Current Policy Projections
Current policies overview
The CAT calculates New Zealand’s emissions under currently implemented policies and in the wake of the COVID-19 economic downturn. Compared to the latest historical data in 2018, emissions will decline by 12-21% from 79 MtCO2e in 2018 to 62-69 MtCO2e in 2020. Emissions are projected to fall 9 to 18% compared to 2018 levels by 2030 to 65-72 MtCO2e. This represents an increase in emissions from 1990 levels of up to 9% in 2020 and 2-13% in 2030, and thus, on its own, it may not be strong enough to meet New Zealand’s 2030 target aiming for a 11% emissions reduction below 1990 levels (Ministry for the Environment, 2019a).
Another study found New Zealand’s CO2 emissions fell by 41% during lockdown due to the COVID-19 pandemic, and New Zealand experienced the second largest fall in emissions out of the 69 countries assessed (Jones, 2020; Le Quéré et al., 2020). Other gases such as methane from agriculture were not measured, and would not have experienced such a large drop, considering farms and food production continued activity. Pollution and emissions from road transport significantly dropped as many New Zealanders worked from home and avoided commuting (Stuff, 2020). Improvements in air quality highlight the benefits transport policy could bring, if transport patterns change.
In response to COVID-19, the government swiftly passed new legislation to fast-track projects to boost employment and economic recovery (Ministry for the Environment, 2020g). The legislation provides an alternative pathway for projects to bypass the Resource Management Act, but it does provide optional environmental safeguards as the Environmental Protection Agency vets the applications before referral to an expert consenting panel (Ministry for the Environment., 2020). However, the act should ensure emissions-intensive projects are not approved. The Act has a ‘sunset clause’ and will be repealed after two years (Ministry for the Environment, 2020g). The independent Climate Change Commission had called for these safeguards on fast-tracked ‘shovel-ready’ projects, in order to guarantee emissions intensive projects would not be approved (Wannan, 2020).
The stimulus package could provide an unprecedented opportunity to kick-start plans for a low emissions economy in line with the governments 2050 net-zero goal. A just transition to a climate resilient, sustainable low emissions economy was in the top five priorities of the Budget 2020, outlined in 2019 (Robertson, 2019).
New Zealand has not allocated all stimulus funds with NZ$20 billion remaining (Hall, 2020). To date, portions of the stimulus budget have been allocated to environmental causes, such as NZ $1.1 billion for weed and pest control, biodiversity, and restoration projects, although removal of pines may adversely affect emission reductions (Hall, 2020). Another NZ$56 million has been allocated to the insulation and heating programme addressing both energy efficiency and health inequities (Hall, 2020). The Climate Change Commission also commented that the Budget 2020 does not provide enough investment to meet New Zealand’s climate change goals (Gibson, 2020). New Zealand has an opportunity to synchronise economic recovery with their net zero emissions target.
New Zealand plans to use the LULUCF sector as an emissions sink to meet its 2050 net-zero target. Historically, New Zealand’s LULUCF sector has represented a big carbon sink. The extent of the sink in 2050 is unclear, with CAT calculation based on government projections ranging from -31 to -43 MtCO2e in 2050. New Zealand’s “Kyoto forests”—largely exotic pine plantations planted in the early 1990s—are due to be harvested in the next few years. The platform Global Forest Watch evaluated a loss in tree cover of 298 kha from 2015 to 2018, equivalent to a 2.6% decrease in tree cover since 2010 (Global Forest Watch, 2019). This will result in a massive reduction in the carbon sink of 20 MtCO2e/year between 2015 and 2030. The CAT calculations based on government projections estimate the reduction in the carbon sink at between 12-14 MtCO2e between 2015 and 2030.
This stands in stark contrast with recent scenarios modelled by the New Zealand Institute for Economic Research which would require the LULUCF sector to increase the sink to -50 MtCO2e by 2050 in the zero net emissions scenario (New Zealand Institute of Economic Research, 2018). New Zealand’s harvested forestry area would need to increase by 140% from 2018 levels (New Zealand Institute of Economic Research, 2018).
Whereas the CAT current policy scenario based on government LULUCF emissions projections (-31 and -43 MtCO2e by 2050), in the light of the previous analysis, seems very optimistic. The Government has a policy to plant one billion trees by 2030; however, the planned mix between exotic trees and permanent indigenous forests is unclear (Ministry for the Environment, 2019b). The lack of clarity in emissions removals of this sector creates further uncertainty to projections provided by the government, included in the CAT LULUCF projections.
