The Government is no longer on track to meet its first emissions budget in 2025 and will require significant and costly action offshore to hit its first Paris Agreement target in 2030, according to a paper taken to Cabinet by Climate Change Minister James Shaw.
Earlier this year, a board of public service executives charged with executing New Zealand’s climate goals warned the chances of meeting New Zealand’s first budget were “finely balanced”. A later paper from Shaw said officials had since updated their assessment and “determined we are no longer on track to meet EB1 [Emissions Budget 1] through policy impact”.
Officials estimated the country was 1.5 megatonnes of CO2 equivalent emissions short of hitting the emissions reductions required.
The paper also warned that the amount of emissions abatement expected from policy in the second and third emissions budgets had been “substantially downgraded”. The first emissions budget captures the period to 2025, the second captures the next five years to 2030 and the third captures the next five years to 2035.
The figures come from a paper Shaw took to Cabinet in July to start the process of New Zealand updating and submitting its next Nationally Determined Contribution (NDC), the main emissions pledge made under the Paris Agreement. NDCs are reviewed each five years, in the hope that each revision is more ambitious than the last
In 2021, New Zealand committed to up its first NDC to reduce net greenhouse gas emissions to 50 percent below gross 2005 levels by 2030.
The paper warned that New Zealand’s NDC is significantly more ambitious than New Zealand’s other big climate change target, the emissions budgets, which are set under the Zero Carbon Act.
This is not new. The Government has always known that reducing emissions domestically through the Zero Carbon Act’s emissions budgets to align them with the Paris Agreement’s NDCs would be economically punishing. The Climate Change Commission said aligning the two would probably lead to severe social and economic costs on communities, people and businesses.
To meet the NDC, the Government is relying on inking deals offshore that will offset emissions New Zealand does not get rid of within its own borders.
The cost of this will be immense, and is deeply uncertain, much to the frustration of policymakers and politicians. When the Government updated the NDC in 2021, Cabinet noted that the estimated cost for offshore mitigation ranged between $7.5 billion to $13.2b by 2030 for an NDC of 49 per cent reduction.
That cost has altered substantially. Treasury’s Climate Change Economic and Fiscal Assessment analysis has calculated the cost for the slightly different NDC of 50 per cent reduction to range between $3b and $23.7b by 2030.
The cost is essentially the price New Zealand will pay for bridging the gap between its domestic and international climate commitments.
The paper said that the 2030 NDC was “substantially more ambitious” than the two domestic emissions budgets that cover the same period.
It estimated an additional 99 megatonnes of CO2-equivalent emissions would need to be abated to hit the target, a figure worth about 15 months of New Zealand’s current net emissions.
But that figure assumes that New Zealand hits its domestic targets for emissions reduction, which is looking doubtful on current forecasts. New Zealand would need to purchase even more offshore abatement in order to hit the NDC.
The consequences for failing to meet the first NDC would be dire. New Zealand would risk becoming a climate pariah, and it could trigger clauses in the recently-signed trade agreement with the European Union that committed the country to hitting the targets.
The ray of sunshine is that New Zealand’s gross emissions continue to fall. Emissions peaked in 2019, with each subsequent year recording emissions drops. Part of this is due to the pandemic reducing economic activity, but despite the economy now being larger than it was pre-pandemic, emissions have remained below the pre-pandemic peak.
Shaw’s paper proposed that where the Government was off-track from hitting its emissions goals from the first Emissions Reduction Plan - the list of commitments the Government made to hit its emissions budget - ministers should tell their departments to “respond urgently and escalate any delivery risks”.
“In addition to being critical for meeting legislated emissions budgets, this will ensure that the action we are taking now is aligned with the Government’s priority for meeting the NDC as much as possible with domestic action,” Shaw said.
The challenge is acute. If the Government fails to meet the first budget, any additional emissions get rolled into the second budget, making hitting that budget even harder. As it stands, the second budget requires far steeper reductions than the first.
In order to hit the second budget, Shaw proposed that ministers consider “significant new proposals” to reduce emissions that would not just hit the second budget, but deliver reductions “well in excess” of what the Government was targeting so that the Government could “close the gap with the first NDC”.
Just what these “significant” proposals amounted to was withheld from the paper.