2022 International Speaker Series

Videos and transcripts of our International Speaker Series events in 2022

Patricia Mallam: Climate action in the Pacific Islands

4 August 2022

The greatest threat to the way of life in the Pacific is the climate crisis. In this webinar, we headed virtually to Fiji for a conversation with climate activist Patricia Mallam for a look at what the climate crisis means for the Pacific Islands, the imperative for climate action from a Pacific perspective, and how Aotearoa can work together with its Pacific neighbours on climate change.

Prof. Frank Jotzo: Integrating emissions pricing with other climate policies

15 June 2022

Guest speaker Frank Jotzo (Professor at the Australian National University’s Crawford School of Public Policy, and Director of the Centre for Climate and Energy Policy) joined us in a session facilitated by Commissioners Catherine Leining and Andy Reisinger to discuss why emissions trading schemes alone won’t get us to net zero emissions – and why emissions pricing need to be integrated with a portfolio of other climate policies to address climate change.

video transcript available
CHARLI: Kia ora koutou and thank you for joining us today for our second international speaker series for the year. We’re very pleased to welcome Professor Frank Jotzo for a session on integrating emissions pricing with other climate policies. Ko Charli Keeling ahau. I’m a Senior Advisor in the Communications and Engagement team here at the Commission, and I’ll shortly take us through how the session’s going to be run today. But first I’m going to hand over to my colleague Bevan to lead us into this session with a karakia.

BEVAN: Kia ora tātou. Ngā mihi nui ki a tātou i runga i te pouaka whakaata reo nei, tēnā koutou katoa. Ngā mihi nuI ki a koe, Frank, te kaikōrero te wā nei. Anei hi karakia.

[KARAKIA]
E te hui nei
Whāia te mātauranga kia mārama
Kia whai take ngā mahi katoa
Tū māia, tū kaha
Aroha atu, aroha mai
Tātou i a tātou katoa
Tihei rā mauri ora

So for those of us who speak English, that’s “Greetings to everyone online, and a special acknowledgement to you, Frank, our speaker for today. For this gathering, seek knowledge for understanding, have purpose in all that you do, stand tall, be strong, let us show respect for each other – behold, the breath of life. Kia ora.

CHARLI: Kia ora Bevan, thank you. So just before we get going, I’d ask you all to please share your name and the organisation or community you represent in the chat while I’m taking us through how this session’s going to run, and let us know where you’re joining us from in the world. It’s always really good to see who we’ve got participating in these sessions.

Today we’re going to be led by our commissioners Catherine Leining and Professor James Renwick. Catherine is one of the leading experts on climate change mitigation policy in Aoteaora, with a specialisation in emissions trading. As a Policy Fellow at Motu Economic and Public Policy Research, she co-led Motu’s research programme on “Shaping New Zealand’s Low-Emission Future.” She has held policy positions at the Ministry for the Environment and the Ministry of Foreign Affairs and Trade. Before moving to Aotearoa, she held policy positions in the US. She provides consulting through Silver Lining Global Solutions and was trained as a Climate Leader under The Climate Reality Project launched by Al Gore.

James is a leading climate scientist with a strong national and international reputation, and four decades of experience in weather and climate research. His appointment as a Lead Author and Coordinating Lead Author on three Assessment Reports of the Intergovernmental Panel on Climate Change (IPCC) demonstrates his expertise. He has also been involved in the governance of the World Climate Research Programme for the past eight years. He was awarded the 2018 Prime Minister’s Prize for Science Communication.

So Frank’s shortly going to take us through some of his work, followed by discussion between Frank, Catherine and James. This will then be your opportunity to ask questions – you should see a Q&A box at the bottom of the screen. Please feel free to type your questions throughout the session, and please remember to use the Q&A box rather than the chat, as they can tend to get lost in the chat if you pop them in there. We might not have a chance to cover all of the questions, but we’ll get through as many as we can. And I just wanted to let you know as well that we are recording this session, so anyone you know who was unable to make it can watch it on our website afterwards. So I’m now just going to hand over to Catherine.

CATHERINE: Tēnā koutou katoa, ko Catherine Leining tōku ingoa. It is such a pleasure to be here today to introduce Frank Jotzo. I’ve been working with Frank on emissions trading and other climate policy development for a number of years. He’s always been a reliable source of information on what’s happening in Australia, and the timing of this session is fantastic given Frank’s work on the Inter-Governmental Panel on Climate Change, and the new election in Australia and what that might signal in terms of a phase shift in Australian climate action. So just to give you a fuller sense of Frank’s background: he’s a professor at the Australian National University’s Crawford School of Public Policy, and the Head of Energy at the ANU Institute for Climate Energy and Solutions. He’s the lead author of the Inter-Governmental Panel on Climate Change sixth assessment report, with a focus on policy instruments. Frank’s research spans economics and policy of climate change and energy, including decarbonisation, domestic policy choice and international dimensions of climate policy. He is joint editor-in-chief of the academic journal Climate Policy, has advised governments in Australia and international organisations and contributed to policy assessments in the Asia Pacific. And he tweets at @frankjotzo. So, Frank, welcome, and I’ll turn over to you for presentation.

FRANK: Well, thank you very much, it’s a great pleasure to be with you, always good to have that exchange over the Tasman. I’m joining you today from Jakarta, but I would like to take just a second to acknowledge the first nations of the place where I live and work, which is in Canberra, Australia – which is Ngunnawal land, and we of course acknowledge the elders past and present of the Ngunnawal people and all of all first nations in Australia. And I must say, living in Australia, I find the traditions with which you acknowledge lands in New Zealand and open events are really very positive ones. So today I’m looking forward to the discussion and the conversation most of all. I’ve watched the affiliations go by on the chat and I’m very aware that there’s a very knowledgeable group of people here on this call. As much as anything, I look forward to learning more about the latest developments and thinking in New Zealand.

So what I’ve prepared for the 25 minutes or so that I’ve been asked to speak is a brief overview of what the latest IPCC report, the sixth assessment report on mitigation, has to say on policy instruments and policy packages and the role of carbon pricing in that. I’ll then add some thoughts and insights about the roles and limitations of carbon pricing, and will then give you a run-down of climate policy or lack thereof in Australia and how we’re expecting that to change under the new federal government given the election platform that they took to the election. And so it’s early days of course, but we know at least what has been planned. And again, I’ll look at that through the lens of policy instruments that could be applied in New Zealand – in Australia, I’m sorry – and what that might imply for elsewhere. OK, so with that, let me launch into my talk, and slides should be able to be seen. If that’s not the case please let me know.

CATHERINE: They’re all good.

FRANK: Very good, excellent. So I’ll delve in to the IPCC assessment report, partly because that is of course what is internationally acknowledged as the state of understanding at this point. And I will spend a little bit of time a little later on the words and the summary for policy makers, because they are approved by all governments and so every word – or every sentence at least – has been hard-fought over in terms of what’s written there, and so these words carry authority.

Now. A headline result from the IPCC sixth assessment report on mitigation is that the opportunities to reduce emissions at acceptable costs or even at low costs are really, really large. In fact the bottom-up assessment identifies options to cut global emissions in half by 2030 costs below US$100 per tonne of CO2 – that’s the marginal abatement cost as estimated in bottom-up studies. And very ample potential, nearly about half that or about a quarter of global emissions, at a cost below US$20 per tonne. Of course, the assumption here is that all available and technically available options are in fact being used, which will not be the case in practice. An important role for policy is of course to get as close to that ideal as we possibly can, and have really broad coverage to harness all of these low-cost emission reduction opportunities. Now, the assessment is much more favourable, much more optimistic, than it was in the previous assessment report published in 2014. And the reason really fundamentally is that zero carbon technologies – in particular solar power and wind power, but other zero carbon technologies as well – have fallen dramatically in their cost and are now being cost-competitive in many applications. So that’s a fundamental shift that actually enables far deeper emission reductions this decade and of course the following decades than was thought possible just half a decade ago.
Now, in terms of the verdict on policy instruments, the IPCC report is very careful to point out that there is a complementarity of many different policy instruments, and that what is the best and the most feasible set of policy instruments is very strongly dependant on local and national circumstances. What’s also identified is that it is desirable to arrange policy instruments in so-called policy packages – so not just a more or less random collection of policies that overlay or have gaps as they naturally emerge in many jurisdictions, but a package that is well designed and put together.

Central to that effective and efficient approach to emission reductions are economic instruments, in particular emissions trading and carbon pricing instruments, for the efficient coverage of lower-cost mitigation options. And these should be complemented, or are in practice complemented, by regulatory instruments for specific sectors and objectives, oftentimes aimed at higher-cost options where pricing doesn’t reach under the existing price levels.

And also the report clearly points out that flexible implementation of regulatory mechanisms can reduce. And then there’s a whole host of other policy instruments, from subsidies for emission reduction activity to R&D support, support for structural adjustment, information policies, industry compacts, fossil fuel subsidy removal – not to forget, an important point in many jurisdictions – and so forth. There’s also a bigger picture that this latest IPCC report is at pains to point out, and that is climate change mitigation in the context of sustainable development and many, many other policy objectives, in particular equity and distributional fairness and justice with regard to policy instruments. The observation is that policy instruments can of course be designed to achieve these other objectives, and in that sense good climate policy is also good economic and social policy.
And finally, what I’d like to mention is a very clear recognition that frameworks for climate change mitigation are very important, consisting of legislation that enables policy and measures institutions, including of course independent institutions, to help with the assessment and development of climate policies such as yours, and the involvement of actors and in groups right across society – so taking it out just from government departments.

