Sustainable Business and Finance: Time for a frank conversation, Megan Woods says

Megan Woods. Photo / Mark Mitchell

It’s time for a “very honest and frank” conversation about the cost to New Zealand if we have to pay other countries to decarbonise, says Megan Woods.

Labour’s Climate Change spokeswoman and former Minister of Energy is concerned New Zealand is not sufficiently advanced on its emissions reduction commitments to avoid paying a hefty bill down the track.

Under the Paris Agreement, New Zealand along with other signatories agreed to reduce greenhouse gases to hit a target of limiting warming to 1.5 degrees C above pre-industrial levels.

New Zealand’s first Nationally Determined Contribution (NDC1) was updated on October 31, 2021. The new NDC sets a headline target of a 50% reduction of net emissions below our gross 2005 level by 2030. Our NDC covers the period 2021-2030.

Analysis released by Treasury last year said meeting New Zealand’s first NDC1 represented a “significant fiscal liability”, though its scale is highly uncertain.

Illustrative estimates suggested the cost of purchasing overseas mitigation toward NDC1 ranged widely from $3.7 billion to $23.7b.

Woods says more detail is needed on the new carbon markets from which New Zealand will source international credits. The obvious risk is that New Zealand will end up effectively paying other countries to create jobs in the green economy, rather than establishing those industries and jobs here in New Zealand.

Woods is concerned that National has cut initiatives Labour introduced to reduce emissions and wants Climate Change Minister Simon Watts to open the conversation when he gets back from COP29 in Baku, which has a strong focus on financing the reduction of greenhouse gas emissions.

“I think it will be time for National to come back and have a very frank conversation with New Zealand about this,” she says.

“Because every time we cut an initiative, we’re going to be paying another country to do what we should be doing here, and importantly for us as the Labour Party, paying another country to create ongoing, secure, meaningful work.”

National slagged as “corporate welfare” two deals the previous Labour Government cut with major corporates to co-fund emissions reductions.

The Labour Government partnered with Fonterra to cut coal use across six dairy factories, delivering significant emissions reductions, and helping to future-proof New Zealand trade and exports.

Some $90 million was allocated from the Government Investment in Decarbonising Industry (GIDI) Fund which is paid for through the Emissions Trading Scheme.

The project is forecast to halve Fonterra’s manufacturing emissions by 2030 and deliver 2.69% of all New Zealand’s required emission reductions between 2026-2030.

The prior Government also signed a conditional deal with NZ Steel, part funded by up to $140m from the DIDI Fund, which will enable half of the coal being used at Glenbrook steel to be replaced with electricity to recycle scrap steel. The deal is estimated to eliminate 1% of the country’s total annual emissions and reduce 800,000 tonnes of carbon per year.

It is also estimated to contribute 5.3% of the emissions reductions needed under New Zealand’s second emissions budget (2026 to 2030), and 3.4% within the third emissions budget (2031 to 2035).

The GIDI Fund provided support for businesses to switch from fossil fuels to cleaner, more efficient energy sources across the industrial and commercial sectors. It has been closed to new applications.

Watts unveiled his National Emissions Reduction Plan in July.

Key policies include:

● doubling renewable energy by reducing the consenting burden through Electrify NZ

● targeting 10,000 public EV chargers by 2030

● lowering agricultural emissions by giving farmers the tools to reduce emissions

● investing in resource recovery with the Waste Minimisation Fund

● investigating carbon capture, utilisation, and storage (CCUS).

But the final Emissions Reduction Plan for the period 2026-2030 will not be finalised until the end of this year.

Woods observes that Brazil, which is chair of COP30 next year, is calling on a global tax for billionaires. “So, I think that interplay of private finance is really going to come into to play for discussion a lot more at COP 29 than perhaps we’ve seen before.

“One of the interesting things for New Zealand is that the Pacific seems to be really seeing that as one of the critical outcomes of COP 29 and where that lands in terms of how it is that they fund and finance their own climate initiatives.

“So, there’s going to be an expectation on the wealthy nations.

“And I think there’ll be a lot of hours of debate about who the wealthy nations are and exactly who they are, but I think it’s inevitable that pressure is going to come on New Zealand to up its climate finance contributions.

“New Zealand’s always in a interesting position in terms of whether or not we give money into big, multilateral climate finance funds, which we know our Pacific neighbours can find really difficult to access.

“So some of it also needs to be through bilateral ways and directly done in that way.

“And I think that that’s kind of been an enduring conversation.”