New Zealand’s main instrument to reduce greenhouse gas emissions is an Emissions Trading Scheme (NZ-ETS) (Ministry for the Environment, 2019b). Forestry was the first sector to enter the NZ-ETS in 2008, followed by liquid fossil fuels, stationary energy and industrial processes in 2010, and waste and synthetic greenhouse gas were added in 2013. Since June 2015, the NZ-ETS transitioned into a domestic-only scheme, with only national units now eligible to meet surrender obligations. This change has resulted in a slow but steady increase in the carbon price (New Zealand Government, 2016b). Although it is not yet clear whether the Government will reopen the NZ-ETS to international units, it certainly aims to limit their use (Ministry for the Environment of New Zealand, 2019a).
The government passed the NZ ETS reforms in June 2020. The reform introduces a cap to limit the emissions covered by the ETS, which will decline in accordance with New Zealand’s carbon budgets based on emissions targets (Ministry for the Environment, 2020f). The government has set a provisional carbon budget for 2021 to 2025, in lieu of the development of a carbon budget by the Climate Change Commission due in 2021 (Ministry for the Environment, 2020f). The government claims additional abatements will be required to meet the emissions budget (Ministry for the Environment, 2020d). The emissions budget for 2021 to 2025 is much larger than emissions projected by CAT under current policy. For example, emissions for 2021 under the budget are 71.8 MtCO2e whereas CAT calculates emissions for 2021 to be 57-60 MtCO2e (including LULUCF).
The revised ETS introduces auctioning of New Zealand units (NZUs) to start in 2021, where bidders can bid for units. The proceeds from auctions, however, have yet to be earmarked for a specific purpose (Ministry for the Environment, 2020c). The revised ETS raises the carbon price from NZ$25 to NZ$35 to cover emissions in 2020 as a fixed price option. The fixed price option will remain available in a transition to auctioning (Ministry for the Environment, 2020f). The reform also sets a price floor at NZ$20 starting in 2021 (Ministry for the Environment, 2020f). To regulate the price of units, the government will set up a “cost containment reserve” (CCR) where it will release more units into the market if the price reaches NZ$50, and this will increase 2% a year to reach NZ$54.12 by 2025 (Ministry for the Environment, 2020e).
Other amendments to the ETS include phasing out industrial allocations, LULUCF sector amendments, and details on the inclusion of the agriculture sector by 2025 (Ministry for the Environment, 2020f). See specific sector analysis below for details.
The government launched the New Zealand Green Investment Finance Ltd (NZGIF) in December 2018 with a NZ$100 million budget for the new institution (Scale-Up New Zealand, 2019). The purpose of the institution is to catalyse investment in low-emissions initiatives. The operating team has been set up and is “seeking investment opportunities” although there have been no investments announced as of June 2020 (NZGIF, 2020).
New Zealand's planning laws were a major impediment in preventing high-emitting projects - such as the newly constructed gas-fired power stations in Taranaki - from gaining consent at local and regional level. A 2004 amendment to the Resource Management Act inserted clauses stating that a regional council "when making a rule to control the discharge into air of greenhouse gases...must not have regard to the effects of such a discharge on climate change." The same laws apply around the nation's exclusive economic zone legislation, and conflict with the Zero Carbon Act. However, this clause has been repealed and will come into force at the end of 2021, allowing regional councils - who grant most of the consents for high-emitting projects - to first establish policy statements (Resource Management Amendment Bill 180-2, 2020).
Electricity generation is a mix of coal, oil, gas and renewables, where hydro power meets a high proportion of demand (Ministry for the Environment, 2020b). Fossil fuels accounted for just 16% of electricity generation in 2018 (Ministry for the Environment, 2020b). Thermal baseload electricity generation is moving to a mix of wind, geothermal, and gas peaking plants, while a number of baseload electricity generation plants are set to be decommissioned (Ministry for the Environment, 2019b). The decommissioning of the Stratford Combined Gas Cycle Turbine (380 MW) is expected in 2023, Whirinaki Diesel Peaker (155 MW) in 2024, and Huntly Coal Power station (400 MW) in 2030/31 (Ministry for the Environment, 2019b).
In November 2018, the Government banned new offshore oil and gas exploration (Government of New Zealand, 2018a). Onshore, the construction of the 100 MW plant in Taranaki has now been completed and the plant began operations in May 2020 - to be used as backup for peak periods and provide baseload when wind or hydro generation is low (Keith, 2020).