Here's the text from the summary for policymakers that I’d like to go through with you. So first of all, by 2020 about a fifth of global greenhouse gas emissions were covered by carbon taxes or emissions trading schemes, although coverage and prices have been insufficient to achieve deep reductions. So about 20% covered, but the bulk of that 20% comes from schemes that are relatively low in effective prices at this point in time. Economic instruments have been effective in reducing emissions – and the report presents a range of evidence of that fact – and have been complemented by regulatory instruments as already mentioned. Where implemented, carbon pricing has been effective at incentivising low-cost emission reduction measures, but it has been less effective on its own in getting at the higher-cost options further up the cost curve. This is fairly obvious but it’s important for the IPCC to state that in such clarity, I would suggest.
Equity and distributional impacts again – I’ve already just mentioned it – can be achieved through revenue redistribution from carbon taxes and emissions trading. And in a more general sense, practical experience has informed instrument design and achieved better performance in terms of predictability, economic efficiency, environmental effectiveness, distributional goals, as well as social and political acceptability of climate policy.
And finally, there is no evidence as assessed by the IPCC of significant emissions leakage between countries, and the text says that this can be attributed to design features aimed at minimising competitiveness effects among other reasons. And I expect that this will of course be an important consideration for current moves to perhaps adjust the treatment of agriculture in New Zealand’s climate change policy framework.
Now, where will emissions pricing not work, or it isn’t enough? This is a more traditional view of the problem from an economics perspective, so: where do you need other things if you consider emissions pricing as the central policy instrument? First of all, small sources, and in particular small sources where emissions are difficult to measure. And of course agriculture is usually cited as the archetypal example of this, where farm-level emissions estimation may be difficult, in particular where it needs to be done to a degree of reliability and confidence that warrants significant payments, financial payments, on the basis of it. Secondly, where you don’t go to individual farm-level estimation, you will usually use default emissions factors for specific activities, which then in turn of course neutralise incentives at the micro level to vary those practices in order to actively achieve emissions reductions, because those emissions reductions will not be evident where default emissions factors are applied to a measure of activity.

Second point, of course in many areas of the economy, price signals on emissions are ineffective or not fully effective. Energy efficiency is a classic example. We’re dealing with a lack of awareness often among consumers, but also businesses, of the energy use that’s actually taking place. Myopia: people apply unreasonably high discount rates to energy efficiency investments, split incentives and so forth. But also sectors like transport, where the price effect from emissions pricing is typically quite small relative to the overall financial magnitude of the decisions that people make – so just think of the addition to the price of petrol in the overall decision about buying a car. So this is the kind of thing where regulatory instruments come to the fore and can in fact be more effective and ultimately possibly more efficient than the pure application of emissions pricing.

Third, innovation. Of course there’s public benefits from knowledge and innovation, which creates the case for government support. And innovation usually takes place at higher marginal costs than where carbon prices are, and so it’s better done through for example R&D support and similar. And then fourth, and I think we’re really realising that increasingly - including in Australia – systems transition, so investment in infrastructure to enable a fundamental retooling of different parts of our economy, in particular the energy sector in a fossil-fuel using economy like Australia. That has very large effects, fundamental transitional effects as well as regional and social impacts that will usually need to be dealt with through other means than carbon pricing.
So carbon pricing could have a very central role in the policy mix and the policy package – sort of an economistic view of the world – might look like this in terms of the other policy instruments around carbon pricing as adjunct. Or in practice carbon pricing might just have a marginal role, sit somewhere in the corner, play a role somewhere, but the heavy lifting is done by other policy instruments. And possibly it’s somewhere in between.

Now, moving on to Australia. So what we have is a situation where national greenhouse gas emissions including land use change in forestry peaked in 2007, were really high in 2005 which was of course the base year for the national target, have since declined, and the decline since 2005 in aggregate is entirely due to reductions in land use change, land use and forestry emissions – so in fact reduced land clearing but also some thickening of vegetation. Within everything else, emissions have actually increased since 2005, or roughly the same by now. But we do see a continued or very significant trend now for sustained emissions reductions every year in the electricity sector, and I’ll come back to that. The national target used to be – well, officially still is 26 – 28% reduction. Very easily achievable, given that most of that reduction has already been achieved between 2005 and 2012 through reduction in land clearing. The new government have said that they will set the new national target at a 43% reduction at 2030 relative to 2005. It’s worth noting that some influential business associations like the Business Council of Australia have in fact called for a reduction target up to 50% at 2030, and so we’re certainly not expecting that the 43% target is the last word. It might be the last word for this period of government, but we’d expect that these targets can and quite possibly will be strengthened, also in the context of a likely much-strengthened target for 2035 emissions reductions.

Now briefly: where are we at in terms of sector-by-sector emissions climate policy in Australia, and we’re referring here sector-by-sector to existing policy at the federal level. I’m setting aside state and territory action because that’s a really complex picture that we don’t for. And I’ll say a few words about what the new government have said that they would do if in office. So first of all, agriculture. Existing instruments at the federal level are really only the eligibility for some agricultural and forestry activities to reduce emissions to be eligible in the national crediting scheme, and I’ll come back to the crediting scheme in a minute. The new government’s policy platform is relatively subdued in a sense on agriculture. It says something about developing new technologies, improving offsetting and crediting opportunities, and bringing down electricity prices as an input to agriculture. Now this is of course somewhat ironic, because electricity prices in Australia have just shot through the roof because of the unavailability of coal-fired power stations on the grid and high fuel prices. And there’s bits and pieces, for example for R&D on seaweed as an emissions reduction fodder and so forth. And perhaps the biggest effect that’s planned is to increase the demand, including through commercial sector demand, for the Australian Carbon Credit Units.

Australian Carbon Credit Units is a domestic crediting scheme. The Clean Energy Regulator, an arm of the government, devises methodologies and accredits individual projects that aim to reduce emissions, verifies activities and issues credits. So far over 1,000 projects have been accredited, of which over half are in vegetation protection or regeneration – so in other words, largely leaving land uncleared and claiming that it otherwise would have been cleared, or letting land regenerate whether passively or actively. And a very large majority of credits that have been issued and will be issued over time is for avoided land use change.

Now, who buys these credits? So far, government is in a very large majority the buyer of these emission reduction credits. About 90% of these credits so far traded have been bought by a government, and that’s done in so-called reverse auctions, or bidding rounds really. The government has committed $4.5 billion – I’ve written that wrong on the slide, it’s $4.5 billion dollars, not million – of which so far $2.5 billion have been committed to be paid over time as presumed emission reductions arise. Typical prices are between AU$12 - $17 per tonne of CO2 equivalent. In the last auction late last year, there were 24 projects awarded, 7 million tonnes of CO2 equivalent for $100-odd million. So the volumes are not very large, put it this way, for an economy where annual emissions are over 500 million tonnes. Now, the new government’s policy platform is to create greater demand for emissions credits from industry and to review the integrity of the scheme.

As far as the integrity of the scheme is concerned, there has – just recently by a colleague of mine at ANU, Professor Andrew Macintosh, who used to be the chair of the assurance panel, the panel that is in charge of assuring the quality of these credits – has been some severe criticism of the scheme, mostly because of a presumed lack of additionality of projects.

We’ve got Andrew’s quotes here: “Payments are being made to people to not chop down forests that were never going to be chopped down, to grow forests that are already there, to grow forests in places that will never sustain permanent forests.”

And so the project that pays for avoided deforestation, avoided land clearing, avoided vegetation clearing, is the project type that creates most credits and the one that’s most subject of course to doubt as to the veracity of the claims, because the counterfactual claims of course that the land would have been cleared if it had not been for the credit payment. This is well-known, of course. This is something that we encounter in the clean development mechanism, or have encountered under the Kyoto Protocol clean development mechanism as well. In addition of course it’s by nature patchy, because only specific emission reductions projects that are defined in specific methodologies are eligible, and over time we have seen a declining interest or declining supply of potential projects in the government’s call for tender or auctions, and we’ve seen rising prices paid by government as well, which gives you an indication that we’re running out of options there.

Now what about industry? So at the federal level, we have the bones of a mechanism that can and probably will grow into a baseline and credit scheme. So the 200-odd largest industrial installations in Australia above a threshold of 100 tonnes of CO2 equivalent per year fall under this mechanism which defines process- or product-specific emissions intensity benchmarks. And if an installation is above that benchmark for its own production, it needs to cover the excess with these carbon credit units. However the mechanism hasn’t really been effective in practice because the benchmarks are set very high. The benchmarks are set higher than the actual emissions of most industrial installations. And where an individual installation exceeds the benchmark, often the Minister has granted exemptions to the credit purchasing obligation.

