Why, even after James Shaw described last year’s stimulus as the “one and only chance” to decarbonise, did New Zealand not have a green recovery? Marc Daalder reports
ANALYSIS: An urgent letter sent from Climate Change Minister James Shaw to Finance Minister Grant Robertson ahead of last year’s Budget outlined the necessity of a green recovery, but the massive climate-related spending Shaw called for never eventuated.
In the May 4, 2020 missive, released to Newsroom under the Official Information Act, Shaw warned that a third wave of stimulus set to be announced in July “represents this country’s one and only chance to respond to the climate crisis at the scale required, before the window of opportunity closes to remain within 1.5C of global warming.
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“The Government’s economic response to the Covid-19 pandemic equates to, in rough terms, about 10 years of Budget allowances under normal circumstances. Having spent it, New Zealand will not be in a position to repeat a fiscal deployment of this scale for at least another decade and possibly two to three. In other words, we are currently spending the money that future governments would have had available to spend on climate change mitigation and adaptation, but now will not.
“Therefore, if our Government does not direct Wave 3 stimulus spending to mitigation and adaptation efforts, then neither will happen in the coming decades.”
Little of the remaining $17 billion of stimulus ended up going to climate-related initiatives, however. Some $14b was held back to respond to future Covid-19 outbreaks, around $2b covered increasing cost pressures and just $1.1b was spent on new initiatives, like waste infrastructure and three waters reform.
Third stimulus wave wasn’t needed
While most of the specific policies Shaw pushed for in the letter have been redacted, it is clear he advocated for investment in upgrading the national electric grid, a “large-scale rollout of insulation, solar and smart batteries in social housing”, support for advisers who would help farmers reduce emissions and more rapid implementation of a vehicle emissions standard.
None of these policies were funded in July and the emissions standard was only re-announced by Labour this year, after New Zealand First blocked efforts to pass it in 2020.
“In the end, that was what we called wave three of our stimulus funding and, as it happened, the New Zealand economy recovered significantly quicker. The idea that there would be a group of projects done immediately then, really didn’t come to pass,” Robertson told Newsroom.
“More generally, we continue to look at climate change projects as a really important part of our recovery. So the work that was done to build that up is informing what we’re doing in terms of this Budget and future Budgets.”
Other efforts to green the recovery were similarly unsuccessful.
A draft Cabinet paper released to Newsroom by the Ministry for the Environment recommended applying a climate lens to all funding decisions made for the third wave of stimulus. A spokesperson for Shaw’s office said this proposal never even made it to Cabinet.
A missed opportunity
Speaking to Newsroom about the letter, Shaw said he still views the lack of climate-related stimulus in the 2020 Budget and the subsequent July funding round as a missed opportunity, but he no longer thinks it was New Zealand’s last chance to decarbonise.
“I would say we missed an opportunity, but not the opportunity,” he said.
“The fact that we’ve got the emissions reduction plan coming together this year that will essentially put together a programme over the next 15 years, it will basically take the things in that letter and phase them in over time. Plus a whole lot more actually.”
In the end, the main reason the big climate spend didn’t go ahead was because stimulus of that scale was no longer needed, Shaw said.
“At that time, in May of last year, when we were really just coming out of lockdown and the world had changed so dramatically, and the Treasury projections were just completely different to how the reality played out in subsequent months. It did look like we were going to have to spend that in order to keep the economy afloat.
“And if we were going to spend it, then obviously we were going to be able to spend it once. We weren’t going to be able to spend it twice, because the scale is just so massive.”
Still, looking back on the past year, Shaw said he regrets not seizing the opportunity, even if it was to a lesser scale than imagined in the May letter.
“I think we could have made a bit more progress if we had made that investment last year, but it certainly wasn’t the only opportunity to do that. I’m actually still feeling quite optimistic, because of the way things panned out, that we will be able to put that programme in place. And to do so in a more planned way than we might have been able if we did it all at once last year.”
Other experts have also criticised New Zealand’s recovery spending, which almost overwhelmingly went towards the wage subsidy. That, in turn, simply bolstered the high-emitting status quo.
Turning the tanker
Ahead of the Budget, the Climate Change Commission warned Shaw that “investments in long-lived assets must not lock New Zealand into a high-emissions development pathway or one that increases exposure to the impacts of climate change”.
After the Budget was delivered, the Commission wrote again to Shaw, telling him “our concern is this Budget does not take us far enough. We need to do more”.
In particular, the Commission identified the unspent recovery money as a source of hope. “We note the further $20 billion of unallocated funds set aside to aid in the recovery from Covid-19. There is an opportunity to invest in large transformative projects that address emissions reduction and adaptation,” the Commission wrote.
“These funds can only be spent once. We need to make decisions that our children and grandchildren will thank us for.”
Researchers for Energy Policy Tracker have since found that New Zealand’s recovery was a “lost opportunity to lock in the transition to a low-emissions economy“.
“If you actually look at the numbers, they show that the Government hasn’t proactively used its fiscal stimulus tools to invest in the kind of infrastructure we need to reduce emissions or to restore nature, and instead seem to have followed a largely reactionary and incremental approach that is accelerating business-as-usual,” Amanda Larsson, the climate and energy campaigner for Greenpeace New Zealand, told Newsroom.
“From where I’m sitting, despite these promises to ‘build back better’ from the Prime Minister, we have a Finance Minister who seems deadset on continuing business-as-usual and following a really conservative approach at a time when we need someone in the driving seat who’s being really bold and visionary.”
Forest & Bird chief executive Kevin Hague agreed, telling Newsroom, “the argument we were making and that James seems to be making in this letter is, given this opportunity, you’ve got to take it. It’s the nuclear-free moment. All of a sudden, you have this opportunity because you’re going to spend all this money.
“Imagine the New Zealand economy is an oil tanker. It takes three kilometres to actually come to a stop. If you want it to change direction significantly, that’s a couple of kilometres of turning. So it’s actually really hard to make significant change to the New Zealand economy because it has so much beneath it.
“But if your oil tanker is almost dead in the water – it’s come to, almost, a complete halt – the energy it takes to get it back up and moving in the same direction it was going in before is not that much less than getting it to do something different.”
More to come in coming years
Shaw agreed with that metaphor, but said the tanker never ended up coming to a stop last year.
“There is actually still a lot more forward momentum than we thought. The oil tanker didn’t stop for very long. That’s part of the issue, is that we’re now still in the process of having to rely on the steering wheel and to work with the momentum to change the direction of it.”
That doesn’t mean Shaw sees no role for major climate investment in the future. Because that third wave of stimulus was never spent, that money can still be used for a more managed transition, smoothed over the coming years.
The emissions reduction plan – the Government’s formal response to the Climate Change Commission’s recommended budgets and advice, and a blueprint of how to meet those budgets – will set the stage for that transition.
“We missed this Budget cycle, and then the Government’s got to respond by the end of the year. But that actually corresponds with the next Budget cycle.”
Come 2022, Shaw implied, we should expect to see a lot more climate funding in the Budget.
Robertson also said future Budgets would invest in climate mitigation and adaptation.
“We were very clear and the independent Climate Change Commission has been very clear that this needs to be a sustained, ongoing investment in emissions reductions if we have any hope of meeting the goals that we set ourselves. We obviously understand the importance of the investment there.”