The Dim-Post

October 19, 2015

The opportunity cost of free trade myopia

Filed under: Uncategorized — danylmc @ 9:20 am

Via the Herald:

The ink is barely dry on the TPP and New Zealand has the prospect of another giant free trade deal in the offing with the European Union taking the first steps towards an FTA with New Zealand.

It was announced early this morning that the EU Commission will seek to negotiate separate FTAs with both New Zealand and Australia as part of its trade strategy for the next four years.

The caveat is that talks will take in account “EU agricultural sensitivities.”

The announcement is the culmination of years of effort on the part of New Zealand to improve trade conditions in what is a market of 500 million consumers.

One thing we should have learned from the TPP is that we’re entering a period of diminishing returns from free trade deals. But there’s also an opportunity cost here. While all of our diplomats are trying to negotiate lower dairy tariffs to grow our economy they’re not doing anything about climate change, which is a major economic challenge that requires a diplomatic solution.

Droughts and extreme weather events are expensive things. The 2008 drought cost the country about $2.8 billion in one year (the TPPA is supposed to bring in $2 billion over ten years). To avoid entering a period of catastrophic droughts and storms we have to agree on a global reduction of carbon emissions. So that’s something need to be negotiated between states. Y’know – diplomatically. It is so, so stupid that we have all of these diplomats running around trying to eke out trivial gains from trade agreements while ignoring this massive looming crisis that is going to devastate our economy.

39 Comments »

  1. Addressing Climate change requires international agreements – in effect, its a form of trade agreements. Good luck.

    Comment by WH — October 19, 2015 @ 9:32 am

  2. In bilateral negotiations between NZ and the EU – the world’s largest trading bloc – I would say NZ’s leverage to demand even extremely marginal environmental concessions from the EU is functionally zero.

    Comment by kalvarnsen — October 19, 2015 @ 9:49 am

  3. > Addressing Climate change requires international agreements – in effect, its a form of trade agreements. Good luck.

    Not true. It requires governments to put effective policy in place to mitigate climate change in their respective countries. The international agreements are just to try to coerce governments into doing what they already should be doing. Economists might moan about the free rider problem, but the reality is, at the country-level, there are few who can really gain much by free-riding. (It’s a different story at the individual level).

    I’m not saying international agreements aren’t worthwhile, but they’re not required. And, in fact, we’re not going to get anywhere with international agreements until most governments are already prepared to take the necessary measures. Then international agreements will just be an exercise in mopping up the hold outs.

    Comment by Sam.C — October 19, 2015 @ 9:56 am

  4. In bilateral negotiations between NZ and the EU – the world’s largest trading bloc – I would say NZ’s leverage to demand even extremely marginal environmental concessions from the EU is functionally zero.

    Why is it any different to economic concession? What makes you have leverage for one, but not the other?

    Comment by eszett — October 19, 2015 @ 10:12 am

  5. As far as I can tell international diplomacy on climate change has continued right through out the TPP process.

    Whatever the difficulties with those negotiations, they have nothing to do with the TPP.

    I haven’t heard anything from the various climate change negotiations about how if it wasn’t for that damn TPP there’d be international agreement on carbon emissions.

    Comment by NeilM — October 19, 2015 @ 10:26 am

  6. “The caveat is that talks will take in account “EU agricultural sensitivities.””

    The other caveat is that EU environmental standards would apply to NZ, which the oil and farming lobbies won’t much like.

