Modelling the economic costs of New Zealand’s intended nationally determined contribution

The Ministry worked with several government agencies to model the impacts on the New Zealand economy of New Zealand agreeing to participate in an international agreement to reduce greenhouse gas emissions post-2020. This page provides information about the economic modelling used to estimate costs, and links to the reports produced by Infometrics and Landcare Research.

Economic modelling commissioned

Infometrics and Landcare Research were commissioned to undertake macroeconomic modelling on the economic costs of New Zealand’s intended nationally determined contribution. The economic costs used in New Zealand‘s Climate Change Target discussion document, released in May 2015, are based on the modelling by Infometrics.

Model used by Infometrics

Infometrics used their Energy Substitution, Social Accounting Matrix (ESSAM) model. This is a static general equilibrium model that has been used to inform New Zealand’s climate policy in the past.

Model used by Landcare Research

Landcare Research’s economic analysis used the Climate Mitigation and Trade in Dynamic General Equilibrium (CliMAT-DGE) model. CLiMAT-DGE is a dynamic general equilibrium model that can link with land-use and climate carbon cycle models. The model was developed as part of the Ministry for Primary Industry’s Sustainable Land Management and Climate Change programme. 

CLiMAT-DGE has undergone a quality assurance process by the New Zealand Institute of Economic Research (NZIER), completed in May 2015. 

This is the first time that CliMAT-DGE has been used for policy advice. Therefore, the model took longer than expected to go through the quality assurance process, and the results were not ready when the discussion document was being prepared.

Differences between Landcare and Infometrics results

The Landcare model costs are generally lower than the Infometrics model costs. Investigation by Landcare and Infometrics suggests that the differences are due to the underlying assumptions and structures of the two models, as outlined in the Landcare report. The trends across the different scenarios (eg, carbon prices and targets) are similar.

How is the modelling used?

The economic modelling contributes to advice informing the development of New Zealand’s intended nationally determined contribution. The published reports provide a summary of key results in a more accessible format.

Which Government agencies are involved?

The government agencies involved in this work are the Ministry for the Environment, the Treasury, Ministry for Primary Industries, Ministry of Foreign Affairs and Trade, Ministry of Transport, Ministry of Business, Innovation and Employment, Energy Efficiency and Conservation Authority, and Department of Prime Minister and Cabinet.

Why doesn’t the modelling include the costs of inaction or co-benefits of action?

The costs of inaction are difficult to quantify as they depend on the actions that the whole world takes to reduce emissions, not just New Zealand. The costs of inaction will be large but are hard to predict accurately and hard to express in monetary terms. This is also the case for modelling co-benefits of action such as air quality and health benefits. Current research and model development is beginning to address these complexities.

The Government has funded a great deal of research on the possible impacts of climate change, helping local government and the primary sector to plan and adapt. This includes the four-year $7.2 million ‘Climate Change Impacts and Implications’ project which looks at how New Zealand’s climate will change, what the impacts will be, and how adaptation may occur.