The government is supportive of developing a hydrogen economy (Persico, 2019). Hydrogen can assist in decarbonisation in a number of ways, particularly with respect to the industry sector and heavy freight transport. However, it is important to distinguish between 'green' hydrogen produced from renewable energy and ‘dirty’ hydrogen produced from fossil fuels. ‘Dirty’ hydrogen causes a substantial amount of emissions and is thus incompatible with a 1.5°C world. The government released a hydrogen vision paper for consultation in 2019 to inform a hydrogen national strategy (New Zealand Government, 2019d). The vision paper suggests that hydrogen produced from fossil fuels may help in a hydrogen transition, but the government finds there is greater opportunity for green hydrogen for domestic use and export, in line with the net-zero goal (New Zealand Government, 2019d).
Most of New Zealand’s existing small-scale hydrogen generation is from natural gas (The Helen Clark Foundation, 2019). Pouakai NZ has approached the government to support a feasibility study on using natural gas to produce electricity, hydrogen and fertiliser, coupled with carbon sequestration (Persico, 2018). Even with sequestration, there will be methane emissions during the production and transportation of the gas as well as remaining CO2 emissions. Advocacy groups have called on the New Zealand government to develop guidelines regarding the source of hydrogen production and to only support green hydrogen production (The Helen Clark Foundation, 2019).
Zero-carbon hydrogen requires decarbonised electricity production. New Zealand has a 2025 renewable electricity target of 90% by 2025 and an aspirational goal for 100% by 2035 (Ministry for the Environment, 2015, 2019b). In 2018, renewable sources made up 83.3% of electricity generation, a level that has been high in New Zealand for decades, due to its extensive historical hydro generation, along with more recent wind and geothermal plants (International Energy Agency, 2019).
Currently, there are very few policies in place that would support the renewable energy targets. The government plans to develop policies to support a Renewable Energy Strategy work programme (Ministry for the Environment, 2019b). The government’s projected decline in energy sector emissions is based on the decommissioning of gas plants and replacement with renewables (Ministry for the Environment, 2019b). However, in some regions, power distribution companies are now imposing an extra charge on new solar power users, with the High Court indirectly giving the green light to this “solar tax” by ruling against a request from solar companies for a hearing to contest the charge (High Court of New Zealand, 2017).
In its issues paper, the Productivity Commission states that “there are no technical barriers to the generation of more electricity from renewable sources” and that “the relative cost and efficiency of renewables, such as wind power, now make them a price competitive option” (New Zealand’s Productivity Commission, 2017). However, the Commission also recognises that increased reliance on renewable sources of electricity will pose challenges for New Zealand’s current regulatory, institutional and infrastructural arrangements for the supply of electricity. Major regulatory changes in the renewable energy sector are recommended in the final report of the Commission (Productivity Commission, 2018).
In response to the Productivity Commission report, the government published its Climate Action Plan that sets a deadline for mid-2020 to develop a policy package as part of a renewable energy strategy, including revising the National Policy Statement for Renewable Energy Generation (NPS-REG) and considering the development of National Environmental Standards on renewable energy (New Zealand Government, 2019c).
The Energy Efficiency and Conservation Authority implements efficiency programmes for large energy users, public sector agencies and small to medium businesses (Ministry for the Environment, 2019b).
Industrial processes and product use (mainly iron, steel and aluminium production) are responsible for around 6% of New Zealand’s total emissions excluding LULUCF. The main GHGs directly emitted by industry are CO2 (two thirds of emissions), followed by hydrofluorocarbons (HFCs). Following the ratification of the Kigali Amendment in October 2019, New Zealand will begin phasing down HFCs in 2020 and cut usage by 85% by 2036 (New Zealand Government, 2019a; Parliamentary Counsel Office, 2019).
The government currently has a target to reduce industrial emissions by at least 1% a year between 2017 and 2022, with a particular focus on process heat. Based on the latest historical industry data, industry emissions dropped 2.6% from 2017 to 2018 (Ministry for the Environment, 2020b). According to the Productivity Commission, the achievement of this target would be difficult as emissions-intensive industries have been freely allocated the majority of their NZU requirements to support their international competitiveness and prevent leakage of production and emissions offshore (New Zealand’s Productivity Commission, 2017; Productivity Commission, 2018). Amendments to the NZ ETS include phasing out industrial allocation from 2021 to 2030 (Ministry for the Environment, 2020f). However, the gradual phase out will still allow these companies to continue emitting to a degree at the expense of the state, until 2030.
