The most economically significant legislation Parliament will consider in the current term will be the Zero Carbon Act.

Reversing the trajectory from relentlessly rising emissions of greenhouse gases, to one which puts New Zealand on track to carbon-neutrality within the lifetimes of most of the people already here, will affect the country's economic life across a very broad front, as the forthcoming Productivity Commission report is likely to make plain.

The Government aims to have a Zero Carbon Act passed and an independent and expert Climate Commission established by the middle of next year.

But achieving the essential cross-party support for a framework that will have to span changes of government will be challenging, as this week's report from the new Parliamentary Commissioner for the Environment, Simon Upton, makes clear. Such support is vital, to provide businesses with the policy stability they need to make long-lived investment decisions.


Like his predecessor Jan Wright, and the new Government, Upton is a fan of the British regime on which the Zero Carbon Act is likely to be modelled. It legislates a long-term goal and sets up an independent expert body which translates that into a series of five-year carbon budgets, set well in advance, against which emissions can be measured and policy initiatives appraised.

"Over the seven years that I led the environment programme at the OECD, one of the questions most frequently asked by countries wrestling with climate policy was: What is best practice? What national policy setting would you recommend that we study?" he says.

"[For] an approach that tried to chart a long-term emissions trajectory and provide the policy stability needed to encourage investment in a low carbon economy, the UK's approach stood out as being exceptional."

But the British model would have to be modified to fit our circumstances. Upton recommends six-yearly carbon budgets, to be reviewed every three years, so that each Parliament has to address the issue.

A crucial decision, which Westminster has not had to confront, is whether to treat methane differently from the other greenhouse gases when it comes to setting the long-term objective for climate policy.

The Government aims to have a Zero Carbon Act passed and an independent and expert Climate Commission established by the middle of next year.

One reason New Zealand has the fifth-highest per capita emissions among advanced economies is that 43 per cent of its emissions is methane, mainly belched by cattle and sheep. It is a much more potent greenhouse gas than carbon dioxide, but it is also short-lived, breaking down into CO2 and water within a few years.

In the past, Upton has argued for a "two baskets" approach that distinguishes long-lived gases like CO2 and nitrous oxide, which accumulate in the atmosphere and which have to go to net zero, from a shorter-lived gas like methane, for which we need to establish a sustainable ongoing rate of emissions.

As he puts it in this week's report: "If the source of the methane is agricultural, there is no net injection of carbon dioxide to the atmosphere. Given its shorter lifetime, emitting methane will not have the same irreversible inter-generational warming consequences that carbon dioxide or the release of nitrous oxide have." But that does not mean its warming impact can be ignored.

"[It] is the combined impact of all greenhouse gases, including methane, that contributes to the dangerous and currently increasing amount of warming that is occurring." Emissions of all three major greenhouse gases have to come down, the long-lived ones to zero, methane to some rate we can live with — and there is no global consensus yet on what that is.

This creates a dilemma.

A durable legislative framework for the transition to a low carbon future requires cross-party support. But the issue on which the major parties are most like to divide is on how to treat methane, given its importance to pastoral farming.

Upton proposes a two-stage process. The initial legislation would describe the long-term goal in high-level terms drawn from the Paris Agreement, like "achieve a balance between anthropogenic emissions by sources, and removals by sinks, of greenhouse gases in the second half of this century".

Turning that overarching goal of net zero in the second half of the century into a precise target — or targets — with a specified end date would be the first order of business for the Climate Commission the legislation would set up.

As the commission's role is always advisory, it would still be for Parliament to amend the initial legislation to incorporate the clear and exact specification.

At this stage it is an open question whether the National Party would agree to this process, even if, as the parliamentary commissioner also urges, it is consulted over appointments to the Climate Commission.

Upton argues that the question of separate treatment for methane has to be informed by expert advice in any case.

His report makes no comment on what policy instruments should be used to meet whatever carbon budgets emerge, but notes that no country relies on a price mechanism alone.

It acknowledges, however, that if there is a weak link in the British model, it is on the implementation side.

"There is no easy way to compel governments to act in a way that is consistent with budgets," says the report. "But this is inherent in an approach that leaves core economic and social policy decisions, and accountability for them, in the hands of elected representatives."

Transparency, however, is a cardinal virtue of the proposed model. Just as it has been for the Public Finance Act enacted nearly 30 years ago. The reporting requirements that law imposes on the Government are no guarantee against fiscal profligacy, or counter-productive tight-fistedness either, but they make it easier to detect.

So it should be for a Zero Carbon Act: "It may be perfectly reasonable to leave options open 10 or more years in advance of a budget period, but as that budget period draws nearer, the inadequacy of policies will progressively suggest that it is implausible that the budget will be met. At a certain point, the ongoing generation of emissions budgets that stand less and less chance of being met would, if allowed to continue, undermine the credibility of the entire system. The emperor would be found to have no clothes."