Alex Lo of Te Herenga Waka Victoria University of Wellington writes that the big emissions plan announced this week leaves out some important opportunities and policies
New Zealand has published its ‘landmark’ plan for addressing climate change—the Emissions Reduction Plan (ERP). The long-waited plan offers something for everyone, but some of the key issues are not given as much attention as they should be.
The ERP creates a $4.5 billion Climate Emergency Response Fund (CERF). The CERF will recycle revenues from the Emissions Trading Scheme (ETS).
Many countries return part of their ETS revenues to society through tax cuts, subsidies, and financial support for the development of low-emission technology.
Some of them go beyond a ‘revenue neutral’ approach – that is, they pay out more than is received from the ETS. Our Government will top up its fund by making a further $1.5 billion available in the CERF, on top of the initial allocation of $2.9 billion.
The Government expects the size of the CERF to grow. This is not impossible if the carbon price continues to grow and the Government injects a proportionate amount of ETS cash proceeds into the fund. Our carbon price is running above $70 (per tonne of CO2 equivalent), more than twice the price of two years ago. The Climate Change Commission suggests we need a carbon price of $140 to meet our 2050 emissions reduction target. These revenues will also increase when agriculture is brought into the ETS.
Agriculture is not the main focus of this ERP. Nearly half ($339 million) of the $710 million earmarked for agriculture, forestry and ‘green’ fuels over the next four years will go towards supporting technologies for reducing agricultural emissions.
It is not clear what the big action is, or how technology spending will unfold. Nor has the ERP revealed any new ideas about including agriculture in the ETS, which has been operating since 2008. Agricultural emissions make up about half of New Zealand’s greenhouse gas (GHG) emissions. These include biogenic methane, which is not yet covered by significant policies.
The financial commitment to agriculture is relatively limited. The budget breakdown, released alongside the ERP, shows the agriculture sector gets $380 million of the committed $710 million while over $300 million goes to forestry.
Sector sub-targets also reveal a soft approach to agriculture. The annual average emissions budget for agriculture is close to 40Mt CO2-e in 2022 to 2025, reducing to just over 38Mt in 2026 to 2030, and 36.6Mt in 2031 to 2035. In contrast, the annual emissions budgets for transport are 16.5, 15.2, and 11.36Mt in the three budget periods, respectively. Transport emissions will fall by a greater percentage under the ERP.
Transport is the main game in the ERP. This sector contributes 17 percent of the country’s GHGs. New Zealand has done quite poorly in controlling transport emissions. It is the second largest source of GHG emissions in New Zealand and has increased 16.6 percent above 2005 levels.
The transport bundle gets $1.3 billion from the CERF, which includes $569 million for a trial scheme that seeks to ‘scrap and replace’ high-emission vehicles. Starting with an initial trial of only 2,500 vehicles, we should ask how far this generously funded scheme will take us in four years.
Apart from a larger budget (relative to transport’s share of GHGs), the transport plan has more substance and includes a wide range of action, e.g., clean cars, public transport, land-use planning and infrastructure. This may be seen as a win for the transport sector.
The question is whether emission reductions from transport will make a big difference. We do not have a history of successfully meeting emissions reduction targets under the United Nations Framework Convention on Climate Change (UNFCCC). Last year, the Climate Action Tracker rated New Zealand’s domestic target as ‘Insufficient’.
Offshore mitigation seems to be a favoured solution. Earlier this year, Cabinet papers revealed that more than two-thirds of our emission reductions over the next decade are likely to come from offshore. Offshore mitigation is likely to include offsetting emissions in another country and attributing them to our emission reduction records. The ERP confirms this will be needed and that the Government will “prioritise partnership in the Asia-Pacific region”.
But details of how this will work are vague. We do not know which country or countries will be picked to work with and how the quality of carbon offsets will be ensured. One thing that is clear is the price of international offset credits is rising. If we are serious about quality, offshore mitigation may not be as cheap as we expect.
The CERF will also fund a framework and approval scheme for a voluntary carbon market in New Zealand. Our trading partners—Australia, China, and Japan—made similar arrangements a long time ago. New Zealand is giving a small budget to this—$3.6 million. This is unlikely to be a game-changer and will only facilitate scoping work rather than implementation.
There is also little in the ERP on how New Zealand will adapt to the impacts of climate change, such as sea level rise and bushfires. While the ERP reasonably focuses on reducing GHG emissions, no big cash is allocated to climate change adaptation. This is a missed opportunity.
Adaptation initiatives are typically under-resourced. To support adaptation, we could take a fixed percentage of ETS cash proceeds every year to fill a designated adaptation fund, similar to the ‘two percent’ arrangement under the Clean Development Mechanism (a carbon pricing mechanism) set up under the UNFCCC. Such a measure would, effectively, get polluters to pay for initiatives that address the problems they created (i.e. climate change impacts).
The Government anticipates additional funding for climate change adaptation will be sought through the CERF when New Zealand’s “mitigation response accelerates over time”. Perhaps the first national adaptation plan to be published later this year will give us details, but currently the budgetary commitment remains obscure.
