Motu’s role in Productivity Commission low-emission economy report

Apr 27, 2018

Today’s release of the Productivity Commission’s draft report on New Zealand’s possible approaches towards reaching a low-emission economy was supported by work from researchers at Motu Economic and Public Policy Research.

“Our transition must be built on sound evidence with input from experts and stakeholders across the board. But there is not going to be one single right-path and we cannot know every eventuality. So we need tools that allow us to evaluate new opportunities as they arise.” said Jo Hendy, Environment Team Manager at Motu.

The Productivity Commission drew on Motu’s experience in bringing diverse stakeholders together to work through challenging topics that are the subject of polarising public debate.

Together with the Institute for Governance and Policy Studies at Victoria University of Wellington, and the Environmental Defence Society, Motu convened four half-day roundtables that brought together diverse experts from New Zealand and overseas to shed new light on particularly thorny questions for New Zealand’s low-emission transition.

“The roundtables discussed how New Zealand can unlock a low-emission future, mitigation in both agriculture and forestry, reform of the Emissions Trading Scheme and how policy and action around climate mitigation could proceed,” said Ms Hendy. “Experts from all sides of the debate expressed their views and explored a wide variety of options.”

“New Zealand has gone through large changes in land-use in the past and will almost certainly continue to do so in the future. With New Zealand’s commitment to the Paris Agreement on climate change and a push to accelerate our transition to net-zero emissions, there are many decisions that require an understanding of the future impacts of these commitments,” said Ms Hendy.

Motu also worked with Vivid Economics and Concept Consulting to provide an economy-wide model for the Productivity Commission that can simulate future actions under different scenarios.

“The kinds of problems posed by climate change are complex. Models are useful in giving a sense of the potential consequences of alternative courses of action and to anticipate issues that may arise in the future,” said Ms Hendy.

Motu used its Land Use in Rural New Zealand (LURNZ) model so the Productivity Commission could explore how our pastoral, horticultural, and forestry industries could help support New Zealand’s low-emission transition. Concept Consulting provided work in the energy sector, and Vivid Economics produced the remaining elements of the nationwide model.

The draft report “Lower-emissions economy”, is now available on the Productivity Commission website.

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Motu’s land-use modelling in the Productivity Commission’s Low-Emissions Economy Inquiry Draft Report

What is a model?

A model is a simplified representation of reality that focuses on the key factors and (cause-and-effect) relationships of a phenomenon. Models describe how these factors are related, and the strengths of the different relationships. Constructing a model requires a scientist to explicitly specify their assumptions, identify the phenomena they are concerned with, and explain their methodology. By capturing the key agents, elements, processes and decisions, models enable complex systems and situations to be understood and complex problems to be solved.

If you think about it, everyone thinks like a modeller when making a decision in a complex situation. They select certain key details, make assumptions about details they have ignored, and apply intuition and judgement to inform their decisions. Scientists make these models more explicit.

Among scientists, the formal and frequent use of models is so well established that it is accepted without requiring explanation. However, to those outside the scientific community models can seem like black boxes, and the variety of available models can cause confusion.

Why are models used to understand and predict land-use change?

Models are used to understand broad patterns of land use because the factors and decisions that determine land use and land-use change are complex. This complexity arises from the decision process made by the land owner when determining land use, intensity and management practices, and from geographic variability, economic uncertainty and interactions between land owners.

Land owners combine social, personal, economic, geographic and regulatory information together in ways that are only partially understood. In addition, the values, attitudes and behaviours that guide how land owners make decisions about how to use their land differ among people. This includes what purpose they have for using the land, what information they consider relevant, what emphasis they place on different types of information, and the way they think about the future.

In the context of climate change, land-use models are used to help anticipate impacts and problems, to estimate the cost of meeting environmental targets, and to inform the choice of policy options.

How does the model for the Productivity Commission work?

The land-use modelling provided by Motu for the Productivity Commission gives a broad indication of the scale of future change that would deliver net zero emissions.

The foundation of LURNZ is provided by econometrically estimated models that establish the relationship between observed drivers of land use and land-use outcomes. LURNZ results are therefore largely driven by how land use has responded to its main drivers in the past.

The implications of climate policies are analysed through adjustments to commodity prices received in each rural sector. LURNZ models land-use in dairy, sheep/beef, plantation forestry, and scrub (regenerating native forest), and treats other rural uses, conservation land and urban areas as independent. Simulations in LURNZ are implemented by running its main modules in a pre-determined sequence (see figure below). The overall amount of land-use change is projected in the Land Use Change Module, while the spatial location of land-use change is simulated in the Land Use Allocation Module. LURNZ also includes functions to simulate rural production and emissions (or sequestration) conditional on the simulated land-use outcomes.

What are the strengths of this model?

A model like this can be a reality check on how people have behaved in the past and may behave in the future.

LURNZ can shed light on how changing economic conditions for one land use might impact another. For example, if beef prices go up, then some beef farmers might convert forestry land. If log prices rise, the opposite might occur. In a similar way, LURNZ can also model the impacts of different types of regulations.

LURNZ models these sorts of interactions based on real behaviour seen in the past, involving careful study of over 30 years of data showing what farmers and landowners have done when economic conditions changed.

Why doesn’t this model cover every detail?

While a model looks at overarching complexity, including every detail is not feasible. LURNZ usefully models broad patterns of land use, rather than taking . That does not mean important details should be overlooked. Such details should either be considered further down the track or analysed in different ways.