Last week the Governor of the Reserve Bank Adrian Orr issued a call to action on climate change.

Titled “Progressing Climate Action by Driving Transformational Change” it sounded like a political stump speech. Scripted and on-the-record, the Governor said:

“Transformational change needs to be motivated through engaging both minds and hearts in individuals, institutions, and broad society.”

This is the language of revolution. It is disturbing coming from one the country’s most senior civil servants.

Who exactly Orr trying to convince? The case for action has been won in New Zealand. A Parliamentary consensus agreed to lower emissions, legislate a target of net zero emissions by 2050, introduce a world-leading Emissions Trading Scheme (ETS) and create a new Climate Change Commission. Wellington has made international commitments.

And all in a country which earns half its offshore income from agriculture.

New Zealand’s problem is not any lack of commitment to the cause. The problem is how to achieve net zero emissions in thirty years without sinking the economy.

It is not clear why the Governor is talking about climate change at all. The Reserve Bank has no responsibility there. However, it is responsible for financial stability. According to Orr, a changing climate threatens financial stability. Unfortunately, neither his speech nor the cited research explained how.

Higher sea levels and changing weather patterns will have costs, of course. But they come with advance warning and appear manageable. Last year, the Ministry for the Environment cited a study which estimated global emissions will cut 1% from New Zealand’s GDP by 2060. Other studies agree.

But costs are one thing, financial instability is another. Perhaps the Governor thinks businesses misunderstand their exposure or will not manage risks when it is in their interests to do so. He did not say.

While Orr talked up risks to financial stability from higher emissions, he overlooked a far greater threat to financial stability: government policies to lower emissions.

Estimates from the Ministry for the Environment suggest emissions policies will cost far more than emissions themselves. It predicts cutting emissions to net zero will reduce annual GDP by between 3-16% in 2050.

If Orr thinks financial stability is threatened by emissions that cost only 1% of GDP, how can financial stability not be threatened by emissions policies with a potential price tag of 16% of GDP?

Questions about mandate aside, the Reserve Bank might be a good influence on climate policy if it focuses on substance. Wrapping financial market disciplines onto climate policy could put New Zealand on a faster track to lower emissions. That is something the Reserve Bank has the skills and clout to do.

Despite the huge sums of money now on the table, policy makers don’t seem to care if their policies actually help the environment: emissions policies vary enormously in effect, are frequently undermined by unintended consequences and often end up raising emissions.

That’s why all emissions policies must be tested before and after they come into effect. The most useful measure is “cost per tonne” performance – the money it takes to remove each tonne of greenhouse gas emissions. Lower is better.

New Zealand’s net zero emissions target is so ambitious that success or failure mostly depends on finding the most effective (low cost per tonne) policies. Too many expensive, ineffective policies and New Zealand will either miss its targets or go bankrupt.

New Zealand has just been shown in the clearest possible terms why evaluating policies is crucial.

In 2018, the Government appointed the Interim Climate Change Committee to advise on how to achieve 100% renewable electricity.

Instead, the committee, with the agreement of the government, decided to look at other ways to reduce emissions. It measured the performance of the 100% renewables policy and five alternatives using cost per tonne.

The renewables policy came second to last. The committee found the best option would cut over five times more emissions per dollar and advised the Government to give priority to the alternative options.

Incredibly, when legislation creating the Climate Change Commission passed six months later, testing the performance of policies was not among the independent body’s tasks.

All this should concern a Reserve Bank Governor who is responsible for financial stability and is worried about climate change.

As New Zealand prepares to spend billions of dollars on new policies, the Government is flying blind. It has no system for checking if any emissions policy works.

The Reserve Bank could be the adult in the room on climate policies. Unfortunately, Orr’s speech did little more than parrot the Government’s lines on climate. Real progress on emissions will have to wait.