Comment: In 2015, when John Key signed New Zealand up to the Paris Agreement, he set an emissions reduction target he knew we couldn’t meet.
It was a piddly target, pledging “to reduce greenhouse gas emissions to 30 percent below 2005 levels by 2030”. That’s a number that sounds good, until you learn about all the creative accounting that underlies it.
For starters, it was a gross-net comparison, artificially inflating the 2005 base year by excluding carbon sequestration from trees, but allowing us to use that sequestration to meet the target in 2030. In reality, experts calculated, New Zealand could meet the target in 2030 with higher net emissions than it had in 2005.
Even that, however, we wouldn’t be able to do. Population and economic growth were forecast to put New Zealand on a path to far higher emissions. Key’s government had next to no interest in climate policy. The Emissions Trading Scheme, which was in theory designed to cap emissions and make it more expensive to pollute, had no cap and offered unlimited licences to pollute at just $25 per tonne of CO2. (For a while, there was a two-for-one deal where you could turn in a licence for one tonne to excuse two tonnes of pollution.)
So Key’s target would have to be met with what is euphemistically known as offshore mitigation. What that really means is paying other countries to cut their emissions or stop polluting.
NZ had experimented with offshore mitigation to meet its (equally uninspiring) target under the Kyoto Protocol, but ultimately blocked the ETS off from overseas credits because so many of them turned out to be junk.
Still, Article 6 of the Paris Agreement envisaged some form of emissions trading, ideally with stronger safeguards. Key placed a bet when he set his target: Not that NZ would cut our emissions, but that that market would eventuate and be cheap enough to allow us to buy our way out of climate change. We’d need to buy about 200 million tonnes’ worth of credits, at an estimated cost of $14 billion.
By 2021, things had changed a lot. The ETS had teeth, not least because it now had a cap and a rising price that would soon hit $85 per tonne. We had the Zero Carbon Act, with a net zero target for long-lived gases and a serious methane reduction target, as well as a series of carbon budgets that would act as stepping stones towards achieving that.
Behind the scenes, ministers and officials were devising New Zealand’s first emissions reduction plan, to meet the first carbon budget. The proceeds from the ETS would be funnelled into a vast array of climate policies – subsidies to help industry get off coal and gas, investment in cycling, walking and public transport, research into agricultural emissions reductions and more.
All that meant we were now closer than ever to meeting our Paris target – the gap had narrowed to 50 million tonnes, though higher carbon prices meant the bill would still run to something like $7b.
At the same time, ahead of the COP26 summit in Glasgow, the UK had asked all nations to update their Paris targets to be more ambitious. The Labour-led government did so, raising the gap back up to around 100 million tonnes, though it hoped that could be narrowed through even more advances on the domestic climate policy front.
By early 2022, work was underway to figure out how to purchase what would still almost certainly be tens of millions of carbon credits to meet the target. And … then we didn’t hear very much, for a very long time.
There was an election. Christopher Luxon said National was committed to the Paris target multiple times in the lead-up. After the coalition formed, it systematically dismantled nearly every part of the climate policy framework that had enabled New Zealand to so successfully close the gap on meeting its targets in just six years. Neither in the waning days of the Labour government nor in the early days of the coalition did we see any public sign that New Zealand was preparing to secure offshore mitigation.
Other nations beat us to the mark. Switzerland inked a deal for credits with Ghana all the way back in 2020. Singapore’s first agreement was signed with Papua New Guinea in December 2023 and it has since added a range of nations to its carbon trading roster – including, as recently as this week, Tanzania.
Luxon, on a trade trip in 2024, signed memorandums of understanding with a few southeast Asian countries, but made clear these fell well short of a commitment to buy credits. Later that year, Trade and Agriculture Minister Todd McClay publicly said NZ wouldn’t buy credits. Climate Change Minister Simon Watts publicly disagreed, saying all options were on the table, but by then it was too late. The dam broke, the floodgates were open, and minister after minister began to rubbish the only realistic path NZ had to meeting its Paris commitments.
The coalition’s minor parties, Act and NZ First, started to question whether New Zealand should even remain in Paris. Finance Minister Nicola Willis said the Government couldn’t afford the bill it now faced.
That bill had, by the way, only grown as a result of the Government’s climate policy bonfire. When Labour left office, the gap to the Paris target had narrowed to 71.5 million tonnes. Last year, it stood at 84 million.
Watts tried to stick to his guns. He told me last November the Government was prepared to “pull the trigger” to buy credits if needed, though he still blithely insisted his climate policy would close the 84 million-tonne gap at home. All NZ needed was some EV chargers, he seemed to suggest.
But Willis put the final nail in the coffin a month later when she completely ruled out buying credits. That was it. New Zealand’s Paris target was as good as dead under this Government.
Perhaps that’s why Act announced this week at Fieldays that it would weaken the Paris target to make it achievable (weakening a pledge is forbidden by the Paris Agreement). NZ First, by the way, still wants to join the United States as the only country to have signed and then abandoned the climate pact.
The consequences of all this are still unclear. New Zealand has signed free trade agreements with the UK and EU that incorporate requirements to follow the Paris Agreement. But, due to the arcane and frustrating nature of international climate negotiations, the Paris Agreement does not require nations to meet their targets. It obligates them to “pursue domestic mitigation measures, with the aim of achieving” targets, but does not say they must pursue offshore mitigation if that fails.
Still, there are considerable reputational repercussions for throwing in the towel – especially in 2026, when the target isn’t due until 2030.
All this is partially coming to a head this week because Thursday morning the Treasury revealed the estimated cost of closing that 84 million-tonne gap through offshore mitigation. It would be something on the order of $4.4 to $5b, though there are (to my eye) some rosy assumptions about the price of carbon beyond those figures.
That was the prompt for Luxon to fully abandon his 2023 election commitment to the Paris target, saying, “But just reassuring everybody, we ain’t shutting down farms and we certainly aren’t sending billions of dollars offshore.”
The Government will frame that $5b figure as the cost of meeting the Paris target. But there’s another way to think about it too: The cost of inaction.
Had the Government really been prepared to, as Luxon said today, “do everything we can” to meet the target domestically, it wouldn’t have scrapped a comprehensive climate policy but instead doubled down. Climate policy under a conservative government could look different from Labour’s while still being effective – in the UK, Tory Boris Johnson was in charge when COP26 was convened in Glasgow, securing additional pledges from New Zealand and most other nations.
The gap might have shrunk further, from 71.5 million tonnes at the election to 50 million or less. The cost, too, would fall.
Instead, the Government went the other way and has been handed a $5b bill. They may choose to leave it unopened on the kitchen bench, but it’s just as real either way.