    Comment by Kumara Republic (@kumararepublic) — October 19, 2015 @ 11:02 am

  7. There’s a lot you haven’t heard about, NeilM, and no doubt there is a literal truth to what you say. Inferentially we might assume Danyl’s correct, and more time and money has been pushed towards trade issues than has been towards climate issues before the Paris event.
    A simple google search produces as its first hit an item from Stuff:

    ‘Despite being one of the wealthiest countries in the Pacific Islands Forum and development partner to many island countries, New Zealand continues to take as little action to address climate change as possible. It has called itself a ‘fast follower’ in climate change negotiations. Put another way, we will do what little we must to avoid appearing complacent. Unfortunately we’re even failing at that miserly standard. The government’s recent emissions reduction target of 11% below 1990 levels by 2030 has been panned as shameful and if tricky accounting rules are used, might represent little more than business as usual. What’s worse is that there isn’t even a plan to achieve any reductions – good intentions alone won’t stop emissions from continuing to rise as they are currently projected to do.’There
    http://www.stuff.co.nz/dominion-post/comment/71656699/New-Zealand-should-take-lead-on-climate-change-in-the-Pacific

    Wouldn’t want to rock the boat of your fan-boy defensiveness, but climate is important, you know.

    Comment by paritutu — October 19, 2015 @ 11:20 am

  8. Groser, MFAT/MfE staff are working on the climate change treaty, but I get what you’re saying: it is hardly being given attention compared to the TPP. I’m not sure if that’s Groser’s fault though. I’d point the finger at the media, and public ignorance and/or laziness.

    “The other caveat is that EU environmental standards would apply to NZ, which the oil and farming lobbies won’t much like.”

    That’s a good point. The EU emission reductions target is far more challenging than NZ’s. I can imagine any free trade treaty the EU will sign with NZ will require NZ to do far more to reduce emissions.

    If Clinton wins the presidency, NZ will feel far more pressure to come up with a serious climate change policy.

    I guess the key point is NZ (at least under the current government) isn’t going to do buggar all on climate change until a major power twists their arm.

    Comment by Seb Rattansen — October 19, 2015 @ 11:22 am

  9. “It is so, so stupid that we have all of these diplomats running around trying to eke out trivial gains from trade agreements while ignoring this massive looming crisis that is going to devastate our economy.”

    Maybe from New Zealand’s current perspective, but I don’t see why they can’t necessarily be joined, either. Especially when methods of addressing climate change are so tied to the ways a country’s able to produce, the EU’s 20% target by 2020 arguably doesn’t compare with NZ’s 5% target by 2020.

    If the EU wanted a fairer playing field for its own then I’d have thought its diplomats would seek to place some genuine restrictions on climate change targets for a country like New Zealand when it conducts its agriculture which are similar to its own, complete with trade penalties if not met and which can’t be ignored. Ie. Force NZ to be part of the whole global community, aiming to make an actual difference by taking part in exchange for trade benefits, instead of letting it simply say “we’re too small to make a significant difference compared with the rest of the world — now buy our intensively produced meat and dairy”.

    Comment by izogi — October 19, 2015 @ 12:12 pm

  10. “I can imagine any free trade treaty the EU will sign with NZ will require NZ to do far more to reduce emissions.”

    A great argument for NZ to enter trade negotiations with the EU, no?

    Also, is the estimate of the drought costs a net one? In 2013 after another drought I attended a briefing by a bank economist – Westpac, I think, in which he said that the latest drought had cut dairy production by 7% but, because NZ is such a large part of the global dairy trade, the international price for milk powder had risen by 10%.

    Comment by Tinakori — October 19, 2015 @ 12:48 pm

  11. One could make the argument that the TPP negotiations could facilitate more effective international negotiations on climate change.

    We’ve just seen countries with different agendas reach a difficult compromise. Sound familiar. Possibly that experience amongst all those many negotiators might mean something in terms of understanding and trust.

    I find amusing the idea that Groser could’ve saved the planet.

    Comment by NeilM — October 19, 2015 @ 1:44 pm

  12. Tinakori: “A great argument for NZ to enter trade negotiations with the EU, no?”

    It’d be ironic if those who cheer-led the TPPA strongly resisted any attempt by the EU to lecture them on environmental standards.

    Comment by Kumara Republic (@kumararepublic) — October 19, 2015 @ 1:57 pm

  13. “It’d be ironic if those who cheer-led the TPPA strongly resisted any attempt by the EU to lecture them on environmental standards”

    And for those who hated the TPPA to support a trade agreement with the EU on environmental grounds, no?