So the new government’s policy platform foresees the setting of new, lower benchmarks, which would make the scheme more effective – or effective, for a start - and also foresees that credits will also be issued for companies for installations that stay below their baseline. This is really important to give an incentive of course to companies to do things even better and not just stop doing things because they're sitting below a defined benchmark. So if this goes as anticipated, it will create a carbon price among these 200-odd large industrial installations in a baseline and credit scheme where installations trade with each other, and it's revenue neutral from the point of view of government.

In transport, existing instruments to reduce emissions – there’s really none at federal level, there's no emissions standards, there's nothing really. The federal fuel excise fuel tax has been halved now to help with fuel availability and so forth. And there’s a patchy pattern of electric car incentives at the state and territory sub-national level. The new government's policy platform says that import tariffs – currently 5% – will be removed, and fringe benefit tax will be removed for electric cars. That will be a big difference for the affordability of company cars provided to private individuals. Of course there’s perhaps some questionable distributional effects of that, but it will very likely increase the availability, the demand for electric cars, and also some commitment to charging infrastructure and so forth. However, what's not foreseen, still not foreseen, is a fleet-wide emissions standard or in fact any emissions standards for conventional cars. And the absence of a fleet-wide emission standards is surmised to be behind a relative lack of supply from car companies of electric cars into Australia, because they prioritise other markets where they are in fact forced to put electric cars into their supply mix in order to still be able to sell conventional cars. In Australia you can get away with just selling conventional cars including at very low fuel efficiency.

Electricity is really important in Australia for the energy transition. Not much in terms of existing policy instruments at the federal level. The new government wants to pump $20 billion into power grid investments. It's not immediately obvious in which way this will be used or is necessary, because this is normally private investment on the under-regulated framework. Some money for community solar and batteries. And increasing discussion about the establishment of a capacity market in the electricity sector to run in parallel with the energy-only market. And very big discussions at the moment as to which type of generators should be eligible for that, in particular should the gas generators – or indeed coal generators – be eligible for capacity payments. Very importantly, still no carbon price, and no carbon price planned in electricity. Various federal funding mechanisms – I won't dwell on it. The new government is anticipating to create a $15 billion national reconstruction fund, which will be like a regional development fund for low emissions activities, if I can characterise it in that way. Also important, the long existing instruments of the Clean Energy Finance Corporation, which provides co-financing for first-of-a-kind commercial activities. And the Australian Renewable Energy Agency, which provides grant funding for for renewable energy activities.

I'm slightly running out of time so I won't spend too much time on this, other than to say the transition away from coal and towards wind and solar is well and truly underway in Australia, and it will in fact force the accelerated retirement of coal-fired power stations. In that rightmost panel here you can see the the daily pattern of a typical day. This was last week in New South Wales and you can see the black coal (rendered in black, of course) ramping up and down through the day in order to accommodate renewable energy supply – and that is not what these plants are made for. Many operators are in fact quite evidently running their plants into the ground. The systems operator expects accelerated exit of coal-fired power stations. We will see a huge wave of exit through the 2020s and the remainder will very largely go in the 2030s on current expectations, all replaced by wind and solar, plus storage and pumped hydro and batteries. And that of course provides difficulties also for regional communities for the electricity grid, because we don't firmly know what is the exit trajectory for these plants. And each individual power plant exiting creates some supply issues for the grid, because the replacement investment in wind and solar may not be there right at the time when it's needed, and obviously creates difficulties in the adjustment for local communities and providing more predictability – and in fact mechanisms, including financial mechanisms, to support the the local and regional transition is a big topic in Australia.

Which brings us to funding. And really, at the time of sky-high energy prices, what we're seeing is an enormously large wealth transfer from consumers, private consumers and business consumers, to the shareholders of energy companies. And this is of course not something that is optimal, in particular when money will be needed to facilitate the energy transition. And so I argue that there is a very strong case for excess profit taxation in the energy sector. Of course it's a very difficult point in time to introduce such legislation, at a time when it would immediately bite – and so it may well be a case to finally bite the bullet and have proper excess profit taxation for the energy and resources sector, and implement that after this current energy price spike so that it's there for next time round.

I’ll end on this. You can't not mention this in a talk that touches on Australia. Australia has huge potential to become a very large producer and exporter of renewables-based commodities, including both fuels – hydrogen, ammonia, synthetic fuels – as well as industrial commodities, energy intensive commodities, produced on the basis of renewable energy, wind and solar, which which can be harnessed at practically unlimited scale in Australia.

So, just to finish on institutions and processes: we're emerging in Australia from ten years of... eight years – ten years of climate policy being very, very subdued at the federal level. Very highly political. And there is every chance now that climate policy – sensible climate policy – will become a proposition that is less contested politically and thereby opening up the space for gradually improved and broadened climate change policy. We will also see the Climate Change Authority certainly reinvigorated and better resourced than it has been. And Labor have also said that the Climate Change Authority will support government in providing an annual climate policy statement to Parliament. What is still needed and isn't really on the programme just yet is a true national low-emissions strategy built on the basis of a true national conversation about this, and I argue that the electoral support for sensible climate policy that we've seen in the last federal election in Australia could be built out to become a broadly-shared agreement on what constitutes good policy on climate change.
So plenty of opportunity in Australia, and plenty of opportunity also to learn from the experiences and latest plans in New Zealand. Thank you.

CATHERINE: Thank you so much, Frank. That was a fantastic overview of a broad range of issues, all of which are very interesting to learn from and relevant in different dimensions to New Zealand. So I really appreciate those insights. I'll ask a question, I'll go to James for a question, and then we'll open up to questions from our viewers. So my question... you know, a lot of countries talk about a war on climate change and in Australia it's been the climate wars in terms of politics, and from my perspective here it seems like that policy uncertainty has had a huge cost for business, and I was just curious to get your observations as someone who's been in this for a while about how businesses have responded to the lack of policy certainty and pricing certainty around the response to climate change. Do they use shadow pricing, are they concerned about stranded assets, I mean how has the business community responded to this?

FRANK: The largest part of Australia's business community has just been exasperated by the lack of sensible climate policy, right? And to be fair, large sections of the business community are not clamouring for very strong climate policy, but they're clamouring for stable climate policy because there's a large amount of investments at stake. Climate policy, especially the carbon pricing, was of course abolished in 2014, and the result of that was not a kind of certainty that there would never ever be climate policy, but continued expectation that at some point there will be climate policy of some form – which is not a good foundation to make investments on. And so in particular since the Paris Agreement in 2015 there has been a very marked change in Australian business attitudes, including at the Business Council of Australia, which was very instrumental in the removal of the carbon price at the time, but which more recently has really been a positive force for sensible climate policy. And it's really only the pure play fossil fuel companies that remain vigorously opposed to climate change policy. And so are the climate wars over? The new prime minister declared that the objective is to put an end to the climate wars, but really I would say it's up to the Opposition as to whether the wars are over or not –and that it remains to be seen whether the Coalition in Opposition will continue to see political opportunity in attacking climate change policy. I think there's a risk of this in particular because energy prices are so high and affordability, cost of living, is such a big topic, and so it is unfortunately very easy to blame cost of living pressures on climate policy. And so I have somewhat of a fear that we might see the re-emergence of that kind of line of argument, which then of course politically constrains what government will feel comfortable doing by way of policy implementation.

CATHERINE: Thanks, Frank. I'll pass to James.

JAMES: Yeah, thanks Catherine, and thank you very much, Frank. It was a great presentation. I've got a lot of notes and a number of questions. It's very cool and I was very encouraged to hear that already we're seeing a bit of exit from coal-fired power stations in Australia, and the expectation there'll be a lot more of that this decade, that's great. And like you said, we've known for a long time the massive potential for solar and for wind in Australia. But one thing I wondered about from your presentation. Energy efficiency is an important plank of the whole mix of how we move away from large fossil fuel based emissions, and you mentioned that it was one area where price signals could be ineffective. But I just wondered if you had any reflections on how how to best encourage or promote energy efficiency as part of the story, going from here.

FRANK: Really important question, James, I agree. So a host of different policy approaches that are that are needed and that are proven to be effective – standards for start. There should be a meaningful minimum energy efficiency standards in transport, in the building sector, as well as in appliances and industrial installations. In particular for new investments we're seeing really tragically in Australia still a large share of the housing stock being built to energy efficiency standards that are unnecessarily low, that that are in fact below what is optimal purely from a private perspective without any charges on emissions. So that compromises people's financial position as well as comfort, for example, right? Why is that not happening? Well, I guess, because of an overly strong emphasis on the initial affordability of the house that's being built, right, and the building industry might not like it as well. But absolutely that's what's needed. Also awareness, of course. I think we need to talk about energy efficiency more, and this period of high energy prices is the perfect opportunity for it: what do you do to get energy bills down? Well, leave the energy price up but reduce your consumption. And subsidy schemes I think are also tremendously important, in particular for low income earners, social housing and so forth. I mean, the state of some of our public buildings including schools and of course public housing in terms of energy efficiency is really quite dreadful. And these are very, very obvious opportunities for governments to simply invest for better energy efficiency and also just simply a higher quality of life for people who use these these buildings. And then there's industrial energy efficiency. We will get at that to some extent through the safeguard mechanism because energy use will be will be covered by that, but only for the very large installations, and medium and small sized installations will be untouched by that, unfortunately.

