The New Zealand Government’s decision to ban new oil and gas exploration permits will see a series of strongly negative impacts ripple through the economy. The decision prevents the granting of new exploration permits outside of onshore Taranaki and was given effect through the Crown Minerals (Petroleum) Amendment Act 2018. This report refers to this policy in shorthand as “the ban”.
NZIER has calculated the macroeconomic impacts of this ban at both the national and regional levels
- The ban will be felt most keenly in the Taranaki region, but even at the national level the ban will reduce real gross domestic product (GDP) by between $15 billion (3%) and $38 billion (7.4%). The medium scenario is a reduction of $28 billion (5.4%).1
- Household consumption (the best measure of economic wellbeing and discretionary income) will reduce by between $7 billion (2.4%) and $20 billion (7%).
- Per household, this represents a $4,800 to $14,200 fall in consumption spending on average for each year between 2020 and 2050, with a $9,400 drop in the medium scenario.
- Investment will reduce by between $4 billion (5.4%) and $7 billion (8.4%).
- Export revenue will reduce by between $3 billion (1.6%) and $10 billion (5.2%).
Taranaki will bear the brunt of these impacts
- In Taranaki the ban will reduce real GDP by between 35% and 53%, or $16 billion and $40 billion, with a medium scenario of 46% (~$30 billion2 ). The impacts on regional consumption, investment and export revenue are also strongly negative.
- Households in Taranaki will see a substantial reduction in their standard of living. From 2020 to 2050, real GDP per household in Taranaki will fall by $623,000, in the medium scenario. This is equivalent to a $20,774 fall in household incomes each year for the next 30 years.
- The ban is unlikely to cause any appreciable reduction in employment at the national level, but job losses within the sector (between 33% and 40%) and within Taranaki (between 3.2% and 6.6%) will be severe. Estimates of the number of jobs provided by the sector vary, but the 37% reduction estimated for the medium scenario applied to the job number figures presented in the Regulatory Impact Statement3 gives job losses of 3,107 for New Zealand.
- The impact of the ban is not limited to the oil and gas sector, the overall spillover effects on other sectors are also negative. The nominal gross value added by the oil and gas industry to other sectors will decline by between $13 billion and $30 billion, with a medium scenario of $23 billion ($757 million per year over 30 years).
- The reduction in the nominal gross value added by the oil and gas industry to other sectors in Taranaki will be between $12 billion and $29 billion, with a medium scenario of $22 billion ($736 million per year over 30 years).
We used NZIER’s regional computable general equilibrium (CGE) methodology to carry out this modelling
- CGE is generally accepted as the most robust methodology for assessing the effect of economic shock – such as a drastic reduction in oil and gas exploration – across the wider economy
- The scenarios used for the modelling are based on the government’s official analysis which is set out in the Regulatory Impact Statement (RIS) which accompanied the Cabinet paper prepared in support of the Crown Minerals (Petroleum) Amendment Bill (which has subsequently been enacted).