    Comment by Tinakori — October 19, 2015 @ 2:24 pm

  14. If Clinton wins the presidency, NZ will feel far more pressure to come up with a serious climate change policy.

    How do yo figure this, Seb?

    Comment by Gregor W — October 19, 2015 @ 3:11 pm

  15. “Why is it any different to economic concession?”

    The overarching question in any negotiation between states, on any subject, is always ‘how much will this concession cost me’? Even the most minimal, even tokenist tightening of existing EU environmental standards, when applied across all EU members – say a 0.1% lowering of emissions targets – would cost in the hundreds of millions of USD. What could NZ offer in the way of a benefit? The NZ economy is simply too small to offer any benefit that offsets the cost.

    This isn’t to say that the EU may not tighten its emissions targets or take other costly steps, but it will take them for internal reasons, not as a trade off with New Zealand.

    Comment by kalvarnsen — October 19, 2015 @ 4:42 pm

  16. Droughts and extreme weather events are expensive things.

    True, but then they’ve been around a while and they tend to be localised. The drought in North Otago of 1906-7 was one of the worst in NZ’s history.

    Comment by Ross — October 19, 2015 @ 5:10 pm

  17. I’m not saying international agreements aren’t worthwhile, but they’re not required.
    I’m glad some people are not living in unicorn world in anticipation of the Paris Climate talks in December. I fear for the sanity of those who are.

    If Clinton wins the presidency, NZ will feel far more pressure to come up with a serious climate change policy.
    You mean like when Obama was POTUS and his party had overwhelming control of the Senate and House?

    I recall that the IPCC estimated we’re at 1890 Gigatonnes CO2 since the dawn of the industrial era, and their estimated cap is 2900 Gt. At the rate they’re growing the Developing world will add one USA-worth of electricity demand every three years for the next forty years, so we’ll probably hit that limit around 2030. One study estimated that if the Developed World could go to zero emissions in the next 15 years and the Developing World could build 50% of their demand as renewable then the cap could be held at through to 2100. Mind you that’s just the build: you’d need a smart grid and storage of the like that we don’t even have in the Developed nations.

    It seems awfully optimistic.

    Comment by tom hunter — October 19, 2015 @ 5:53 pm

  18. “Also, is the estimate of the drought costs a net one?”

    I have no idea, but even if the price increase negates the production drop for farmers themselves, there’s a large secondary market selling to dairy farmers (fert groundspreaders, irrigation systems, etc. etc.) that more or less has to sit tight and bleed money any time there’s a drought or the milk price takes a hit, or a farmer sees his own shadow and decides that spending might be inauspicious. I would expect those run-on effects of a shrunken market could run easily to a couple of billion.

    Comment by doop — October 19, 2015 @ 8:01 pm

  19. What I actually find problematic with Danyl’s argument is the use of climate change as the ultimate trump card.

    How can one possible argue against someone with climate change on their side?

    Thinking about putting energy and resources into a project? But you’re Not Fighting Climate Change – you want to destroy the planet.

    Doesn’t this have a bit of a religious fervour to it?

    Comment by NeilM — October 19, 2015 @ 9:30 pm

  20. I wish the climate would actually change, it hasn’t for 17 blasted years now which is somewhat tiresome. If we actually had a rise in temperatures that people noticed or there were some small sign somewhere of rising sea levels then something would get done for sure.

    Comment by David — October 19, 2015 @ 10:16 pm

  21. @Gregor W: All speculation so take with a grain of salt. But I think Clinton will have a more muscular/aggressive foreign policy than Obama. She will be more willing to use American power to achieve US interests than Obama, who has been pretty cautious. When it comes to climate change, this is a good thing.