JAMES: OK, thanks Frank, and interesting what you say about maybe there's more upfront cost with house building to improve efficiency but then the running costs are reduced in future. It's a little bit like the EV situation where there's a bigger upfront cost but the costs of running the vehicle are much lower. Thanks. I'll hand back to Catherine and we'll go through some of the questions that have been posed in the Q&A.

CATHERINE: Rght, so here's our first question that's come through on emissions pricing. So in many emissions trading systems, including the NZETS, some units are provided to emitters for free and some emitters are excluded entirely – for example, agriculture hasn't been priced to date, although plans are underway to start pricing from 2025 at the latest. Do you consider that that's justified at this point, given the urgency of fighting climate change, and wouldn't the ETS be more effective if all emitters paid for their emissions in full?

FRANK: Yeah, so this is a quite technical area of the economic mechanism design, and the effectiveness of carbon pricing with relation to whether units are given out for free or not depends on the basis on which units are given out for free. So if I have a factory, right? If i'm being given free emissions units for every tonne of carbon dioxide that I emit, then of course I won't be effective because I'm insulated completely against the carbon price. However, in most schemes where free allocations are made, the link is broken between the actual emissions that I produce and the amount of free permits that I get. And in that case I retain full incentives to reduce my emissions because I can still sell the free permits that I get given by government. And so the question becomes predominantly one of equity and foregone revenue for government rather than the effectiveness of of the scheme. And so for example when you think of emissions pricing for agriculture, I'm aware – I'm certainly not across the detail, but I'm aware in broad lines – that there's a discussion about what sort of compensation payments, or whatever the term might be, might then be made to farming enterprises and of course you know if you make those kinds of payments as a lump sum or provide a lump sum of emissions permits, then you're not compromising effectiveness. What you are compromising, of course, is the amount of money that government can gain from the scheme. And best practice is a scheme where governments sell the permits, at auction or in some other way, and retain the revenue – and then use the revenue either as an inflow to general revenue or earmarked for climate change related activities, because a lot of what we want to do will actually cost public money. And so just to briefly come back to the Australian example, what's planned for the industry sector there is, in effect, full – well, government takes nothing, right? All credit, all these emissions units, are created and traded within the industry sector. It's just one installation selling to the other or buying from the other. Whereas the gold standard system would have government providing these credits and selling these credits and using the revenue for something that's in the public interest.

CATHERINE: Thanks Frank, I’ll pass to James.

JAMES: Oh yeah, thanks. Another interesting question that's come in, and it sort of gets to the heart of international cooperation and collaboration around tackling climate change, I think. The question is: what do you think are the prospects for global carbon pricing initiatives such as the idea of a global levy on fossil fuels and with that revenue being used to address loss and damage globally? Sort of – again, sort of some of the things that are written into the Paris Agreement and so on.

FRANK: Well, I think global carbon pricing and also a global levy on fossil fuels is a very good idea indeed and is extremely hard to pull off. We've written papers on the potential benefits, for example of a levy on coal production, and the benefits are obvious because this will increase the consumer prices of fossil fuels, and thereby create an enhanced incentive to get away from fossil fuels for energy efficiency and substitution into renewables and other energy sources. And it's being paid by the consumer, so it should be attractive from the producers’ point of view. And there's one episode in the world's history where this was done – that's of course OPEC, right, so the oil price would be and would have been a lot lower than what it is if it hadn't been for the catalysation of part of the global oil supply. And that did in fact help in particular with energy efficiency and also some substitution at the time. But these things are of course difficult to organise, and there's all sorts of strategic and political arguments around them. As regards a global carbon price, like a global emissions trading scheme or something like that, that used to be the vision for where things end up: a globally linked system of individual national emissions trading schemes. In the meantime a realisation has set in that most emissions trading schemes are only partially linked or not linked at all internationally. And there's a range of good reasons for that, from fears about my own country doing too much or too little relative to what I want to see there as a policy maker, to doubts about the integrity of emissions accounting systems in other other countries. In the end it's like merging your currencies or something, so you'd need this this happening at a very high standard. I think the the broad view in the community is that we're unlikely to see that happen. However – however –there's a little ‘however’ there with the carbon border adjustment, the border tax plans that the EU has, which could very well catch on in other energy intensive commodity importing countries. That provides tremendous pressure in other countries in exporting countries to put in place climate policy (including through pricing) that has an equivalent price to the importing country. I think we could guess that that will work as a mechanism to incentivise or or to help with the emergence of carbon pricing in individual countries to a similar carbon price level, but not necessarily linked in terms of cross-border trading. That would be my crystal ball here, but we'll see.

JAMES: Thanks a lot, Frank. Back to you, Catherine.

CATHERINE: Well, funnily enough, Frank, my next question was about the likelihood of a carbon border adjustment mechanism being applied to Australian exports. I’m interested to see if – you know, I've been looking at how the European Union has proposed its carbon border adjustment mechanism. Obviously this concept has been under discussion in the US for a long time. The realities of how you implement something like that are very complicated. And I’m just curious to see, is this seen as a credible threat in Australia? And how are people considering this?

FRANK: Yeah, so it's seen as as something that isn't of immediate relevance for Australia, because we simply don't export much commodity that will be part under the carbon border adjustment mechanism. Australian commodity exports of that kind go to areas outside of the EU mostly. Now, from the EU’s point of view this is very tightly defined as something that's linked to the emissions trading scheme. So whatever activities and products are captured by the carbon price in the EU emissions trading scheme are then included in the carbon border adjustment scheme. However, when you extrapolate to the future – and just think ahead, right – then a scheme like that could very easily... or, well, not easily, but could perceivably be implemented also for sectors and products that are not under an importing country's emissions trading scheme or carbon pricing scheme but that are subject to regulation. You could just say, well, EU agriculture for example is under regulatory pressures to reduce carbon, improve local environmental effects, and so forth, and we're going to slap some carbon penalty or some penalty on imports from countries that don't adhere to the same standards. You would then need to make a more arbitrary determination of what that import tariff would be, because you need to calculate the price equivalent of regulatory measures and so forth. But that in itself would also be attractive, because it would allow them the implementation of relatively blanket kind of rules for this, and we might well be back to some sort of, you know, ‘here's a 10% tariff or something on on imports from countries that don't have comparable policy’. And so personally I could see things going in that direction and before too long Australian exports being subject to those kinds of constraints, including agricultural exports in fact.

CATHERINE: Thank you. James.

JAMES: Okay, thanks Catherine, and probably the last question from me. We're getting close to one o'clock. And this relates to what you were saying in your presentation about offsetting and forestry. The question is: given the many issues with carbon credit forests and the vulnerability of forest, the changing vulnerability of forests, to fire and disease as the climate changes – are these types of credit useful? And how else can we fund re-afforestation and ecological restoration?

FRANK: My professional view on these things is very clearly that using a credit scheme like this for avoided land clearing in particular is not the way to go. The problems in determining additionality are overwhelming – and not just additionality, also leakage. So we say we're setting aside a thousand hectares here... what about the thousand hectares next door, and the ten thousand hectares off over the hill, right? Maybe they will be cleared as a result of not clearing my initial 1000 hectares. It just really is not possible in principle and in practice to establish that these are real emission reductions. And soso what should we be doing? We should have a better regulation for land use, and just simply prohibitions for land clearing, or land clearing only under very specific circumstances. Payments to be made by landholders where they want to clear land, for example. And it may well be that then some form of compensation payments may be needed for the taking away of property rights that would be implicit in such regulation, for example. That's political question at the end. But really I see this more or less in the realm of the regulatory rather than in the realm of of market mechanisms.
JAMES: OK, thanks a lot, Frank. I'll hand back to you, Catherine. We're just about out of time.
CATHERINE: Yeah, I think I think we will probably wrap things up there. Thank you so much. I’d just like to acknowledge for the viewers out there, Frank, you had raised some really interesting insights on the challenges of applying emissions pricing to agriculture, and as you mentioned this is a very live issue in New Zealand. Some of the questions that came through from the audience were directed specifically to the Commission and what our views are on the new proposal that came out from He Waka Eke Noa, our primary climate action partnership here. So just to let people know, we're going to be delivering our next piece of advice to government at the end of June on how ready we think farmers are for emissions pricing, and until our advice has been tabled we're not going to provide specific comments on the He Waka Eke Noa proposal. But we're certainly listening carefully to what you shared today, Frank, and I will look forward to having a broader conversation on those issues in the future. So thank you for that. But thank you so much for your time today. I know we gave you an early start to your day in Jakarta, and want to thank you so much for sharing your expertise and time. And Charli, I'll turn over to you.

CHARLI: Yeah, sorry, James, did you have any closing comments?

JAMES: Not really, just to reinforce our thanks, it was a really interesting discussion and presentation, thank you.

FRANK: Well, thank you from me. I really appreciate the opportunity, and I saw that we've had a large audience and thank you to you all actually for being with us for this.

CHARLI: Thank you so much for making time to come and speak to us, Frank, and thanks to Catherine and James for leading the session so well for us, and to everyone who's listened and shared your questions. So enjoy the rest of your day or evening, depending on where you are in the world right now, and i'm just going to hand over to Bevan to close the session for us with the karakia.

