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Immigration is a climate change issue too

The Greens and New Zealand First, in particular, could work together to reduce New Zealand greenhouse gas emissions more easily and cheaply by reducing our high target rate of non-citizen immigration. Michael Reddell argues that the Productivity Commission’s current low emissions inquiry should look seriously at the potential contribution cuts the target rate of immigration could make.

New Zealand has committed to a fairly ambitious emissions reduction target as part of the Paris climate agreement. Of course, some political parties think the target isn’t ambitious enough, but New Zealand faces an unusual set of factors that affect our ability to reduce emissions here at moderate cost. Appropriate policy responses, and the choice of the mix of instruments we choose to deploy, need to take account of that distinctive mix.

Those specific challenges have been identified by the Ministry for the Environment, the Government’s principal adviser on climate change policy. In a recent report they highlighted these three points about New Zealand

1. A growing population

2. Almost half our emissions are from agriculture where there are fewer economically viable options currently available to reduce emissions

3. An electricity sector that is already 80.8 percent renewable (meaning that we have fewer ‘easy wins’ available to us compared to other countries who can more easily make significant emissions reductions by switching to renewable sources of electricity).

As a result, our total emissions have been rising not falling. And it is generally accepted that the marginal abatement cost of reducing emissions in New Zealand is among the highest in the world (partly because of the second and third points in that list). We simply don’t have the same relatively cost-effective options most other advanced countries have.

The Productivity Commission is currently undertaking an inquiry, at the request of the government, on a transition to a low emissions economy. But in the issues paper they put out a couple of months ago they pay almost no attention to the role our quite rapid rate of population growth is playing. In particular, they don’t recognise at all that conscious choices around immigration policy have driven up our total emissions over the last 25 years, or that a continuation of current immigration would only increase the real economic costs of meeting the emissions reductions targets.

New Zealand’s population growth rate has long been well above that of the typical advanced country, even though for some decades now our birth rate has been below replacement level, and the net emigration outflow of New Zealanders (at around 0.5 percent of the population per annum on average) has been very high by international standards. The difference is explained by immigration policy. We have chosen to bring in numbers of non-citizens each year that, as a proportion of the existing population, are far in excess of the target rates of immigration in other economies.

An increasing population results in additional emissions through at least two channels. The first, and most obvious is that more people need more transport, more heating, more energy in their workplaces etc. With current technologies and current pricing, that is a recipe for increases in emissions. Our population is 35 percent higher than it was 25 years ago, and that factor alone will have boosted total emissions considerably.

Even many of those who are broadly supportive of New Zealand’s past approach to immigration policy will now generally acknowledge that any gains to New Zealanders may be quite small.

But the indirect effects are also important. Our export sectors have typically struggled over the last few decades, barely keeping pace with the growth in the population. Animal-based farm industries (notably dairy) have been an area of substantial growth. More people don’t directly mean more cows, but when the associated agricultural exports are so important in maintaining living standards for so many more people, it has been harder to compellingly make the political case for internalising the effects of environmental externalities (whether water pollution or methane emissions). With fewer people, it seems quite plausible that we’d have had fewer cows.

A few months ago I lodged Official Information Act requests with both the Ministry for the Environment (responsible for climate change policy advice) and MBIE (responsible for immigration policy advice) asking for any work they had done, or advice they had given, on the connections between immigration policy and our greenhouse gas emissions. There was nothing, at all, from either agency, even though my requests encompassed the period when the Paris climate commitments were being shaped and made. It was an extraordinary omission.

Of course, if there were clear and material economic benefits to New Zealanders from the high target rate of non-citizen immigration (the centrepiece of which is the 45,000 per annum residence approvals “target”) it might well be cheaper (less costly to New Zealanders) to cut emissions in other ways, using other instruments. But those sort of gains – lifts in productivity – can’t simply be taken for granted in New Zealand. Despite claims from various lobby groups that the economic gains (to natives) of immigration are clear in the economics literature, little empirical research specific to New Zealand has been undertaken. And there is good reason – notably our remoteness – to leave open the possibility that any gains from immigration may be much smaller here than they might be in, say, a country closer to the global centres of economic activity, whether in Europe, Asia, or North America.

Even many of those who are broadly supportive of New Zealand’s past approach to immigration policy will now generally acknowledge that any gains to New Zealanders may be quite small. And for some years now, I’ve been arguing for a more far-reaching interpretation of modern New Zealand economic history: that our persistently high rates of (non-citizen) immigration have held back our productivity performance (i.e. come at a net economic cost to New Zealanders).

Even if immigration policy, taken on its own, was slightly beneficial, in economic terms, to New Zealanders, the emissions reduction target means we need to recheck the overall calculations, to take account of the additional abatement costs that many more people will impose on the rest of the economy. In a country where the marginal abatement costs were low - easy to cut emissions elsewhere at little or no cost - the effect of a recalculation to take explicit account of immigration policy might be small. But all informed observers recognise that the marginal abatement costs in New Zealand, through conventional means, are high. If so, a lower immigration target could represent one of the most cost-effective ways to reduce total New Zealand emissions.

As our emissions reduction target is quite similar to those of a number of other countries that have much lower population growth rates, there would be no serious basis for others to suggest that pulling back our immigration targets, to something more conventional among advanced countries, was in some sense free-riding or engaging in a “beggar thy neighbour” approach to the emissions issue. New Zealand simply isn’t very a cost-effective location to reduce emissions - we rely on agriculture but it is very hard to economically cut agricultural emissions. But having taken on the commitment to a reduction, it doesn’t make much sense to create a rod for our own back by continuing to use policy to drive up the population, thus forcing reliance on even more costly alternative abatement instruments.

Lowering the residence approvals target from 45,000 to around 15,000 per annum – in per capita terms, still about as liberal as the current US approach - would make a material difference to the future population and the projected path of greenhouse gas emissions. Direct emissions would be considerably lower than otherwise projected, and the pressures that have (rightly in my view) held us back from trying to price agricultural emissions would be eased. With fewer people, we just don’t need the same number of emitting animals. The issues New Zealand faces in meeting emissions reduction objectives are different from those facing many other countries and we need analysis that takes specific accounts of the issues, options, and constraints that New Zealand itself faces.

The possible nexus between immigration policy and emissions has the feel of an issue where there should be some common ground discoverable between New Zealand First (with concerns about immigration) and the Greens (proposing even more ambitious emissions targets). But it is an option that all parties should be taking much more seriously than has been done to date. The aim of a successful adjustment to a low-emissions economy is not to don a hair shirt and “feel the pain”. It isn’t to signal our virtue either. Rather, the aim should be to make the adjustment with as small a net economic cost to New Zealanders – as small a drain on our future material living standards – as possible. Lowering the immigration target looks like an instrument that needs to be seriously considered - including by the Productivity Commission - if that goal is to be successfully pursued.