    The other reason is that when the EPA’s new regulations to restrict power plant emissions kick in at some point in the next few years, the Democrats will probably come under attack from the Republicans for ruining the US economy’s competitiveness. So then Clinton and the Democrats will need to sell the idea that the rest of the world is actually doing something to reduce emissions too. US-China climate change relations are actually pretty good at the moment so I can imagine they will steer away from attacking China. India will probably receive some flak but its climate change plan is actually pretty good for such a poor country. The countries that will stick out are the rich free riding ones, namely New Zealand, Australia and Canada. Obama already humiliated Abbott at the 2014 G20 conference in Australia because of Australia’s pathetic climate change policy. Clinton will probably go further.

    Comment by Seb Rattansen — October 19, 2015 @ 11:45 pm

  22. ” She will be more willing to use American power to achieve US interests than Obama, who has been pretty cautious. When it comes to climate change, this is a good thing.”

    The assumptions here are that:

    !) International cooperation to address climate change is something Clinton perceives as a national interest
    2) She perceives it as a national interest that can be addressed through forceful aggressive policy
    3) She’s right about 2)

    All are pretty dubious

    Comment by kalvarnsen — October 20, 2015 @ 1:00 am

  23. Really? She has signalled a fairly ambitious climate change policy agenda. It would seem odd for her to do that, and then ignore the international element, given that if other countries free-ride, US efforts are less effective, or even pointless.

    Regarding your second point, there is evidence that the US leaned hard on Ethiopia to make sure it backed the Copenhagen Accord, and also cut aid to Bolivia and Ecuador because they refused to support it. In other words the US is willing to punish countries who don’t toe the line.

    Generally speaking, I think with the Paris treaty we’re probably at the end of the beginning for climate change policy. The next 15 years there will be more action and therefore free-riders are going to find themselves being backed into a corner by the US and China and eventually being forced to do something.

    Comment by Seb Rattansen — October 20, 2015 @ 6:01 am

  24. We’ve been told we were about to turn the corner on climate change several times before – remember Copenhagen? I don’t really see what makes this time any different.

    Comment by kalvarnsen — October 20, 2015 @ 6:34 am

  25. She has signalled a fairly ambitious climate change policy agenda.
    She’s signalled an even more ambitious gun control policy too. But this is the Democratic primary, an activist base that has tilted further left than it was in 2008, and Hillary is determined not to allow another Obama to slip past her on that flank. Not that there’s another one like him within light years of running.

    But that’s it. Once she’s into the wider electoral campaign you really think any of this is going to hold to any of this? Even more than most politicians the woman will say whatever she needs to say to a given audience to win their vote: the list of flip-flops on votes is huge and obvious, starting merely with Saddam, WMD’s and the Iraq War vote.

    In any case, even if by some miracle she wins, she’ll have a GOP controlled House to stymie her, probably the Senate as well. The EPA will be under attack from those areas as never before, not to mentioned being stuffed by court cases brought privately and by states.

    If you’re looking for progress on this issue I think you’ll have to look elsewhere. And I would not bet on China either.

    Comment by tom hunter — October 20, 2015 @ 9:19 am

  26. “We’ve been told we were about to turn the corner on climate change several times before – remember Copenhagen? I don’t really see what makes this time any different.”

    You’re kind of shifting the goal-posts there – what about your original points?

    But in terms of “turning the corner” on climate change, yep I could definitely be wrong. But I’m talking probabilities here. Compared to 2009, things are looking up. The GFC is no longer a factor. The US and China are working together rather than against each other. The Republican party is self-destructing. The renewable energy industry is growing at a good clip, especially in China. Climate denialists, at least to me, seem to be shouting to a rapidly dwindling audience (i.e. the media don’t appear to be taking them seriously anymore). So based on that, I feel more optimistic than I used to.

    Comment by Seb Rattansen — October 20, 2015 @ 10:09 am

  27. Do you have a link to show climate change will devestate our economy? I didnt realise anything had been proved in this regard. A lot of work indicates neutral or positive effects globally.

