international credits.
It was also embarrassing, as international burden-sharing negotiations (which had always regarded the offshore stuff as dubious) had ruled that it must never be any more than “supplemental”. As Adrian Macey puts it, “parties were expected to do the heavy lifting at home”.
At that point, the proper course for the Government was to inform the pending Glasgow COP26 that New Zealand’s 2015 INDC had been over-ambitious, and that we should be counted on for a reduction of no more than 47Mt (ie 15%) below the 2005 level. This would have been quite permissible as the INDC had been merely indicative.
However, there was no appetite in Wellington to yield the much-vaunted “world leader” status. The Commission instead recommended that the reduction of 97Mt (-30%) be confirmed at Glasgow.
The IPCC Scenarios:
Minister James Shaw directed the Climate Commission to report (under s 5K of the Climate Change Response Act 2002) whether the 2015 INDC was aligned with a reduction that IPCC scenarios theorised might achieve the global aspiration of 1.5°C.
The Commission dutifully undertook the academic calculation (mainly based on the extreme RCP8.5 scenario) and came up with a figure of 125Mt (-36% below gross 2005 levels).
But the Commission was very quick to say that this was the wrong approach and that New Zealand’s NDC should be “much lower” than this -36% starting point. They recommended the lowest quartile of emission reductions in the IPCC scenarios.
This history is set out in the five articles by Macey and Frame in 2022. They point out that the scenarios:
“When first introduced in the IPCC’s special report on the 1.5℃ warming target, they were accompanied by the strong caveat that “these pathways illustrate relative global differences in mitigation strategies, but do not represent central estimates, national strategies, and do not indicate requirements”.
In other words, the IPCC was advising countries not to use them the way NZ officials did.”
It is significant that no other country attempted to use the SR15 scenarios to calculate their NDCs. The possibility of doing so had been pushed by professional climate campaigners all around the world, but only New Zealand took that bait.
We turned out to be the sole outlier.
Ministry for the Environment
Minister Shaw and his Ministry were dissatisfied with the Commission’s recommendations. As the putative leader of the whole world, how could New Zealand be satisfied with the lowest quartile?
Shaw presented a paper to the Cabinet Committee based on the highest IPCC quartile, proposing a massive reduction of 167Mt (-45%). Although this was presumably no more than an opening negotiating stance, it was unexpectedly well received by the politicians.
Macey/Frame say that the costly Shaw proposal was based on five wrong assumptions put forward by the Ministry for the Environment:
a. The IPCC SR15 scenarios provided useful benchmarks. [But they were never intended to be applied to individual countries].
b. The Paris Agreement requires a NDC to be a “responsibility target” (ie inclusive of offshore mitigation). [But it does not, and the scope of the declared target is wholly “nationally-determined”].
c. The Paris Agreement requires NDC1 to include our entire contribution to global mitigation over the 10-year period. [But it does not. That is another local choice].
d. Domestic mitigation potential (known to be 47Mt) was irrelevant to calculating NDC1. [In fact, this was “the single most important factor", just as it had been for “two decades of climate change burden-sharing discussions”].
e. The use of international markets was common practice and other countries were using them “at scale”. [This was highly misleading. No such market even exists and the NZCC does not believe one will develop during the next 15 years. Notably, the following year’s Budget (2022) allocates $9 million to “scope, identify and develop some initial sources of offshore mitigation”.]
In response to this push by MfE, which was surprisingly well received at Cabinet level, The Treasury, MBIE, and other officials offered a compromise joint recommendation for a reduction of 144Mt (-40%). The Treasury’s final paper estimated the cost at up to $23 billion, noting that “every percentage point increase of the NDC equates to an additional $493 million fiscal cost before 2030”.
However, this calculation was only the direct cost, on the assumption of an average value of $140/tonne. The Climate Commission, factoring in indirect costs, projected a cost of $30 billion for 120Mt - ie $240 per tonne
The NDC financial commitment was open-ended, and would likely be pushed substantially higher if other countries were to seriously pursue the global 1.5°C aspiration. Further, the self-imposed burden would not terminate in 2030, because the Paris Agreement envisions that each NDC will be a “progression” from the previous one.
So even $30 billion is a low-ball estimate.