Dairy and coal industries lobbied the government during COVID-19 to exempt the coal production industry from lockdown, and coal production for domestic use was allowed to continue as it was deemed necessary for food production (Frykberg, 2020). The dairy industry uses a large portion of coal consumption, accounting for 71% of industrial use, and 25% of total coal consumption in New Zealand, coming in second only to electricity generation (27%) in 2019 (Ministry of Business Innovation & Employment., 2019). Some dairy producers have pledged to reduce coal usage and not build further coal boilers, or use renewables/ biomass in some instances (Frykberg, 2020).
Transport is the second largest source of emissions in New Zealand and under current policy projections, emissions from this sector are expected to peak around 2020, and then decline due to improved fuel efficiency in new vehicles and with the uptake of electric vehicles charged predominately with renewable electricity (Ministry for the Environment, 2019b).
However, New Zealand’s level of vehicle ownership per person is among the highest in the world; its light vehicle fleet is one of the oldest among developed countries (New Zealand’s Productivity Commission, 2017), and there are no efficiency nor emissions standards for passenger vehicles.
A key reason for the age and poor fuel economy of the car fleet is that most vehicles entering New Zealand’s fleet are used imports, while most vehicles in other OECD countries enter the fleet as new. The dominance of used imports, while damaging to the climate, has been hugely important for reducing the cost of vehicle ownership for low-income households, pushing up vehicle ownership (Productivity Commission, 2018).
Budget 2020 allocated the transport related funds almost entirely to rail, with NZ$222.9 million operating total and $1.1 billion total capital (New Zealand Government, 2019b). In 2018, the Government reversed a policy from the previous government that would have seen electric trains revert back to being driven by diesel (Government of New Zealand, 2018b). The New Zealand Upgrade Programme, released in January 2020, allocated a significantly larger NZ$6.8 billion for transport infrastructure, where road works have so far received the largest portion of funds (NZ$2.2 billion for roads, compared to NZ$1.1 billion on rail) (Twyford, 2020).
In August 2019, in response to the Productivity Commission report, the Government announced its Climate Action Plan which includes a backdown on its announced pledge to make the Government's own vehicle fleet fully electric by 2025. The Government aims now that all new vehicles entering the Government fleet are fully electric by mid-2025 which stands in contrast with the previously announced target of a carbon-free government vehicle fleet by 2025/26 (Marc Daalder - Newsroom, 2019; Ministry for the Environment of New Zealand, 2019b).
In 2016, the government announced its Electric Vehicles Programme aimed to encourage the uptake of electric vehicles (EVs), with a target of going from around 3,800 EVs in 2017 to 64,000 EVs registered in New Zealand by the end of 2021 (Government of New Zealand, 2016). The target equates to about 2% of the country’s vehicle fleet (Minister of Transport, n.d.).
As of July 2020, the government reached its intermediary milestone with 5,590 new EV registrations in 2018, but missed the 2019 projections of 8,000 registrations, whereas there were just over 7,000 registered (Ministry of Transport, 2020). There were less than 2,500 EVs registered by June in 2020, a decline likely impacted by the COVID-19 pandemic (Ministry of Transport, 2020). EVs are exempt from road user charges until 2021, a savings to drivers of about NZ$600 per vehicle per year (Ministry of Transport, 2019). To reach decarbonisation of the road transportation sector globally, the last combustion engine vehicle must be sold before 2035.
New Zealand invests in agricultural greenhouse gas research but lacks any strong policy to reduce emissions in the sector. The massive expansion of New Zealand’s dairy industry has seen emissions from this sector rocket up, with (non-CO2) emissions from agriculture now accounting for around half of the country’s emissions (excl. LULUCF).
Despite its huge contribution to GHG emissions, the agriculture sector is exempt from the NZ-ETS reforms, and this exemption will likely remain until 2025, with no cap on total emissions, and hence no quantitative constraint on the overall level of emissions by the NZ-ETS (Ministry for the Environment, 2020f). When agriculture is brought into the ETS, there will be 95% free allocation, where the sector can apply for free allocation of emissions units (Ministry for the Environment, 2019b). The farmers will be exempt from 95% of emissions charges, i.e. they are required to meet the costs of only 5% of their emissions.
The government, primary industry organisations, with Māori, plan to develop legislated milestones for farm planning, emissions and reporting, in addition to a farm pricing mechanism (Ministry for the Environment, 2020f). The Climate Change Commission will review the progress in 2022, and if the legislated milestones are deemed insufficient the sector will be brought into the ETS in 2022 (Ministry for the Environment, 2020f).
