The institute says dairy and meat processors will be able to soften the impact because of their scale and by introducing energy-efficient technology.
Its report, the Economic Impact of Meeting 2050 Emission Targets, assesses various scenarios including the Government’s chosen target of net-zero carbon dioxide and nitrous oxide and reducing methane by 10% by 2030 and 24-47% by 2050 without allowing offsetting.
The report does not provide detail on the impact at sector, farm or business level but says the split gas regime imposes a hard output constraint on two key sources of GDP and export earnings, dairy cattle and sheep and beef.
“The economy, therefore, has less flexibility to adjust than in the net zero all gases scenario.”
Introducing emission targets will have significant impacts on land use change with the area of forestry increasing nearly 30% under the split gas with a methane cap scenario and the area of sheep, beef and dairy to shrink 20% with horticulture losing 15%.
The value of forestry and wood processing will increase from $3.7 billion in 2020 to $4b in 2050
A goal of all gases reaching net zero would have had the harshest economic impact, reducing growth or GDP by 0.35% a year at a cost of $18.4b.
Had the Government opted for a less ambitious methane reduction target of 75% of 2016 levels by 2050 but net zero for other gases, the economic impact would have lessened, with annual GDP 0.31% or $9.9b lower.
The analysis assumes a methane vaccine is available from 2030, methane cannot be offset by planting trees and the global carbon price will reach $978 a tonne by 2050.
It says being able to offset emissions is cheaper for emitters than abatement, as is buying international units.
Average annual household purchasing power between 2020 and 2050 is forecast at $230,000 but over that period will fall by up to $11,400 a year as the volume of goods and services that can be bought diminishes.
A July 2018 report Modelling the Transition to a Lower Net Emissions NZ, by Vivid Economics, Concept and Motu Economic and Public Policy Research warned clear shifts in land use are required to achieve NZ’s targets.
“Central to this is a moderate reduction in land use for pastoral agriculture which enables relatively significant expansion of NZ’s forestry industry.”
That analysis gives even less detailed financial forecasts or a comparison of policy options but its general trend, that pastoral agriculture will shrink and the area of forestry almost double, is consistent with the institute’s view.
It predicts between 1.5m ha and 2.2m ha of forestry could be planted to offset carbon emissions, taking the total area of exotic forest to 3.5m to 3.8m ha by 2050.
That is in addition to the Government’s billion trees, which will result in up to 430,000ha planted.
Land farmed for sheep and beef will be the hardest hit, shrinking from 8.5m ha now to between 6.4m and 6.9m ha by 2050.
The area of dairying will stay the same but the analysis assumes new dairy conversions will be banned after 2025 because of water quality restrictions.
The analysis assumes a methane vaccine will be available by 2030, reducing emissions by 30% in cows and 20% in sheep.
However, changes to the area of horticulture are difficult to model because of its variation, covering orchards, viticulture and cropping and in estimating price responses for the sector.
It also assumes exotic forestry will follow a 28-year rotation with peak carbon sequestering at age 21, absorbing 31.83 tonnes of carbon a ha.
