Current Policy Projections
Current policies overview
According to national emissions projections contained in New Zealand’s 3rd Biennial Report, and harmonised to latest historical data, total national GHG emissions excluding LULUCF are projected to stabilise around current levels, reaching 81 MtCO2e in 2020 and decreasing to 78 MtCO2e in 2030 under currently implemented policies. This represents an increase in emissions from 1990 levels of 23% in 2020 and 19% in 2030, and thus, on its own, not strong enough to meet New Zealand’s 11% emissions reduction below 1990 levels as proposed in the 2030 target through domestic action (Ministry for the Environment, 2017b).
New Zealand has recently updated its 2050 target which was passed into law in November 2019 (Parliamentary Counsel Office of New Zealand, 2019). The Zero-Carbon Act includes the target of reducing to zero net greenhouse gas emissions from the energy and industry sectors and net non-methane greenhouse gas emissions in the agriculture and waste sectors by 2050.
These emission reductions are net because New Zealand plans to add any emissions or removals from the land use, land use change, and forestry (LULUCF) sector. Historically, New Zealand’s LULUCF sector has represented a big carbon sink. The extent of the sink in 2050 is unclear. 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.
This stands in strong contrast with recent scenarios modelled by the New Zealand Institute for Economic Research and analysed in the Regulatory Impact Statement from the Ministry of Environment, which would require the LULUCF sector to increase the sink by between -16 to -23 MtCO2e/year by 2050 (Ministry of the Environment, 2019; New Zealand Institute of Economic Research, 2018). The Government has a policy to plant one billion trees by 2030; however, it is unclear as to the planned mix between exotic trees and permanent indigenous forests, adding further uncertainty to projections.
The Act also includes a 2050 target for gross methane emissions from agriculture and waste, which represented about 40% of emissions today (Government of New Zealand, 2019a). These methane emissions would be reduced by at least 24-47% below 2017 levels by 2050, with an interim target of 10% by 2030.
The Act allows the government to use international market credits; however, only as a last resort. The Climate Commission has been tasked with setting a limit on emission reduction credits that can be purchased from overseas mitigation actions.
New Zealand’s main instrument to reduce greenhouse gas emissions is an Emissions Trading Scheme (NZ-ETS) (Ministry for the Environment, 2013). 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 sectors 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 clearly aims to limits their use (Ministry for the Environment of New Zealand, 2019a).
The government is in the process of revising its Emissions Trading Scheme which is currently under the Select Committee to provide recommendations to the House (New Zealand Parliament, 2019a). Key changes include introducing the auctioning of units in late 2020, removing the current $25 cap on the carbon price once auctioning begins and no later than 2022, and establishing a price floor. The supply of units will be aligned with the country’s targets under the Zero Carbon Act and the Paris Agreement.
The proposed bill amendment has however undergone a major backdown. While agriculture sector, which is responsible for around 50% of New Zealand’s emissions, has been so far exempt from the NZ-ETS, with no cap on total emissions, and hence no quantitative constraint on the overall level of emissions, it was previously announced that it will now be covered by the NZ-ETS. In the proposed amended bill, emissions from agriculture sector will not be included until at least 2025 and set the level of free allocation to 95%.
Furthermore, the amended bill introduces a new methodology for accounting forestry emissions and removals based on “average accounting” for forests registered into the ETS after 1 January 2019 (Government of New Zealand, 2019b). This might lead to an increase in the number of forests registered, but will allow foresters not to 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.
Alongside the development of the Bill, the government has launched the New Zealand Green Investment Finance Ltd 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. As of September 2019, the operating team has been set up and are “seeking investments opportunities” (New Zealand Green Investment Finance Ltd, 2019).
New Zealand's planning laws are still a major impediment in preventing high-emitting projects - such as the proposed 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. The Government is conducting a review of the entire Act, but it is far from clear that it these clauses would be repealed: a direct threat to the Zero Carbon Act (New Zealand Parliament, 2019b; Parliamentary Counsel Office, 2019b).
In November 2018, the Government banned new offshore oil and gas exploration (Government of New Zealand, 2018a). Onshore, there are at least two proposed gas-fired power stations in various stages of the consent process (Frykberg, 2016). Construction of the 100 MW plant in Taranaki was set to begin this year for opening in 2020; however, the status of this project is not known (Mitchell, 2018; Todd Generation, 2018).