    Comment by Matthew W — October 20, 2015 @ 10:35 am

  28. But I’m talking probabilities here.
    Fair enough, but shouldn’t any theory take into account the past predictions?

    The Republican party is self-destructing.
    Just like it was in 2009: “The Party of No”, “The Party of Old White Southern Men” and all that. If the Democrats had stood around in Borg outfits chanting “Resistance is futile” it would have fitted perfectly. Where are they now in terms of Federal and state control? And the Democrats are not looking too solid either.

    The US and China are working together rather than against each other.
    On AGW control while in almost all other areas they’re increasingly in conflict? How does that work? Like the USA-USSR cooperation on nuclear weapons during the Cold War.? That would be stretching a long bow, and remember that in that 2014 agreement China has cunningly talked about “carbon intensity” rather than actual levels of CO2 emissions, and their target date of 2030 for peak “intensity” just happened to match what was predicted would happen in a business-as-usual environment anyway.

    I feel more optimistic than I used to.
    Seriously? China’s RE growth is from a small base, hence it looks impressive. The USA added 0.009 Trillion kWh of solar and wind power to its grid in the year to June 2015 (their overall power production is about 4 T kWh). The Developing nations are at about 11 TkWh now and on target to hit 70+ TkWh by 2050. To get 50% of that into RE in the same time frame, they’d have to build it about 80 times faster than the USA is doing now – plus adding the type of grid needed to support that proportion (e.g. a very smart grid) and storage. Does that seem feasible?

    As we speak most of the INDC papers did not hit the March deadline for the Paris talks (the US, Europe and one or two others). A few more had fluttered in by Sugust and about 80 (?) in the last few weeks – too late to be meaningful in the upcoming discussions. Most are like India’s, a joke, although I appreciated right-winger Modi’s sly little request for $2.5 trillion to help their AGW control efforts.

    I take back what I said about unicorn world. Clearly it is real, and it is populated.

    Comment by tom hunter — October 20, 2015 @ 1:01 pm

  29. Be interesting to see the extent to which the TPP text restricts and limits action on climate change, when the text is released.

    Comment by Andrew R — October 20, 2015 @ 5:32 pm

  30. “You’re kind of shifting the goal-posts there – what about your original points?”

    I’m not so much shifting the goal posts as I am saying that even if you disagree with me on my original points, it’s still dubious that Hilary will lead a renaissance in American, let alone global, climate change policy. I’m not really inclined to do a back-and-forth on how much Hilary truly believes in/intends to act on climate change. Ultimately it’s an imponderable.

    Comment by kalvarnsen — October 21, 2015 @ 2:52 am

  31. @Rob: You’ve taken my argument and kind of reframed it to make it sound like I was arguing the world is on track to avoid dangerous climate change. Actually I think it could go either way. My argument was that there will be more action over the next 15 years and Clinton will be tougher than Obama. With that said, I still think it’s very possible that Clinton et al. won’t do anywhere near enough to avoid dangerous climate change.

    You don’t think the trends I’ve highlighted (and you added to) are meaningful. Fair enough. In my view, they could be a lot worse (basically reverse all the points you made for a far darker scenario).

    @kalvarnsen: Yep, hard to know what she will do for sure. But I feel like predictions based on her past actions are as good as we’re going to get in terms of evidence-based reasoning.

    Comment by Seb Rattansen — October 21, 2015 @ 4:58 am

  32. Totally agree with you, Mr McL.

    I have been astonished to discover, in the course of policy studies this year:
    * Waikato University has an Associate Professor who is a rabid climate denier, and stifles all policy discussion in this area (also hosted Mad Lord Monckton in 2013)
    * There is a disconnect here on campus between Faculty of Science and Engineering researchers, who are producing good work around oceans, etc, and the Policy Program within School of Social Sciences
    * policy setting for our Government Ministries are heavily controlled by the current neoliberal policies of the present governing party (so much for ‘impartial public service’)
    * a few other details to do with SIS involvement, and politically biased Professors of other stripes (unproven, but hugely suspected due to clumsy behaviour by the entitled and tenured individuals!)