BEVAN: Tuia i runga
Tuia i raro
Tuia i roto
Tuia i waho
Tuia te here tangata
Ka rongo te pō
Ka rongo te ao
Haumi e, hui e,
Tāiki e!
So let us connect to the heavens above, let us connect to the earth below, let us connect within, let us connect externally, connect to the essence of humanity, exploring the unknown, realising the potential, uniting as one in this gathering and conscious thought. Thank you

CHARLI: Kia ora everyone.

Prof. Sam Fankhauser: Adaptation and resilience to climate change

27 April 2022

In this session we were joined by Sam Fankhauser (Professor of Climate Economics and Policy at the Smith School of Enterprise and the Environment, University of Oxford) for a conversation exploring climate adaptation and resilience, the link between climate adaptation and mitigation, and the importance of planning now for adaptation. Sam shares insights on how the UK has approached adaptation to date, and what’s important for us here in Aotearoa as we focus on adaptation in the coming years.

video transcript available
CHARLI KEELING: Kia ora koutou and than you for joining us for our first international speaker series of 2022. We are very pleased to welcome Professor Sam Fankhauser for a session on adaptation and resilience to climate change. Ko Charli Keeling ahau. I'm a senior advisor in the communications and engagement team at the Commission and I'll shortly talk us through how the session will run today. But first I'm going to ask Bevan to lead us into the session with a karakia.

BEVAN HUNTER: Ngā mihi ki a tātou, e runga e te pouaka whakaata reo nei. Tēnā koutou katoa. Ngā mihi tino nui ki a koe te kaikōrero o te wā nei ko Sam. Anei he karakia.

He hōnore, he korōria ki te Atua
He maungārongo ki te mata o te ao
He whakaaro pai ki ngā tāngata katoa
Hangā e te Atua he ngākau hou
Ki roto, ki tēnā, ki tēnā o mātou
Whakatōngia to wairua tapu
Hei awhina, hei tohutohu i a mātou
Kia tau te rangimarie ki a tātou katoa
Hau pai mārire

So in English that's greetings to everyone online and a special acknowledgement to you, Sam, our speaker for this evening. All honor and glory to our maker. May peace and tranquility reign throughout the world. Goodwill and thoughts to all mankind. Creator, establish within each of us a wholesome spirit. Let your spiritual being grow within us. Help to guide us. May peace and goodwill be with us all. Kia ora tātou.

CHARLI KEELING: Kia ora Bevan, thank you. So before we kick off I'd like to ask you all to please share your name and the organisation or community you represent into the chat while I'm just taking us through how the session is going to run and let us know where you're joining us from in the world. It's really good for us to see who we've got online for these sessions and who's listening in. So this session will be led by our Commissioners Dr Judy Lawrence and Professor James Renwick. Judy is a climate adaptation expert and a strong thought leader on climate change adaptation. Her expertise is reflected in having been appointed as a coordinating lead author with the Intergovernmental Panel on Climate Change Working Group II, on impacts adaptation and vulnerability. She has developed extensive networks across central and local government and served as an elected member of a regional council. Judy is a multidisciplinary team player set between climate change sites and national litigation and adaptation policy. James is a leading climate scientist with a strong national and international reputation and four decades of experience in weather and climate research. His appointment as a lead author and coordinating lead author on three assessment reports of the Intergovernmental Panel on Climate Change demonstrates his experience. He's been involved in the governance of the World Climate Research Programme for the past eight years and was awarded the 2018 Prime Minister's Prize for Science Communication. So Sam is shortly going to present his work to us and that will be followed by a discussion between Sam, Julie and James. This will be then your opportunity to have your questions answered. You should see a Q&A box at the bottom of the screen where you can type your questions throughout. We'll try and get to as many questions as we can but we're likely to not cover all questions in the session, but please do ask ask away. And if you'd like to speak to each other throughout the session and share your thoughts please use the chat function. It's always good to see your conversations and a good space to share resources. I just want to let you know as well that we are recording this session – so anyone who isn't able to make it that you might know of will be able to watch this on our website shortly afterwards. I think that's enough from me, so I'm going to hand over to Judy now to introduce Sam for us.

JUDY LAWRENCE: Thank you, Charli. Kia ora tātou and welcome everybody, and particularly Sam. Sam is a professor of climate economics and policy at the Smith School of Enterprise and Environment at the University of Oxford, and he's also a Fellow at Reuben College. Before moving to Oxford he was Director of the Grantham Institute, a research institute on climate change and the environment at the London School of Economics, where he remains a visiting professor. Sam has published widely on the economics of adaptation to climate change and was an inaugural member of the UK Climate Change Committee, where he also served on its adaptation subcommittee. So welcome, Sam, and it's a delight to have you here and we're looking forward to hearing what you have to say and having a conversation with you. Over to you.

SAM FANKHAUSER: Thank you Judy for the introduction, and indeed Charli and Bevan for setting up the session so beautifully. And good evening everybody, or good afternoon, what it might be. I see there's people from many time zones in this chat, in this conversation, which is lovely to see. So yes, I'm going to talk a little bit about adaptation and the experience with adaptation in the UK. But before I do that, I just do want to say it's really wonderful to be engaging with the New Zealand commission. I was saying in the pre-chat just before we came on there, and three or four years ago, just before the New Zealand climate change bill became enacted, there was a lot of knowledge exchange between New Zealand decision makers who traveled the world to find out how it's done in other countries. So they they came to the UK as well, and we had a lot of exchange about what might be good practice, and we talked at the time about the importance of independent committees, which play a big role in the UK, and we sort of suggested they were an important thing. We talked about the importance of not just going on about emissions but also worrying about adaptation. So it's nice to see some of these messages embodied and embodied powerfully in a very strong set up, very strong process and the institutions in New Zealand – and indeed very impressive commissioners that have joined this enterprise. So, lovely to be here. That's just great to see some of the early conversations coming into into life, as it were.

But talking about adaptation... let me start with maybe three framing remarks and then move on to some of the implications of those frames to the way adaptation planning and adaptation decision making happens in the UK. And then hopefully we can have a conversation of how this compares with other parts of the world, with New Zealand, and see what we can learn from from each other.

So, three framing remarks. The first one is something that probably doesn't need repeating in this audience, but it's always worth saying – which is that adaptation and emission reductions, net zero and adaptation are complements, the two sides of the same coin. We need them both. There's often a perception that adaptation is about not being serious about emission reductions. There's often a perception that emission reduction comes first, and they get the bigger budgets and they get more attention. All of this in my view is wrong. We have a problem that we have to tackle from all sides. That means we want to deal with the causes of climate change – and that indeed is the emission reductions, that indeed is the drive to net zero – but then we also need to deal with the consequences of climate change, and that is the story of resilience and adaptation. And whatever we do on net zero we will, if we are very lucky, have one and a half degrees of global surface temperature to adapt to. If you're unlucky it will be a lot more than that. So adaptation is unavoidable, as it were. We've seen already what the 1.1 degrees that we already have in the pipeline, we've already seen what that can do and and so it's going to be more than that. And so adaptation, whether we like it or not, is part of what we're going to do for the rest of the century. So my first framing remark again, you will all know that, but not every policy maker always lives up to it, is that adaptation and emission reductions are complements, two sides of the same coin. We should treat them equally.

My second framing remark is is a positive one, I hope, which is the observation that human beings as a species are actually very good at adaptation. We find thriving communities, actually thriving ecosystems as well, in just about every corner of the globe. We find thriving societies communities in hot climates, cold climates, dry climates, wet climates, so as a species we're actually quite good to survive and be successful in most sort of climates that the planet can throw at us. So that's the good news. The sort of slight worry that comes with that is probably twofold. One is the sort of path dependence in that adaptation. The fact that we are good in lots of climate is the the result of centuries' worth of learning, adapting, cultural behavioral habits, some technology but a lot of ingrained cultural sort of behaviors that that we have learned to adopt. And changing those is not quite as easy as it might sound, so there's a lot of sort of ingrained lock-in, as it were, in terms of how we deal with the climate that we currently live in. So we are good in a lot of climates but the moving from the one we are used to, to a new one, it may not be quite straightforward. Partly also because we're not quite sure what exactly the new climate will look like. So that's my second framing remark: we are good as a species at the adapting to various climates, but what we have to adapt to now may be more difficult, and we will have less experience, less of a record to deal with, so adaptation is difficult even though we are good at it as a species.

