Assessing the economic implications of national climate change mitigation policies on cities: A CGE analysis of Auckland, New Zealand

Abstract

Computable General Equilibrium (CGE) models have proven to be instrumental in the climate policy literature. Although their use at the sub-national level has increased, their application to assess the implications of national climate policies on cities is scarce due to the low availability of city-level economic and environmental data. Cities could play an instrumental role in the fight against climate change as they are home to more than half of the world population, generate more than 80% of global Gross Domestic Product (GDP) and are responsible for 75% of global greenhouse gas (GHG) emissions. National CGE assessments of climate policies overlooking cities could result in missing major opportunities to achieve ambitious reduction targets considering that cities are centres of innovation and wealth. Hence, the objective of this study is to fill that gap in the literature by developing and using a recursive dynamic, multi-regional CGE model to link a city's economy to the rest of the nation to assess the direct and indirect economic impacts from national GHG emissions reduction pathways. The city of Auckland, New Zealand (NZ) has been used as a case study due to the city's proactive climate mitigation plans. The model and scenarios used resemble the ones developed by the New Zealand Climate Change Commission (CCC) to inform national policy advise provided to the government. Additional scenarios were developed to incorporate Auckland's growth and climate strategies. The results showed that in contrast to the rest of New Zealand, the impacts on the Auckland economy are more pronounced as reflected by the more drastic percent changes (with respect to baseline) of the regional GDP (−6% for Auckland and −1% for NZ) and consumer welfare (−5% for Auckland and 1% for NZ). The more pronounced impacts on Auckland are due to the difference in profile emissions (e.g., urban versus rural sectors), fewer low-emission technological alternatives (e.g., rural technologies do not cater to urban sectors' needs), and indirect impacts from importing agricultural products with a higher price tag due to rising GHG prices. This study's contribution in the climate policy literature is to serve as evidence and precedent to carefully evaluate the nuances encountered in complex urban systems when developing national climate policies considering that the number of countries establishing legally binding reduction targets is continually increasing.