The government is supportive of developing a hydrogen economy (Persico, 2019). Hydrogen can assist in decarbonisation a number of ways, particularly with respect to the industry sector. However, it is important to distinguish between 'green' hydrogen produced from renewable energy and ‘brown’ hydrogen produced from fossil fuels. ‘Brown’ hydrogen causes a substantial amount of emissions and is thus incompatible with a 1.5°C world.
Most of the 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. 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% (Ministry for the Environment, 2015), and 100% by 2035. 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).
There are very few policies in place that would support this increased renewable energy target, and reliance is instead being placed on the relatively low cost of renewable sources. 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 where the deadline of mid-2020 is set 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 (Ministry for the Environment of New Zealand, 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, 2019; Parliamentary Counsel Office, 2019a).
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. However, according to the Productivity Commission, the achievement of this target is difficult under the current setup of the NZ-ETS, where emissions intensive and trade exposed industries are 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). Furthermore, under the former emissions trading scheme, the Emissions Intensive, Trade Exposed (EITE) industries – biggest industrial polluters which include companies such as the giant Rio Tinto – have been granted subsidies for up to 90% of their emissions. In the amended NZ-ETS bill, the subsidy rate will gradually decrease to reach 80% by 2030, 60% by 2040, and 30% by 2050, which not only allow these companies to continue emitting but at the expense of the state (Charlie Mitchell. Stuff.co.nz, 2019).
Transport is the second largest source of emissions in New Zealand and under current policy projections, emissions from this sector are expected to continue growing at least until 2030 (Ministry for the Environment, 2017b). 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).
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 November 2019, the government reached its intermediary milestone with 5,590 new EV registrations in 2018 but seems to be slightly behind on its 2019 projected uptake with 5,942 new EV registrations by October 2019 when 8,000 are expected by end of 2019. Also, even if the 2019 uptake was reached, it will need to double by 2020 (16,000 new registrations), when the current annual growth rates observed is close to 2.5% (Ministry of Transport, 2019b). EVs are exempt from road user charges until 2021, a savings to drivers of about NZ$600 per vehicle per year (Ministry of Transport, 2019a). To reach decarbonisation of the road transportation sector globally, the last combustion engine vehicle must be sold before 2035. According to the most recent national projections, this policy, together with the vehicle fuel economy labelling, and the Voluntary Biofuels Sustainability Reporting Scheme will reduce transport emissions by only 1% compared to a “without measures” scenario by 2030 (Ministry for the Environment, 2017b).
A national rail plan is under development and should be released this year (Rutherford, 2019). In line with the coalition agreement, the 2019 Budget included NZ$1 billion for trains and ferries through the country. 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).
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. Despite its huge contribution to GHG emissions, the agriculture sector is exempt from the NZ-ETS; and, as noted above, this exemption will remain until at least 2025 under the proposed amended NZ-ETS Bill and will keep being subsidised up to 95%.
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 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).
In its report, 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 offset 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, going from offsetting 45% of total emissions in 1990 to offsetting only 30% in 2016. Unless additional policies are implemented, this sink will continue to see a progressive reduction, going from -20 MtCO2e in 2015 to approximately -17 MtCO2e in 2020 and -6 MtCO2e in 2030. This trend is mainly caused by a cyclical bulge in harvesting of the forestry crop, along with: increasing deforestation; reduced new forest plantings; and reduced absorption capacity of forests due to aging.
As confirmed by the Productivity Commission in its report, this sector has a big mitigation potential in New Zealand. The Commission states that “new forests 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 (Ministry for Primary Industries, n.d.), 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 clear. The Government has so far reported having planted close to 150 Million Trees as of November 2019 since the programme started including a majority of exotic species (Te Uru Rakau - Forestry New Zealand, 2019). However, the report also identifies the difficulties of providing the appropriate incentives to achieve a sustainable and substantial increase in afforestation activities, especially under the current structure of the NZ-ETS.
As part of the proposals for reforming the operation of the ETS, currently open to consultations until December 2019, the government is proposing changes for the forestry sector (Ministry for Primary Industries, 2019) under the “Proposed Climate Change Forestry Regulations changes”. In this consultation, New Zealand is considering a completely new type of LULUCF accounting rules, which includes the accounting of an “average carbon stock” for any new forests planted. This means that “forest owners who use the new 'averaging accounting' option will no longer need to surrender NZUs when they harvest” if they replant afterwards. This however will not apply to post-1989 forests already registered before 2019 under the Emissions Trading Scheme which will remain under the previous LULUCF accounting methodology (Ministry of Primary Industries - New Zealand, 2019b).