My third framing remark – and I will dwell on this one perhaps a little bit longer – is that adaptation has quite good economic returns. Adaptation makes sense if you think of it in benefit-cost terms. If you sort of look at the cost of adaptation actions and you compared them with the rewards of adaptation action, you find out that adaptation really is a very powerful, very important thing to do... which goes back to the observation that we should treat emission reductions and adaptation as equal strategies. Let me just give you maybe one concrete example from the UK. It's a couple of years ago when I was on the adaptation subcommittee, as it was then called. Incidentally that's another sort of subtle hint of how people don't understand the equivalence – it was a subcommittee. It is now a proper committee but when I was on it, it was a subcommittee. And the research looked at flood protection in the UK, just some of the headline numbers of people, households, dwellings at risk from substantial flooding, substantial flood risk. And in the mid 2000s I think it was just over 300,000 dwellings that were at substantial risk of flooding in the UK– that was defined as I think one in 75 year risk of flooding. So about 300-330,000 households fell into that risk category. We then imposed an average, if you will, a sort of a median climate change scenario on top of that, and we found out that climate change by the mid 2030s – so in about 15 years from now – would double the number of risks or the number of of dwellings at the substantial risk from flooding. Instead of the 330 it became 610,000 dwellings at risk from flooding, so a doubling if you will of risk. If you then start to factor in adaptation, and we started off by the sort of more community-led adaptation strategies, the sort of community municipal level flood defence systems, the public good that are provided by the state and the early warning regimes and those sorts of community level interventions. And if you do that we calculated that you can more or less accept the impact of climate change. So we are back in a sense to the about 300,000 dwellings that are still at risk from flooding. So adaptation can in a sense offset the early phases of climate change. That was sort of our finding back a couple of years ago. But that wasn't everything. Because if you then, in addition to the community level defenses, also factor in property level protection – so that the sort of things that the individuals can do to their own homes to protect their own homes against flooding – and we figured out that instead of doubling the overall risk you can actually cut the risk in half. So of the 300,000 dwellings left you can protect another 200,000 or so through property level flood defenses. So that sort of shows you a little bit the power of adaptation in a very specific example. If you don't do anything the number of houses in the UK at risk of substantial flooding will double. If we do efficient and smart adaptation we can instead cut the number of dwellings at risk by half. And the net present value of the whole exercise was something like £200 billion. So that's just one example of the power of adaptation. To give you a few more, without going into the same detail, a few more sort of headline numbers... There's a literature out there now that calculates the benefit-cost ratio of various adaptation measures, and they come with a bit of a health warning because adaptation is unbelievably place based, unbelievably context specific, so no two benefit-cost ratios will be the same, but you can get a sense of what is possible. And if you look at that table of benefit-cost ratios just for coastal flooding for example, you find soft defenses of benefit-cost ratios of over 100 to 1. So the benefits are 100 times the cost. Even hard defenses sort of have benefits of 40 to 1. Relocation is the last resort in many ways, but even relocation in the right sort of context has benefit-cost ratios of, I think, two to one or something like that. So if you look at these numbers, you see the economic benefit, the economic power of adaptation in preventing some of the worst impacts of climate change. Now that doesn't mean anything goes and whatever you do will be smart. You you do have to do very careful project appraisal, very careful analysis, very careful scoping engagement activities, to make sure that you actually fine-tune your adaptation measures in the right way. But if you do do that, you can have very good economic returns. This is a health warning to those benefit cost ratios. In addition to being site specific, climate change is also very uncertain. So the simple benefit cost analysis is probably not necessarily what you want to do in a project appraisal. You want to factor in the fact that there's uncertainty and you want to factor in, 'do we adapt to one and a half degrees? do we adapt to two degrees? do we have to adapt to three degrees?' All those sorts of strategies, you want to factor in. You want to factor in that you may understand the global climate but not necessarily the local manifestations of that climate. So all that makes simple benefit cost ratio a bit too simplistic. But they can tell you, as I just tried to do, they can tell you the overall picture of just how powerful adaptation can be.

So those were my framing remarks, the three remarks. First, I said that adaptation and net zero are two sides of the same coin – treat them the same way. Second, people are very good at adapting, but what we have to adapt to now is slightly different or quite fundamentally different from what we had to adapt to in the past, and so adaptation is a big challenge despite us being good at it. And then the third framing remark was the economic benefits, the benefit cost ratios of doing adaptation well, are very very high. Let me now translate those three remarks – and I realise I have to speed up a little bit here – let me translate those three remarks into how has the UK translated those insights into an adaptation, planning and execution machinery. And I think some of the structures that I'm going to describe will be quite familiar to the people the listeners in New Zealand because they're not dissimilar to what you have adopted as well.

The key sort of plank of adaptation strategy – and I should say all this is enshrined in law, all these provisions are legislated in the Climate Change Act, the Climate Change Act of 2008 in the UK, and that law prescribes a sort of an iterative, continual adaptation process. It's sort of a five-year cycle, which speaks to the need to learn and find out what exactly we are adapting to and the continual need to adapt. So that five-year cycle kicks off with a climate change risk assessment. That's a very systematic view of the country to ask what are the main climate risks. That is then followed by a national adaptation programme, where the government in a sense responds to that risk profile and sets out how it wants to deal with those risks and reduce those risks. That process, the risk assessment and the national adaptation programme, is being monitored by an independent committee, the adaptation committee, which is part of the Climate Change Committee – so there's an independent level of scrutiny and analysis and guidance and advice that comes with it. The fourth element is called adaptation reporting, which is an obligation... the climate change risk assessments are at the national level, then there's an obligation for certain companies in the country (basically government regulated or government owned companies, so the utilities and and so on, and the regulated industries in the financial sector) to provide an adaptation assessment as well – which many thought of and still think of as a tick box exercise. But it is actually an opportunity for companies to engage with the issue and think, what is my own vulnerability as a company what do I do about it? So that's the package that you do in an initial instance, and then five years later you repeat the exercise again. You do another climate change risk assessment, which sort of looks at how climate has changed, how the national adaptation plan has been implemented, and where the risks have changed or not, and so you do that continually in a five-year cycle. So that's sort of the rhythm that we have.

Let me just say one quick word about the climate change risk assessment, so the first one in in in in those activities that we do every five years. The climate change risk assessments, we just finished the third one – so CCRA 3, as it is known. Everything has to have an acronym. CCRI 3 looked at the risks. It was published last – no, it was published earlier this year but essentially carried out last year. And I just want to point you to the methodology that has been adopted in it, because I think it's something that's worth comparing notes over and see how it compares to the way you do things. So it asks three questions to assess what the risk profile is. The first question is just an assessment of the hazard: is something a big or a small problem for the UK? Flooding is a big problem. Wildfires so far are perhaps less of a big problem. So you go through the hazards and decide which ones are the ones that the country really needs to focus on, which ones are the scarier ones. The second question that is then being asked is: are any of those assets already being addressed in an autonomous way? That's the second question that is being asked, and that speaks to the observation that it doesn't necessarily have to be the government that does the adaptation. There's a lot of adaptation that is being done by individuals, and potentially being done fairly well by individuals, and so you have to find that balance between the role of government and the role of individuals. So that's the second question that is being asked. And the third question that the CCRA asks is: is dealing with a particular hazard urgent or can it wait? If adaptation is something that we're going to do for the next 80, 100 plus years, it's like running a marathon – you have to not do everything at once, you do certain things now, you do certain things later. And that begs the question: what you do now, what's urgent now, and what can wait for later. And there's certain logic to it that tells you what probably should be done earlier, and that's the last thing I'm going to to say, and then open it up for questions. And that logic goes back to – if you think about the net present value of an adaptation action, if you simplify the world, net present value is... you have initial costs, you invest you build a seawall that costs you something, and then you have a stream of benefits. Some of those benefits happen fairly early on, and some of those benefits happen in the future. And so you then have three components that you look at that decide whether you want to do something early or late. The first question you ask is: does delaying change the cost profile, or does doing something early change the cost profile is probably a better way of asking the question. And that gives you a number of adaptations you want to do now, because if you do them now they are cheaper – if you delay them you lock in some expensive, high vulnerability profile [adaptations]. Infrastructure is a good example. The cheapest way to make infrastructure climate resilient is to design it while you build it, design it in a climate resilient way. Once it's built, once the bridge is built, once the house is in the floodplain, it becomes much more difficult, much more expensive to deal with it. So that's the first urgency test. The second urgency test is the short-term benefits: if we do something early, does it yield immediate benefits that we would miss if we delay the action? And the answer is yes, there are a lot of win-win options out there, things you want to do because they immediately pay, and why would you delay those those benefits, you know? Ecosystem protection falls into that category, sustainable urban drainage falls into that category. Those are things that immediately start protecting you against climate hazards, so why would you delay the action? And the third urgency test is about the long-term benefits: if we take early action, does that improve the long-term benefits that we might have? And the answer is yes, often it does again, because certain adaptation actions have long lead times. It takes a while to ramp up, to learn, to develop. Research and development falls into that category. If you want heat resistant, drought resistant crops in 2040, chances are you have to start doing your research and development now, not in 2039. So that gives you three reasons that are then fed into an urgency score in the climate change risk assessment. And the climate change risk assessment again, as I said, paints the profile and it's then fed in, sent back to the government as it were, and the government then responds with a climate change national adaptation program.

So that's the process we have in the UK. My assessment is it works well as a process. It's well established now, people know what they have to do, so it works very well. Let me finish with one caveat, though, which is: there's a difference between good adaptation planning – being good at talking about adaptation and understanding the problem – it's not the same thing as doing something about it. And in the UK I think we are reasonably good at having an adaptation process and talk about it and plan for it, but we're not necessarily good about taking the actions that you then follow. But that's (a) probably not a problem that's unique to the UK and (b) it's not a problem that's unique to adaptation. We tell exactly the same story when it comes to net zero. But it is one of the big problems that we now have. We understand the problem, whether it's emissions or adaptation. It's now the political will, the implementation power that we need. So let me stop here. And I'm curious as to your reactions, your comments, your corrections. your insights. Thank you.

