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Insights 10: 29 March 2019
Listen: Matt Burgess discusses his new report on renewable energy policy with Mike Hosking on Newstalk ZB
New report: Switched on! Achieving a green, affordable and reliable energy future
Event: Register for our Tomorrow's Schools panel discussion on 1 April in Wellington

Chatham housing
Dr Oliver Hartwich | Executive Director |
When Housing Minister Phil Twyford spoke at the Initiative’s retreat last week, I had only one regret about having invited him: Our event is held under Chatham House rules.

You see, under Chatham House rules you cannot report or attribute anything that is said at the conference. This is to facilitate a free exchange of views and ideas.

It was a pity because the Minister’s speech was the best political statement on urban development I ever heard. It was a shame for it to be the exclusive privilege of our attendees to listen to it.

So I was relieved Twyford chose to make his speech available online and published it on the Beehive’s website. The text is required reading for anyone seeking answers to New Zealand’s housing crisis.

Twyford copped serious flak for his struggling KiwiBuild programme – including from the Initiative. But when you read his speech, you can see that the rest of his housing policy is sufficiently ambitious and radical to solve our housing market without recourse to something like KiwiBuild.

The Minister’s analysis of the three big problems facing our property sector was spot on:
  1. A broken system for financing infrastructure
  2. A planning system based on urban containment
  3. The failure of governments until now, both local and central, to actively work with the private sector to enable urban growth and expansion.
Twyford first explained how councils cannot pay for the infrastructure to accommodate economic growth. Just as the Initiative has been pointing out for years, he emphasised the need to have growth pay for itself.

Following that, Twyford turned his attention to our planning system under the Resource Management Act (RMA). This had limited the ability of cities to grow either up or out. Again, we have been highlighting this for many years.

Twyford then stated that the Government aims to reform the RMA with a clear goal: “Our aim is to bring down urban land prices by flooding the market with development opportunities.”

Hallelujah! Amen to that.

Finally, Twyford explained the need for much better coordination between central and local government and other sectors. Again, we could not agree more.

I would also like to report that the Minister was just as convincing and ambitious in the Q&A session as he was in his now released speech.

Unfortunately, I am bound by Chatham House rules.

To read Hon. Phil Twyford’s speech to The New Zealand Initiative, visit the Beehive’s website.

If you want to cut emissions, make polluters pay
Matt Burgess | Research Fellow |
When governments want to reduce emissions, they have a choice between using policy or price.

Policy includes rules – for example, 100% of electricity must be generated from renewables – as well as incentive payments, such as electric vehicle subsidies.

Alternatively, governments can price carbon using cap-and-trade, or tax carbon directly.

The fact that emissions occur in millions of places in the economy strongly affects the relative performance of policy and price.

Consider the following question: At what share of renewable electricity does further investment in renewable electricity cease to be competitive with other ways of reducing emissions?

For policymakers, this is an astonishingly difficult question.

It is not just a matter of working out how the per tonne carbon abatement cost rises as the share of renewables approaches 100%. That is hard enough.

It is also about understanding the consequences for downstream users of electricity, who comprise the rest of the economy.

At a very high share of renewables, the cost of electricity will tend to increase. For downstream users, that affects emissions: If electricity costs more, they will be less willing to switch from petrol to electric vehicles, or to switch their industrial processes from coal or gas to electricity.

For policymakers, working out how the share of renewables affects overall emissions is impossibly complicated.

But for a carbon price, whether through cap-and-trade or a tax, discovery of the ‘right’ share of renewable electricity is easy.

Confronted with the relative cost of emissions-intensive coal and gas generation against green alternatives, buyers of electricity decide their willingness to pay.

For some users, green energy is attractive. For other users, coal and gas has real advantages and means a high willingness to pay.

For a problem like emissions, price enables discovery of the answer to non-obvious questions like how much coal and gas generation to retain. Price can access information that is lost to top-down policy.

Policy’s disadvantage is measurable. A survey of the literature on the performance of government emissions reduction programmes reveals governments spend perhaps $5 to avoid harm from emissions worth $1, on average.

Under cap-and-trade like an Emissions Trading Scheme (ETS), retaining coal and gas generation does not increase overall emissions. These high-emissions generators stay in business only by outcompeting alternative emissions sources for the right to emit.

The government recently calling the ETS its “main tool” for achieving its emissions targets is a step in the right direction.

Matt Burgess’ report, Switched on! Achieving a green, affordable, and reliable energy future, which was launched yesterday, and a two-page summary are available here.

In praise of perpetuating role confusion
Dr Bryce Wilkinson | Senior Fellow |
Wellington Mayor Justin Lester says NZ Bus is up to 40 drivers short, with up to 30 cancelled services a day. He now wants the Transport Minister to help improve local bus services.

Local National List MP Nicola Willis also wants central government to step in.

A sceptic might ask what that means for local government accountability to the local community.

The answer is of course that it perpetuates the status quo – inglorious role confusion. Local government is partly responsible to local voters and partly to central government.

Does it matter if central government takes over local government functions, or vice versa?

After all, a former mayor, Ron Mark, is now Minister of Defence, and a former Cabinet Minister, Phil Goff, is now mayor of Auckland – and that is OK.

Yet it can matter. Central and local government dance to different tunes. If central government were to run local buses, whose interests would it put first – the local community’s or those of national interest groups such as trade unions?

Central government could take the view that employers, NZ Bus included, have undue bargaining power. The trick to end this market failure is to empower trade unions.

Empowered unions could organise more vigorous and prolonged strike action. Better organised bus workers could ensure that far fewer drivers turned up for work at the wages NZ Bus is offering now.

Instead of being 40 drivers short, NZ Bus might be 80 drivers short.

Subsequent arbitration that secured much higher wage rates could ensure that NZ Bus could not afford to employ those 80 drivers anyway. That would teach it and Wellingtonians a thing or two about undue bargaining power and market failure.

I know, I know. Bus commuting Wellingtonians would whinge for a while. Fortunately, central government can well afford to discount such parochial, short-sighted selfishness.

In time these whingers would learn to ride e-bikes, saving the planet as well as the regional council’s budget. Diminished accountability to them meantime is just what is needed.

In short, it is all about priorities and accountabilities – if not yours, someone else’s.

Christchurch residents know about this.  They have watched how effectively central government ran Environment Canterbury and earthquake recovery.

Hats off to Lester and Willis for seeing the obvious. Keep the roles confused.

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