Auckland city business and economy report 2007

Potential economic impacts of climate change

Climate change is a significant issue for the future of Auckland's economy.

Globally temperatures are rising, and are likely to continue to do so. Increases in average global temperatures of 1.8 to 4 degrees Celsius are possible, with regional variations of up to 6 degrees Celsius.¹⁰

This issue will have direct and indirect impacts on the New Zealand and Auckland economies. The extent of the impact will depend on the degree to which:

the international community manages the environmental impacts of climate change
New Zealand and Auckland proactively anticipate and respond to potential economic effect
other global economies adapt their approach.

The New Zealand Institute recently released some background material on the economic issues facing New Zealand as a result of climate change.¹¹ Their conclusions are applicable to the Auckland economy and are summarised below.

Direct economic consequences for Auckland's economy

The direct environmental impact of climate change will vary across all parts of the globe but New Zealand is considered to be less vulnerable.¹² This may provide some relative economic advantages, but the country will still face many changes including increases in average temperature and changes in rainfall.

Auckland will be susceptible to the economic flow-on effects where direct climate change consequences affect the long-term competitiveness of key national and regional economic sectors.

Indirect economic consequences for Auckland's economy

Indirect economic consequences for Auckland's economy are likely to be more significant, and may include:

the pricing of carbon emissions
changes in consumer and company preferences
demand for new technologies.

Carbon trading and pricing of emissions

Carbon pricing and trading systems appear likely to be implemented. The effect on the local economy could be significant. Even though New Zealand is a relatively small emitter of greenhouse gases, the nature of the national economy is emission intensive (it is estimated to be the fourth most emissions-intensive economy in the OECD).

Total greenhouse gas emissions per capita, 2007

Note: Data not available for Turkey, Korea or Mexico.
Source: OECD

The local economy could be exposed to significant economic costs in the long-term if there is a failure to move away from emission-intensive activities.

The competitiveness of New Zealand's international supply chains could also be reduced if energy prices rise due to the introduction of emissions pricing. Innovation and investment in new technologies are key to making an effective transition.

Changes in consumer and company preferences

Customer and market perceptions of climate change are also likely to have an indirect effect on the local economy. If Auckland firms seek to expand their effective markets by becoming more globally focused, they will need to anticipate and respond to changing preferences of international consumers, who may demand environmentally friendly goods.

Changing consumer preferences may create commercial opportunities, but this will require proactive investment in new technology to support this.

New Zealand's relative geographic distance from international markets, and its size will create new risks. The food miles debate has illustrated the potential economic risk where overseas customers perceive that there is an environmental cost associated with buying New Zealand goods. To counter this, the image of New Zealand as a clean green destination may provide marketing opportunities for Auckland firms, and be used to attract skilled migrants and tourism.

Demand for new technologies

As consumer preferences change and commercial demand for emissions-efficient production methods grow, investment in the development of new technologies (eg biofuel and wind-power production) may become commercially viable.

Ultimately, the changes required to adapt to climate change may provide new commercial opportunities for Auckland firms, but again proactive investment will be required. Given that many global companies are already beginning to move rapidly into this space, these opportunities will not be realised without substantial effort.

¹⁰ Intergovernmental Panel on Climate Change Working Group.

¹¹ Skilling, David: New Zealand's Economic Future: Responding to the Effects of Climate Change. May 2007. Full presentation available on www.nzinstitute.org

¹² It is ranked 16th least vulnerable by the Centre for International Earth Science Information Network at Columbia University.

Published June 2007