JUDY LAWRENCE: Thank you very much, Sam,, that was very insightful, and I'm pleased that you finished on the conclusion of Working Group II of the IPCC [laughs]. And it's a global issue and it has global impacts.

I've got a couple of questions, one following up from what you've just said and one that I'd like you just to comment on quickly before we go into the question James will have. I noticed that, with respect to flooding, that you talked about adaptation – that these costs will work out worked out in terms of the early stages, and I'm interested to hear that your urgency criteria did not include potential for lock-in. And I'm just wondering if you could comment on that. That's the first question. The second really is that in New Zealand – and we've got a number of people here from local government – is that a lot of the adaptation to the rainfall hazards, the sea level rise hazards, and some of those physical hazards, as distinct perhaps from changes in temperature and issues such as health and our natural systems and how they respond... But these hazards that you have talked about are largely adapted to at a local level in New Zealand, and we're interested to know how the UK climate committee or Climate Commission has really dealt with this engagement and linkage with the local governance, if you like, which requires in (our country anyway) a high level engagement, because they're elected people and they're there representing the public. And we're interested to see how the how the UK has dealt with that that situation. Now I know your governance situation is somewhat different because there's more central government direction and regulation. So if you could cast your mind to our Kiwi situation and make some comment on how you've dealt with that issue, for both the risk assessment and for adaptation planning.

SAM FANKHAUSER: Right, yeah, thank you Judy, two very good questions. On the lock-in and the flood defense, you're absolutely right that there's a lock-in issue there. I would say, mentally it was for me in the bucket of making location decisions, siting decisions, where do you want to build your houses, where do you want to build your your factories. That's the bit that locks you in. But you're absolutely right, that decision is being influenced by the availability or the absence of flood defences, and if an area is protected you will build behind it as it were, and that then locks you in. And that creates a sort of continual responsibility to maintain that protection. You build a flood defence team, a dwelling appears behind it, and that means you have to keep up that flat defense ever after, otherwise you have the damage. And that's absolutely correct, that is one of the early, for me one of the tests of things you want to do early is think that dynamic through. If I protect an area it sort of means I have to protect it forever because people will respond to the protection. That's absolutely true. Well, incidentally that's not necessarily an irrational outcome. London is, you know, in a flood plain basically and if it wasn't for the Thames barrier London would be flooded quite regularly, and that's something that's pretty much locked in – but this isn't a scenario where you would try to undo that protection and move London upstream, as it were, that's just not on the cards. So certain certain things are, you know... sometimes it's rational to build in a floodplain because locationally that's where you want to be. The Chinese example I often use, the Chinese development strategy was to build along the coast. It was an expert-oriented, outward-looking growth strategy, which meant you want to have your economic activities en route to markets on the coastline near the ports. That was very rational, but obviously that increases your exposure, but that just means you have to deal with it through protection, but it was still not an unreasonable growth strategy.

So that was your lock-in question. Then the local level question is a very good observation. I grew up in Switzerland, and Switzerland is the country that has thought decentralisation to its logical conclusion, that everything is decentralised. So I'm probably allowed to say then – or maybe I'm not, but I'm saying it anyway: the UK isn't very good at decentralisation. It's a very haphazard, not well thought through process where the local authorities, local councils, have very little power and where they have the power they don't have the budget to deal with it. So it's not a pretty situation and that's true with climate change as well, and within climate change it's true for adaptation. There's an element of devolved responsibility at the level of the devolved nation, so Scotland, Wales and Northern Ireland have their own national adaptation programmes. The CCRA, the climate change risk assessment, does have devolved chapters as it were, so there's the climate change risk story for Northern Ireland, Wales, Scotland and England. So that level of analysis is there. But the true honest decentralisation, where you give the Mayor of London or the Mayor of Manchester power over adaptation decisions, that isn't really formalised. London happens to have quite a good local adaptation community run through the council but it isn't formalised, it isn't structured, and a lot more could be done – bearing in mind that a lot of the decisions are logically at the national, or sorry at the local level.

JUDY LAWRENCE: Thanks, Sam. I think James has a question that probably follows on from that quite nicely. James?

JAMES RENWICK: Thanks, Judy, absolutely right, and thank you very much, Sam. Really fascinating stuff and great to hear how well things are working with the committee in the UK, and you're already on the third climate change risk assessment document and so on. It was really interesting to hear that it's well understood how the process works in the UK. But you did say that it's one thing to talk about adaptation actions and planning, it's another thing to actually do it. And I've been wondering while you've been talking to Judy about some of the local engagement and local community action. And you know, you've got a community, you've got local government, you've got central government, and plenty of moving parts. Are there any examples in the UK where adaptation action has been taken and it's worked well? Some of the conversations you have around these things like managed retreat or changing infrastructure are hard conversations to have, and I'm just interested if you've got any reflections on how you approach that and whether there have been any successes you could point to already.

SAM FANKHAUSER: Yeah, that's a good question. I wish there was sort of an inventory where we could point to. The local councils and the local authorities do take climate change very seriously. Two thirds or three quarters have declared a climate emergency and their focus is on on net zero and emission reductions, and we talked to some of them to point out that adaptation should be part of it. London is a good example where that's starting to happen. And a lot of it is sort of participatory actions, you know, awareness raising, talking to community groups, talking to local businesses and raising awareness and doing things that way... which isn't necessarily a bad thing, as it happens. Going back to those benefit cost ratios that I mentioned at some point, there's some examples of benefit cost ratios of community awareness and community preparedness, and they're actually pretty good when it comes to things like flash floods, fluvial and flooding. Just having alert communities, well-functioning communities that can kick into action is a very powerful thing because these things are hard to predict so you can't sort of build your way out of trouble very easily and so you need the nimbleness in the community.

JAMES RENWICK: Yeah, I agree, and good communication is always vital, making sure everyone has the right information.

JUDY LAWRENCE: Sam, I think we'll move on to some of the questions that are coming through, but I just wanted to address the audience. Firstly, there are no slides, and secondly this is an adaptation conversation, and there is some information that Karen has posted in the chat where you can get more information. So I just thought I'd cover that off for those who came before the early part. But there's a question here about how adaptation costs might be shared across government, local councils, companies, insurers, individuals and others, and what the criteria might be for deciding cost sharing. And how should we make those decisions when there are competing interests for available funds? Would you like to venture something in that context?

SAM FANKHAUSER: Yeah, I'm not sure I can give you the crystal clear, silver bullet answer on that one, but let me give you a few pointers maybe. And one is that adaptation – unlike emission reductions, adaptation is much more likely to be in your self-interest. You don't have that sort of public good element. Property level flood protection is in people's interests. If you can protect yourself against flooding, why wouldn't you do it? I was once in a conversation about adaptation sitting up in my office, and I saw the flood water coming from the road and I had to interrupt my presentation. Ran down, put the sandbags out, and came back and continued talking. And that was bizarre for the audience, I suspect it was, but in my self-interest. I didn't need external help to do that. So there's a lot of things that people will just do because it makes sense doing it. But there are public good aspects to it, like the community flood defences, the London Thames barrier for example, that's a community level thing. So those would be shared by the community. You can probably raise that money if you want through local taxation. You could differentiate it by risk profile if you wanted to do that. I'm not aware of anybody doing that, but but you could. And that gives you a bit of an incentive to locate yourself in the right position. So that's the efficiency story of it. There's an equity fairness story to it as well, and a lot of households can't afford those sorts of insurance premia, and the unfairness of the world is such that poor households tend to live in the high risk areas and the rich people move somewhere safe. So you have to – for equity and fairness reasons, you have to have schemes that protect low-income households. In the UK we have something called Flood Re, which is a reinsurance team where the high-risk properties that might not get insurance anymore can be reinsured through a government, or an industry-level scheme. So these things have a big role to play as well for fairness reasons.

JUDY LAWRENCE: OK, thanks Sam. We have another question here about how widely net present value assessments are used in regional or national level adaptation strategies in the UK.

SAM FANKHAUSER: Yeah, they're being used. What we tend to tell people is: don't do plain vanilla benefit cost analysis because that's too simple. What you should do instead is yourself for a scenario, a range of possible outcomes, so prepare yourself for not just 1.5 degrees but be prepared potentially for 3 degrees. That doesn't mean you build the seawall for the 3 degrees scenario, but you build it in a way that you can adapt as you go along iteratively, if that is the scenario we end up in. So it isn't so much benefit cost analysis as decision-making under uncertainty, which is being promoted in the UK. Public decision making is governed by a rule book that is owned by the Treasury. That rulebook is called the Green Book, and in the Green Book it gives you instructions on, you know, if you build an infrastructure project, if you build a High Speed 2 railway up north, it sort of tells you how to deal with climate change risks in that context. It's a good question whether these instructions are being followed to the letter. They're taken seriously but I'm sure there's room for improvement.

JUDY LAWRENCE: James.

JAMES RENWICK: Yes, thanks again, Judy. We're getting a lot of very interesting questions coming through. I've got a couple in front of me here. You've talked about benefits from adaptation. When you when you say benefits do you mean economic benefits, money, business profits – or avoidance of loss or damage, I guess, to people who are threatened – or are you talking about both?

