Exploring the Impacts of Changing Energy Costs on New Zealand Agriculture to 2030: A GTAP-E-RD Application
Erwin Corong (GTAP)Anna Strutt (University of Waikato)
23rd Annual Conference on Global Economic Analysis
17-19 June 2020
INTRODUCTION
• Considerable uncertainty exists about future fuel prices and carbon costs– Different trajectories may have significant potential impacts on
New Zealand agriculture– We explore the impact of a range of possible changes in fuel and
carbon prices on New Zealand’s key agro-food sectors, particularly dairy, beef and sheep
• We use the new GTAP-E-RD (GTAPv7) model to project the global economy to 2030– Assuming relatively conservative increases in NZ carbon
emission prices with moderate changes in world oil & gas prices – We then consider the impact of a range of alternative scenarios
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OUTLINE OF PRESENTATION
• Modelling Framework and Data• Baseline Simulation• Policy Simulations• Results• Concluding Comments
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MODELLING FRAMEWORK AND DATA
• We use the new GTAP-E-RD (Corong et al., 2019)• And GTAP version 10A database
– Base year of 2014, aggregated to 16 regions and 34 sectors– Including carbon dioxide emission data distinguished by
fuel type and user– Supplemented with the GTAP non-carbon dioxide
emissions data on other greenhouse gas emissions• Beef and sheep are important sectors of focus here
– We split the GTAP beef and sheep meat (cmt)– As well as the associated cattle and sheep (ctl)
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Regions and sectors modelled
Regions ModelledNew ZealandAustraliaUnited KingdomRest EUChinaJapanHong KongTaiwanSouth KoreaASEANSouth AsiaUnited StatesCanadaMexicoCentral and Latin AmericaRest of the World
Sectors ModelledRice CoalFruit_Veg OilSugar GasOtherCrops OthMineralsRawMilk TextilesWAPCattle MotorVehicleSheep ElectronicsOtherAnimal OthMachineryWool OthManufBeef ChemRubPlSheepmeat PetroCoalOtherMeats MineralProdsDairy MetalProdsProcFoods AirOthTrnBev_Tob ElecWatGasForWoodPaper ConstructionFisheries OtherServices
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New Zealand beef and sheep meat export shares by market, 2014 (%)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Australia Japan Korea China Hong Kong Taiwan ASEAN South Asia USA Mexico Canada Centraland LatinAmerica
UK Rest of EU Rest of theWorld
Proportion of total beef and sheep meat exports Beef export share Sheep meat export share
Global GHG emission shares, 2014 (%)
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New Zealand, 0.2% Australia, 1.6%Japan, 2.7%
Korea, 1.3%
China, 24.0%
Hong Kong, 0.2%
Taiwan, 0.6%
ASEAN, 5.2%
South Asia, 8.5%
USA, 14.9%
Mexico, 1.7%
Canada, 1.8%
Central and Latin America, 5.9%
UK, 1.3%
Rest of EU, 8.9%
Rest of the World, 21.1%
Global GHG emissions (% share)
Shares of CO2 and non-CO2 in total emissions by country/region, 2014 (%)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
NewZealand
Australia Japan Korea China HongKong
Taiwan ASEAN SouthAsia
USA Mexico Canada Centraland LatinAmerica
UK Rest ofEU
Rest ofthe World
CO2 Non-CO2
Shares of total GHG emissions by activity, New Zealand, 2014 (%)
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Crops, 3.1%
Cattle, 34.4%
Sheep, 12.8%
Other Livestock, 0.4%Beef Meat, 0.2%
Sheep Meat, 0.3%Dairy, 1.9%
Other food, 0.7%
Mining, 1.7%
Transport, 16.7%
Electricity, 5.3%
Petroleum and Chemicals, 4.9%Other industries, 10.7%
Households, 7.0%
GHG (CO2 and Non-CO2) emissions (% share, New Zealand)
Emission shares by industry and type of GHG, New Zealand, 2014 (%): CO2
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Crops, 0.6%
Cattle, 1.7%
Sheep, 0.6% Other Livestock, 0.2%
Beef Meat, 0.4%
Sheep Meat, 0.6%
Dairy, 4.3% Other food, 1.5%
Mining, 2.4%
Transport, 39.3%
Electricity, 12.5%Petroleum and Chemicals, 9.3%
Other industries, 10.1%
Households, 16.5%
National CO2 emissions (% share)
Emission shares by industry and type of GHG, New Zealand 2014 (%): Non-CO2
Crops, 14.5%
Cattle, 55.4%
Sheep, 26.2%
Other Livestock, 0.8%
Beef Meat, 0.0%
Sheep Meat, 0.0%
Dairy, 0.1%
Other food, 0.1%
Mining, 0.0%
Transport, 0.8%
Electricity, 0.1%
Petroleum and Chemicals,
0.1%
Other industries,
1.4%
Households, 0.5%
National N2O emissions (% share)
Crops, 0.0%
Cattle, 61.9%Sheep, 20.1%
Other Livestock, 0.3%
Other food, 0.0%
Mining, 1.8%
Transport, 0.0%
Electricity, 0.0%
Petroleum and Chemicals,
1.9%
Other industries,
13.7%Households,
0.0%
National CH4 emissions (% share)
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Cost shares by industry, New Zealand, 2014 (percent)
0
10
20
30
40
50
60
70
80
90
100
RawMilk Cattle Sheep Other Livestock Wool Beef Sheep meat Other Meats Dairy ProcessedFoods
Labour Other Value Added Agro-Food Manufactures Services Coal Oil Gas Petroleum Electicity
