New Zealand needs to quickly stop burning fossil fuels, plant vast amounts of forest - and switch to electric vehicles and greener agriculture, a major report has found.

The Productivity Commission's final report on how the country can shift to a low-emissions economy also called for emissions standards for newly registered vehicles, a "feebate" scheme to boost the uptake of EVs, and putting a price on gases from farms.

The commission's findings were largely in line with those laid out in its draft report in April - but with some stronger calls in areas such as emissions, energy, land use and transport.

Chairman Murray Sherwin said the period between now and 2050 - the target the Government has set for its bold Zero Carbon Bill - would pass quickly, and delaying action now would make the shift harder and costlier in the long run.


The commission recommended a move away from using fossil fuels for providing process heat for industry, and a "rapid and comprehensive" switch from petrol cars to EVs, of which fewer than 10,000 are on our roads today.

The feebate scheme it advocated would mean importers either pay a fee or receive a rebate, depending on the emissions intensity of the imported vehicle, and would also bring knock-on costs to buyers.

And without fleet-wide vehicle emissions standards - New Zealand was among just a handful of countries without them - the country risked becoming a "dumping ground" for high-emitting cars from other countries busy decarbonising their highways.

The commission called for a diversified agriculture sector, with more land used for cropping and horticulture.

Land planted in forests would need to be ramped up by between 1.3 million and 2.8 million hectares, mostly converted from marginally profitable beef and sheep, potentially approaching the highest annual rate ever recorded.

Aside from its one billion trees programme, the Government could help by offering recognition for carbon sequestered in harvested wood products, and making its easier and less risky for small foresters to take part in the NZ Emissions Trading Scheme (ETS).

The commission recommended targeted cuts for all long and short-lived greenhouse gases, and for biogenic methane from agriculture or waste to be accounted for within either a dual-cap ETS, or an alternative quota system.

Under the ETS, the Government should also set a "farm-level" threshold for emissions not caused by the use of fertilisers - and make manufacturers and importers accountable in the ETS for fertiliser-sourced nitrous oxide emissions.


While among the biggest contributors of greenhouse gases in New Zealand, the agriculture sector has opposed being pulled into the ETS, arguing that our trading partners didn't force the same rules on their farmers, and that there wasn't an accurate way to measure and report farm emissions.

The ETS itself more widely needed to be overhauled with higher emissions prices - rising from the current $25 of carbon dioxide equivalent to at least $75, and possibly over $200, a tonne, over the next three decades - along with increased coverage across the economy, and "greater clarity" about the future supply of emission permits.

In the power sector, the Government needed to ensure regulators were able to hold distributors accountable for equal access to their networks, while quickly responding to innovations that could change the industry.

Regulatory reform was needed to make room for an expansion of both grid-scale and distributed renewable energy generation, and to take away barriers to innovative technologies that assist consumers to manage their demand during peaks.

More broadly, "significant" more resources were required to foster low-emissions tech, given the time it could take to bring innovations to fruition.

"Innovation is also the key to high productivity, high incomes and wellbeing, and high environmental performance – all of which New Zealand has struggled with in recent decades," Sherwin said.


"Done well, the transition to low emissions can be the catalyst to lift our overall economic, social and environmental outcomes.

"Firm and steady political leadership, including broad agreement across the political spectrum on both the need, and the means, to make the transition is required."

Sherwin said the commission believed that transition would be "challenging but achievable".

"New Zealand's total emissions may be small in the global context, but all nations, however small, are contributors to the climate change problem and therefore must be contributors to the solution."

Climate Change Minister James Shaw said the report highlighted many areas the Government was already working on, including establishing an independent Climate Change Commission and improving the ETS.

"We're examining how methane from agriculture and waste should be treated, and how industries and agriculture can develop ways to reduce emissions while maintaining profitability," Shaw said.


"In the farming sector, I've met farmers who are already finding financial benefits from lower emissions practices that have significantly reduced their costs."

The Government had committed to a $5.5 billion Families Package, $15 million of new operating funding in this year's Budget for the Sustainable Food and Fibre Futures fund, a target that R&D should comprise two per cent of GDP by 2027, and $100 million for the new Green Investment Fund, which could be up and running by the end of the year.

"This Government has an ambitious climate change work programme but we need to get the balance right; moving quickly enough to address climate change, while not moving so quickly that we put parts of our economy at risk," Shaw said.

"Right now we're focused on digesting the details of this report."

The Government would respond to its 173 findings and 78 recommendations over coming months.