    Comment by anarkaytie — October 21, 2015 @ 10:55 am

  33. To avoid entering a period of catastrophic droughts and storms we have to agree on a global reduction of carbon emissions. So that’s something need to be negotiated between states. Y’know – diplomatically.

    No, it doesn’t need to be negotiated between states.

    It is so, so stupid that we have all of these diplomats running around trying to eke out trivial gains from trade agreements while ignoring this massive looming crisis that is going to devastate our economy.

    25 years of continual on-going summits and negotiation costing well into the multi $billions, isn’t ignoring a problem. You must have noticed these, you’ve commented on them from time to time. Failure to reach an agreement isn’t because we aren’t trying. The reason a diplomatic solution hasn’t been reached, is because there isn’t a diplomatic solution possible.

    We should shelve diplomacy and try something else more undiplomatic.

    Unilateral action of reducing climate change consumption. Tax all internal production to the value of the emissions and charge it to the NZ consumer. Tax all external production to the value of the emissions and charge it to the NZ consumer (including air travel). Ignore emissions on exported goods, scrap the emissions trading scheme – as these are relics of failed policy.

    Comment by unaha-closp — October 21, 2015 @ 1:29 pm

  34. I agree 100% with unaha – we can act unilaterally on our carbon “consumption” without distorting comparative advantage in our export industries. Every county should be able to do this.

    Comment by Matthew W — October 21, 2015 @ 1:42 pm

  35. we can act unilaterally on our carbon “consumption” without distorting comparative advantage in our export industries. Every county should be able to do this.

    This might be a bit simplistic as it assumes that export and import lines of business are quite separate. It also assumes every country will do it.

    If say, a meat producer who sells both domestically and exports sees a material drop in domestic demand as a result of carbon taxation, this could well result in an unintended distortion within their export business – i.e. there could be excess supply for export without a market to consume it or alternatively, rising COGS per unit as sunk fixed costs are allocated across a lower level of output.

    Comment by Gregor W — October 21, 2015 @ 3:06 pm

  36. It would affect exporters in the way you describe, but I dont see that as being distortionary per se. The business is losing some demand due to its carbon emissions being accounted for – that is exactly what we want to do. What the carbon consumption model prevents is distortion where substitution occurs in the global market from a country that has a carbon tax to one that doesnt. So if NZ unilaterally put a carbon tax on exports, we might find a reduction in demand for dairy products. But that reduction in our supply may be partially or wholly offset by higher production elsewhere – even in a country where carbon emission intensity is higher leading to a net increase in emissions – a lose lose.

    Comment by Matthew W — October 21, 2015 @ 3:21 pm

  37. I get what you are saying – that a tax on exports would distort the global market – but I suspect a tax on domestic consumption may well have a similar net effect for some industries.
    Basically, it only prevents a particular type of distortion, not all distortion (in the sense that all taxes or subsidies create some form of distortion for better or for worse).

    For the whole thing to work efficeintly though, every country needs to do it.
    And there’s the rub. Complex international framework redux.

    Comment by Gregor W — October 21, 2015 @ 3:53 pm

  38. For the whole thing to work efficeintly though, every country needs to do it.

    No if implemented by a minority, it begins to financially reward carbon efficient production worldwide. Compared to this emission controls operate in reverse to financially reward carbon inefficient production worldwide, if implemented by a minority.

    And there’s the rub. Complex international framework redux.

    No, the rub is effectiveness. If a global carbon emissions framework could be reached that would be a better solution with greater chance of saving the planet. Carbon taxation is not as likely to be ultimately successful, merely provide a much better chance of success than what we have now.

    Comment by unaha-closp — October 21, 2015 @ 5:24 pm

  39. Lol, a lot of energy being expended on a process that is unproven: that of co2 being a “greenhouse” gas.

    Comment by Clunking Fist — October 28, 2015 @ 3:22 pm


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