The government’s ban on new offshore exploration will reduce the country’s GDP by between $15 billion and $38 billion, raise prices and reduce investment during the next 30 years, the New Zealand Institute of Economic Research estimates.
While the ban’s impact will be felt most keenly in Taranaki, the impact on the national economy is “strongly negative”, the institute says. Employment in, and exports from, other regions improve, but those “few and incidental’ benefits are “dwarfed” by the scale of the other losses.
The $28 billion GDP loss incurred in NZIER’s mid-range scenario, had the industry kept operating and achieved only medium exploration success, is roughly equivalent in annual terms to the government’s capital expenditure on schools, or its annual spending on disability services.
“These are large GDP impacts,” NZIER says in its 31-page report. “Taking the net present value shows that, even in the low scenario, the GDP loss from the ban is equivalent to the current GDP value of New Zealand’s commercial fishing sector and larger than the forestry and logging sector.”
Prime Minister Jacinda Ardern announced the ban in April last year, ahead of a major international meeting with French President Emmanuel Macron and before the Productivity Commission delivered its own report on how New Zealand could transition to a net-zero carbon economy. There was little analysis beforehand.
The government argued the ban, which also bars any onshore exploration other than in Taranaki, was necessary to set a long-term direction for the country’s climate change efforts. Existing reserves and exploration permits were deemed sufficient to ensure security of gas supply for industry and power generation.
Subsequent advice to the government showed officials believed the ban would reduce Crown revenue from royalties out to 2050 by between $2.7 billion and $14.3 billion, depending on the assumed level of exploration success. It was also expected to increase global emissions by increasing petrochemical imports and moving the country’s methanol production offshore.
The NZIER study was commissioned by the Petroleum Exploration and Production Association of New Zealand.
Chief executive Cameron Madgwick says the extent of the ban’s economic harm is “sobering.”
“It shows enormous damage to New Zealanders’ standard of living for no apparent environmental gain,” he said in a statement.
“This is new information which was not available to the government when the legislation was rushed through Parliament last year. It reinforces the need for an independent review and rethink of this policy.”
NZIER adopted the low, medium and high production scenarios developed by government officials. They reflect a mix of low to high oil prices and a strong to low global climate change response, the latter in the form of carbon prices.
Without the ban, production is expected to range from 2,520 petajoules to 4,903 PJ of oil and gas from 2018 out to 2050. The ban would reduce that to 956 PJ to 1,579 PJ.
The institute says the lost production results in a real GDP contraction of 3 percent, 5.4 percent or 7.4 percent across the three scenarios – or annual reductions of 0.12, 0.22 or 0.3 percentage points over 25 years.
Aggregate investment falls by between 5.4 percent and 8.4 percent, due to reduced production, exports and profitability. The New Zealand dollar also weakens, increasing domestic production costs, especially for petroleum-reliant, or import-intensive industries.
Real domestic consumption – a measure of economic well-being – falls by 2.4 percent to 7 percent. That is equivalent to $4,800 to $14,200 annually per household.
In Taranaki, real regional GDP falls by between 35 percent and 53 percent – or $16 billion to $40 billion – out to 2050. About two-thirds of the 3,100 jobs lost in the sector and through related trades are in Taranaki, where employment falls by between 3.2 percent and 6.6 percent as workers shift into other industries or relocate to other regions.
Under the medium scenario real GDP per Taranaki household will fall by $623,000 over the 30-year period – equivalent to a $20,774 fall in household incomes annually, NZIER says.