Political Choice
Macey/Frame acknowledge that the issue was complex and that officials were unable to agree on any clear guidance:
“A plethora of principles, factors and comparisons (science, ethics, historical responsibility, equality, capability) were put forward, along with many caveats. Overall, it was inconclusive. Even the paper that addressed NZ’s national circumstances ends with the observation that “other perspectives on these issues almost certainly exist”.
An unusual feature was the absence of a National Economic Benefit (NEB) assessment by The Treasury. Following well-established rules, this report would include a discounted future cashflow showing the net present value of the proposed ‘investment’. The absence of an NEB report suggests that the foreign mitigation part of the NDC1 was seen as an ethical donation rather than as an investment. Everybody knew there would be no future payback.
In the absence of clear technical guidelines, the the “level of ambition” – a euphemism for the level of economic pain – had to be either a purely political choice or acceptance of the Commission’s recommendations.
On 26 October 2021, the Cabinet took the political choice to override the Commission and the officials. It did not even match the highest figure on the table but “raised” Minister Shaw’s bid for a 45% reduction to a round 50% reduction.
Here is a summary of the options:
2021-2030 Emissions Reduction NDC (Million tonnes CO2-e)
Decision-maker | % of 2005 | NDC (Mt) | Reduct-ion (Mt) | Offshore Mitigation | Offshore Cost ($m)* |
J Key Cabinet (2015) | 30 | 97 | 47 | 50 | N/A** |
IPCC Scenario Calculation | 36 | 125 | 47 | 78 | 18,700 |
NZ Climate Commission | 30 | 97 | 47 | 50 | 12,000 |
Climate Minister J Shaw | 45 | 167 | 47 | 120 | 28,800 |
Treasury etc (Compromise) | 40 | 144 | 47 | 97 | 23,280 |
J Ardern Cabinet | 50 | 190 | 47 | 143 | 34,320 |
* At $240/tonne, per NZ Climate Commission
** Included the Kyoto carryover and unlimited ‘hot air’ units
Quo vadis?
The new National-led Coalition must speedily disown the “moment of madness” which was the Ardern Government’s 2021 NDC.
Whatever short-term embarrassment this may cause, it will be far less than the enduring embarrassment of adopting by default the Covid-era extravagance of a previous administration and then being saddled with full responsibility for its inability to deliver. Worse still if the inevitable surrender does not happen until billions of taxpayers’ dollars have already disappeared.
Make no mistake, the breathtaking scale of this absurd donation ensures that it can never be delivered. Voters will say they can’t afford it, and they will be right. The first political Party to play the “charity begins at home” card will surge in popularity and >$20,000 per household can genuinely fund a lot of political promises. What is the opposing argument?
Even the word “donation” is a misnomer. There is no donee, and this princely sum would simply disappear into the maw of an imaginary future “market”. Insofar as some of it may go to a named country, perhaps in the Pacific, it merely replaces funding that would otherwise have been provided by the Green Climate Fund or the World Bank or one of the scores of billionaires’ schemes (or airlines) that are endlessly seeking carbon offsets.
The Cabinet should immediately endorse a preference for a replacement NDC to be confined to domestic emission reductions – with any future credits from international markets to be set aside until such markets actually exist and are formally approved by the UN. Meantime, the offshore portion of the NDC will not impact the Government’s forward fiscal or carbon budgets.
If Hon Nicola Willis does not deal with this issue in her 2024 Budget, it has the potential to wholly destroy her 2026 (election year) budget. As Associate Minister for Climate Change, she needs to announce a full review of the NDC as soon as the new members of the NZ Climate Commission are appointed.
The Ardern Cabinet’s surreptitious and extreme NDC decision in November 2021 may eventually be seen as New Zealand’s largest-ever political scandal. Curiously, the 5-part “J’Accuse” by Macey/Frame in the 2022 Business Desk series was left entirely unanswered by the thousands of spin doctors in the then Government. The climate-obsessed corporate media are reluctant to touch it.
But $30 billion is way too big a figure to smuggle out of sight!
Barry Brill OBE JP LL.M(Hons) M.ComLaw is a former MP and Minister of Energy, Petrocorp director, and chair of the Gas Council, Power NZ, ESANZ, and EMCO. He is presently the Chairman of the New Zealand Climate Science Coalition.
[1] As it happens, Glasgow barely noticed the levels. The delegates were only concerned that NZ was buying offshore credits rather than reducing its own emissions.