Current policy projections indicate agriculture emissions will decline by 2.8 MtCO2e from 2020 to 2035. The government suggests emissions will decline due to several reasons: a decline in agricultural land use, particularly dairy cow, beef and sheep populations; the One Billion Trees program and changes to the ETS which support afforestation; changes to farm management practices and the National Policy Statement for Freshwater Management; and reductions in emission intensity of farming due to animal productivity improvements and on-farm efficiency (Ministry for the Environment, 2019b). It is not clear why the government indicates agriculture emissions will be impacted by LULUCF policies (e.g. One Billion Trees).
Modelling, conducted in the context of the long-term target options, shows the importance of reducing agriculture emissions as a mitigation policy: a report by the Parliamentary Commissioner for the Environment concluded that holding New Zealand’s livestock methane steady at 2016 levels would cause additional warming of 10–20% above current levels by 2050 and that if New Zealand wished to ensure that methane from livestock caused no additional contribution to warming beyond the current level, emissions would need to be reduced by at least 10–22% below 2016 levels by 2050, and 20–27% by 2100 (Parliamentary Commissioner for the Environment, 2018).
Independent submissions, in the context of the long-term target consultations, confirm the need to reduce methane and other non-CO2 emissions in parallel to reducing CO2 emissions to be consistent with achieving the Paris Agreement goals at the national level in New Zealand (Hare et al., 2018). The most recent IPCC report confirms this finding and concludes that pathways that limit global warming to 1.5°C with no or limited overshoot involve deep reductions in emissions of methane (35% or more below 2010 levels) by 2050 (IPCC, 2018).
The Productivity Commission identifies mitigation options for the agriculture sector, including improving farm-management practices; targeting the amount of CH4 produced by animals; reducing the amount of nitrous oxide emitted from soils; and reducing livestock numbers (Productivity Commission, 2018). Regarding the imposition of a price on agriculture sector emissions, the Commission states that “exempting agriculture from an emissions price places a disproportionately (and inefficiently) high emissions reduction burden on other sectors in the context of meeting New Zealand’s emissions targets”; and that “applying a price to agricultural emissions would give farmers more incentives to adopt mitigation options, though the size of the effect is uncertain”, which stands in strong contrast with postponing the pricing of agricultural emissions until at least 2025 (Productivity Commission, 2018).
The findings of the Productivity Commission confirm previous results by other modelling groups that a trajectory toward emission-neutrality around mid-century requires substantially strengthened action in the agriculture and forestry sectors in addition to efforts to decarbonise the energy system (Vivid Economics, 2017).
The Land Use, Land Use Change and Forestry (LULUCF) sector has historically represented a big carbon sink that offsets on average 40% of gross GHG emissions between 1990–2017 (average -29 MtCO2e yearly). Indigenous forests cover 29% of New Zealand’s land area and a further 8% of land is occupied by commercial forests (New Zealand’s Productivity Commission, 2017).
However, the sink has lost importance over time, and net emissions have increased by 24% from 1990 to 2018 (Ministry for the Environment, 2020b). Unless additional policies are implemented, this sink will continue to see a progressive reduction, going from -23 MtCO2e in 2018 to approximately -16 to -17 MtCO2e in 2020 and -9 to -11 MtCO2e in 2030 (See assumptions section for details). This trend is mainly caused by the harvesting of the forestry crop, but there is some replanting planned for post 2025 and afforestation projects (Ministry for the Environment, 2019b).
As confirmed by the Productivity Commission in its report, this sector has a big mitigation potential in New Zealand. The Commission states that “new forest is currently the only large-scale mitigation option that can easily be implemented to sequester large amounts of carbon dioxide from the atmosphere” and acknowledges the big national potential for afforestation and reforestation measures (Productivity Commission, 2018). In this context, the Government has set a goal to plant one billion trees between 2018 and 2028, but it is unclear what the mitigation potential of this policy will be as the mix between exotic trees and permanent indigenous forests is not specified (Ministry for Primary Industries, n.d.). The Government has so far reported having planted close to 150 Million Trees as of May 2020 since the programme started, with 88% comprised of exotic species (Te Uru Rakau - Forestry New Zealand, 2020). However, the report also identifies the difficulties of providing the appropriate incentives to achieve a sustainable and substantial increase in afforestation activities.
The recent ETS reforms impact the LULUCF sector, introducing average accounting, allowing some exemptions for adverse events such as fires, allowing forests to offset deforestation by planting elsewhere, and delaying some forestry changes (Ministry for the Environment, 2020f). The reform allows foresters to not release their NZUs when forests are harvested if they replant afterwards, which raises questions around the certainty of the accounting methodology introduced, especially when the levels of removals will be central to New Zealand’s strategy in reaching the net-zero target in 2050.