SAM FANKHAUSER: That's a good point. I think the benefit cost ratios are all about avoided losses, avoided damages, and that's quite a narrow mindset as it were. But in a sense it's good enough. If you get a 40 to 1 benefit cost ratio without having counted all the benefits, you don't need more information to make your decision. But you're absolutely right, there will be benefits that are intangible. Flood protection isn't all about avoided property damage, it's about the psychology, the stress, the upheaval and the human side of it, which is probably much bigger than the physical damage. And then there is probably the business opportunity as well in having climate resilient solutions that will be demanded in the market and can be somebody's... you know, 'my cost is your income,' sort of thing. So there is a business opportunity there to make a country resilient in terms of advisory services, consulting services, early warning systems, and better suited crops. There's a whole adaptation industry that you can imagine and that is starting to to happen.

JAMES RENWICK:. Yeah. Yeah. Thanks. And I've got one other one, it's a short question but it's maybe not so easy to answer. What's the single most important investment that we need to make in the next two years? And when when we say 'we' I suppose I'm thinking here in New Zealand, but you could consider 'we' to be the UK. Is there a single thing you think we should be looking at doing in the next couple of years that will give us the best bang for our buck?

SAM FANKHAUSER: That is a really good question and probably impossible to answer for all the reasons we said before, that adaptation is such a location specific thing and what makes sense in Oxford will not make sense in Scotland, and what makes sense in the UK... might actually make sense in New Zealand, because I think our profiles are not dissimilar – but it won't make sense in Australia, it won't make sense in Pakistan. So you have to be quite site specific. So let me try to find something that's generic. And the two generic things that we could roll out more is adaptation finance, so make sure we have a financial system that can pay for some of those things in a fair and efficient way, and so that's number one. Number two: some of the planning we talked about, that could be rolled out in more jurisdictions as Judy said. Maybe it should happen at the local level as well as the national level. So putting adaptation decisions into more decentralised decision-making – companies, local authorities, in lots of countries, in a lot of contexts, that sort of awareness. So if we do those two, awareness at the local level, planning at the local level, and finance, that will probably move us forward. If I talk long enough I'll find the answer.

JUDY LAWRENCE: [laughs]

SAM RENWICK: I'm sure.

JUDY LAWRENCE: OK, I've got another curly one here, Sam. In New Zealand we're seeing more and more extreme weather events, and that is too little rain and too much rain, and significant damage, landscape collapse, a number of different types of impacts. And the way we deal with it is to respond, put back where we were, and move on. And we're interested to know how the UK risk assessment measures or assesses the economic vulnerability of people, communities and the social vulnerability that is at stake. And that includes food, health, security. Is the local community preparedness part of the measure of the risk?

SAM FANKHAUSER: First of all, it's a good observation about the human tendency to, after the flood, build it back in the same way... which is slightly wrong but I guess the human tendency, you know, the politician who sort of comes up and stands there in the middle of the damage and says, 'I guarantee you I will build it for you exactly the way it was.' That's a good sound bite, but it's probably bad adaptation if you want to build it in a way that is more resilient for the next shock. I mean that bit is absolutely true. How is risk and the vulnerability of communities being measured? It's work in progress. A lot of the indicators that we have are quite aggregated and one of the challenges that we have is to make that more granular, to have vulnerability indicators by geolocation for example. And that's starting to happen with flood maps and so on. You have you have to have vulnerability indicators for individual companies, for example, and big companies tend to be prepared than small companies. We don't know quite as much about that, and what I just said may well be wrong once you start looking. And so that more granularity is still missing, but the safety indicators tend to be – they look at the quality of a plan, they look at evidence of action, of vulnerability reduction adaptation actions, and they it structured by sectors and functions, so if you're interested in what happens to business, what happens to the health service, what happens to infrastructure, rather than, you know, 'are we good at overheating? are we good at flooding? are we good at drought?' So we structure it that way.

JUDY LAWRENCE: Which leads on to another related question, which is whether or not the risk assessment process in the UK address is what we call transition risk.

SAM FANKHAUSER: Yes, by transition risk I assume you mean that the net zero side of the story, so the risk of stranded assets, of having the high carbon risk to to the economy.

JUDY LAWRENCE: Yes, the adjustment to a different system that could deal with risk in a more effective way, yeah.

SAM FANKHAUSER: Right. There's an increased awareness of linking mitigation and adaptation. The overlaps for example on land use are strong, not just between emissions and adaptation but also between adaptation and the natural environment. Peat protection for example is is something that ticks a lot of boxes: it's good adaptation, it's good mitigation because of carbon storage and it's good environmental protection. So we're starting to understand some of those overlaps a bit more. Buildings is the other area where it often happens – energy efficiency versus overheating, you have sort of certain trade-offs there. So that's starting to happen more institutionally. It's starting to happen by probably copying what you're doing. And we have two separate committees, an adaptation one and a mitigation one, and they're starting to talk to each other a little bit more. You've, I gather, gone the whole way and have one committee that does both, which is probably where you want to end up. But at the moment we have two committees that at least start talking to each other.

JUDY LAWRENCE: OK, James, have you got a question?

JAMES RENWICK: I have another question. I think we we might be getting down to the last one or two. But yeah, another question, in relation to what you were talking about before, Sam, about how you triage or prioritise the urgency of actions, you know, what to do next. One of the one of the audience members has asked: how well are these urgency tests influencing adaptation investment decisions? is this thinking taken on board in the community?

SAM FANKHAUSER: Yeah, I think the business community still has a lot of learning to do on on adaptation. You could conceptually apply the same logic, the same logic would apply to business decisions. If as a business I decide where I want to put my distribution centre and my warehouse, I can think in the same urgency score: do I want to protect it, now do I need to do it later, do I have early win wins? And so the logic would carry over. I don't think the business community is quite this... adaptation isn't quite as routine as it has become for the national government/ There's a chapter on business risks and business preparedness in the CCRA and there's a lot of evidence in it, but it is also feels a bit anecdotal, you know, it's an accumulation of anecdotal information and some businesses are better than others. Water companies, insurance companies by the nature of their business are up there, but a lot of others still have a way to go on these things.

JAMES RENWICK: Yeah, I guess just the level of requirement on different businesses are different in different locations. Right, I think I'll squeeze in one more question and then we'll wrap up. It follows on, really. There's been a bit of talk in the chat and someone mentioned how risk assessments can cause communities to want to put their head in the sand, e.g. flood zones or coastal inundation zones on residential maps, and one way to respond to that is to pretend that's not happening, I suppose. What are some ways to combat this, and how do we bring communities along on this journey where we see change in hazards and we need to take a response – how do we get into that engagement in a positive way?

SAM FANKHAUSER: Yeah, it's a good question. I imagine there's an element of gaming. It's not so much head in the sand. Maybe there's a bit of that. But there's also an element of gaming, as in who is going to pay for the flood protection. You know, an inclination, 'if I wait long enough the state will pay for'. The other scenario where there are clear tensions is on managed retreat, as we call it, which is relocation. And there's a reason why it's called management retreat and not relocation, and that's because it's a politically very sensitive, difficult thing to do. How do you decide whom you protect, whom you don't protect? You, now, that's politics. You can have an economic answer to it in terms of the value of the assets but that's only a small part of the answer. It's politics. And how do you compensate the people you move? So those are difficult decisions. And it does need more engagement, it does need more participation. But adaptation lends itself to participatory –

JAMES RENWICK: Yeah.

SAM FANKHAUSER: – just because it's very tangible. People know exactly, in a sense, they feel the risks and they can express their risk appetite. Participation is both needed and probably easier to do than in some areas.

JUDY LAWRENCE: Well, that's probably a good good spot to to conclude, Sam, and to thank you very much for a very wide ranging set of comments and insights – and very helpful for us. Today the national adaptation draft plan was put out for public consultation and it has a very large section on managed retreat where the public are invited to comment on some of the questions we've asked you tonight, about who pays and how do you share the burden and so forth. So it's been a very auspicious day for New Zealand to have you here as well, and we'd like to thank you very much for your time and for sharing your experiences. Kia ora tātou, and hand back to Charli. Thank you.

CHARLI KEELING: Yes, I echo Judy's comments. Thank you so much for joining us, Sam. It's been really fantastic to hear from you and I just want to say thank you as well to Judy and James for leading the session for us so seamlessly. And to all of you that have been listening in and have shared your questions, it's been really great to see some of the conversation in the chat. So enjoy the rest of your day or evening, depending on where you are, and I'm just going to hand over to Bevan to close the session for us with a karakia.

BEVAN HUNTER: Tuia i runga. Tuia i raro. Tuia i roto. Tuia i waho. Tuia i te here tāngata. Ka rongo te po, ka rongo te ao. Haumi e, hui e, taiki e.

For those of us who speak English: let us connect to the heavens above. Let us connect to the earth below. Let us connect within. Let us connect externally. Connect to the essence of humanity. Exploring the unknown. Realising the potential. Uniting as one in this gathering and conscious thought. So thanks again everyone tuning in from all around the world. Good evening or good morning wherever you are. Kia ora tātou.

CHARLI KEELING: Thank you everyone.