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BASELINE SIMULATION
• We project NZ and other economies to 2030– Drawing on Shared Socio-economic Pathways (SSPs)
(O’Neill et al., 2014)– Middle of the road: ‘business as usual’ trends, SSP2
• We include projections for– GDP per capita– Population– Labour supply– Labour productivity adjusts to hit GDP target– Upward sloping supply for fixed and sluggish factors
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Baseline emission and fuel price assumptions
• In the baseline, we include projections of New Zealand carbon emission prices, as well as and oil and gas prices– For NZ carbon prices, we draw on low scenario carbon
price projection from Concept Economics et al. (2018)• Baseline assumption of US$17.5 in 2018 per tonne of CO2
emissions, rising to US$26.6 by 2030
– For baseline oil and gas prices, we draw on EIA’s (2019) moderate reference case projections
• Oil prices projected to be US$89.67 per barrel and natural gas prices at US$4.27 per BTU by 2030
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POLICY SIMULATIONS
• We model five scenarios:1. New Zealand carbon emission prices rising to a
moderate level in 20302. New Zealand carbon emission prices rising to a
relatively high level in 20303. Global carbon emission prices rising to a moderate
level in 20304. Oil and gas prices rising by a lower than baseline
amount 5. Oil and gas prices rising by a higher than baseline
amount
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Carbon emission price under baseline, medium and high price scenarios, 2018 to 2030 (US dollars)
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Oil and gas price projections, alternative scenarios, 2018-2030 (US$ per barrel of oil and US$ per million BTU gas)
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4.00
4.10
4.20
4.30
4.40
4.50
4.60
4.70
0
20
40
60
80
100
120
140
160
180
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Dolla
rs p
er m
illio
n BT
U
Dolla
rs p
er b
arrr
el o
f oil
Gas Low Gas Ref Gas High Oil Low Oil Ref Oil High
RESULTS
• We present some selected summary results:– NZ’s real GDP
• And decomposition of contributions
– NZ’s real exports– Total world CO2 emissions– NZ’s total CO2 and non-CO2 emissions
• Impact on NZ’s CO2 emissions
– Real output, selected NZ agricultural sectors
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Impact on NZ’s real GDP, 2020-2030 relative to baseline (%, cumulative)
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Decomposition of contributions to NZ real GDP change, 2030 (%)
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-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Moderate NZ carbon price High NZ carbon price High world carbon price Low fuel price High fuel price
Household Investment Government Exports Imports GDP
Impact on NZ’s real exports, 2020-2030 relative to baseline (%, cumulative)
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-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Moderate NZ carbon price High NZ carbon price Moderate world carbon price Low fuel price High fuel price
Impact on total world CO2 emissions, relative to 2030 baseline (%, cumulative)
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-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Moderate NZ carbon price High NZ carbon price Moderate world carbon price Low fuel price High fuel price
Impact on NZ’s total CO2 and non-CO2emissions, 2020-2030 (%, cumulative)
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-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Moderate NZ carbon price High NZ carbon price Moderate world carbon price Low fuel price High fuel price
Impact on real output, selected NZ agricultural sectors, 2020-2030 (%)
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-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
Fruit andvegetables
Raw milk Cattle Sheep Other animals Wool Beef Lamb Dairy Processedfoods
Other meats
Moderate NZ carbon price High NZ carbon price Moderate world carbon price Low fuel price High fuel price
CONCLUDING COMMENTS
• We find increases in NZ carbon emission prices cause– Some reductions in real GDP– Substantial reductions in carbon emissions in NZ (though small
global impact when NZ alone increases carbon prices)• In the scenarios where increases in global carbon prices
or global fuel prices impact all countries– We find a smaller negative impact on New Zealand’s real GDP,
suggesting the costs are shared amongst countries– The impact on global emissions is much more substantive
• For key NZ agricultural sectors– Exports and output tend to decline with increases in carbon and
fuel prices– But significant reductions in emissions
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Thank you!
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