A tougher starting point means emissions must fall by more to meet the 2050 targets, according to final advice released by the Climate Change Commission.
The much-anticipated advice was tabled in Parliament on June 9, and stressed both the urgency around action along with the need to lay foundations to support deeper emissions reductions long-term.
The advice was released in a 400-page report called Ināia tonu nei: a low emissions future for Aotearoa, which clearly reiterates the Commission's position that New Zealand is not on track to meet its targets with current policy settings. It highlights the widespread changes that will be needed to effect the transition to a low-carbon economy, but also describes transformational and lasting change as “both necessary and possible" – stating the technology and tools needed for New Zealand to reach its climate targets already exist.
This is a significant body of information that offers a rare level of insight around the path of travel for policy over the next 15 years and beyond. Businesses should look to the final advice to inform and update their own strategies, and prepare to engage early on policy decisions which are due to be made by the end of the year.
In this article we focus on the recommendations set out in the final report, rather than comparison with the draft advice released in January 2021. The final advice reflects extensive research and analysis and a consultation that encompassed submissions from more than 15,000 people. It also involves changes to the assumptions, modelling and some raw emissions data, in part as a result of feedback and updated data.
New recommended emissions budgets
Emissions budgets have risen slightly compared to the draft advice released in January, which means meeting 2050 targets will be harder. In part that is because the latest New Zealand emissions inventory data revised up historic emissions and shows emissions are still increasing, leading to a tougher start point for the transition to zero carbon.
From a start point of 78 metric tonnes of carbon dioxide equivalent (MT CO2e) in 2019, the recommended emissions budgets in the final report are:
72.4 MT CO2e a year for the four years from 2022-2025
62.4 MT CO2e a year for the five years from 2026-2030
50.6 MT CO2e a year for the five years from 2031-3035
Against a starting point of 2019, the final advice maintains a path with relatively fewer emissions reductions in the near term, and progressively deeper emissions reductions over time. This trajectory provides time for the transition to occur, and to help minimise the social and economic impact.
The importance of certainty of the direction and pace of transition was a notable theme of the final advice, critical to allowing organisations and individuals to make decisions that will change the way they live, work and operate.
A comprehensive and cohesive strategy is required
The Commission was clear in its final advice that it considers the “emissions reduction plan the Government is required to develop in response to this advice needs to provide a comprehensive and cohesive strategy, setting new policies that lay the foundation for the transition". That plan should include action to address barriers and drive focus on innovation and system transformation, which are complementary to strengthened emissions pricing under the NZ ETS.
While setting the expectation that the emissions reduction plan should capitalise on those opportunities to reduce emissions immediately, it also highlighted the need to take a long-term strategic approach to set the country up for accelerated emissions reductions down the track. “We need to be careful that in our haste to achieve more immediate emissions reductions, we do not constrain the ability of the economy to support deeper reductions later," the Commission said.
International research and experience clearly show the best approach to reducing emissions is to implement a comprehensive suite of climate policies alongside pricing schemes, it said. While the Commission recognised the importance of the New Zealand Emissions Trading Scheme (NZ ETS) as a tool in strengthening market incentives to drive low-emissions choices and investments, it considers the Government needs to make changes to ensure the NZ ETS is “fit for purpose and sends a strong price signal".
A coordinated approach to addressing climate change across Government was also advocated. This included nominating specific Ministers and agencies with accountability for implementing policies and strategies in the emissions reduction plans to ensure clear 'ownership' of actions. That should be supported by 'Vote Climate Change' to consolidate existing and future government funding for core climate change mitigation and adaptation, which would be open to multiple Government agencies.
Contribution to the global effort
The final advice reiterated that the current Nationally Determined Contribution (NDC) – reducing net emissions to 30% below 2005 gross emissions levels over the 2021-2030 period – is not compatible with contributing to global efforts to limit global warming to 1.5 degrees C. To be compatible with that goal, the NDC would need to reflect emissions reductions by “much more" than 36% below 2005 levels by 2030.
However, the Commission said the share of New Zealand's contribution to global reductions depended on social and political judgements that should be made by the Government of the day. Even while defining its proposed budgets as ambitious, it notes the NDC goes further.
The Commission said offshore mitigation would be needed to achieve the NDC. It has said the use of offshore mitigation wasn't about doing less domestically, but about increasing New Zealand's contribution beyond what can be achieved locally.
The cost of inaction is greater
The Commission said a key challenge in preparing its advice was to find a balance between catching up after years of limited action, and moving at a sustainable pace that gives people time to plan and change. It addressed feedback from some that the ambition expressed will cost too much – but said despite re-examining assumptions, re-running models and conducting more sensitivity analysis, its conclusion that New Zealand can reduce emissions while continuing to grow the economy and improve wellbeing still holds.
The final advice notes that the level of GDP could be around 0.5% lower in 2035 and 1.2% lower in 2050 as a result of action to reduce emissions. But that is outweighed by the cost of inaction. Delaying key actions like the move to EVs and embedding more efficient farm practices could result in a 2.3% fall in the level of GDP in 2050.
The response from Government
The final advice met with an immediate acknowledgement by Prime Minister Jacinda Ardern that more needs to be done. While a lot of what the Commission has recommended was underway, there would be more from Government on key initiatives in coming weeks, she said.
Climate Minister James Shaw said the Commission's advice sets out a path that would need every part of Government to commit to further action to bring down emissions in their sector. “If we can do that, then we can reverse the current trend and finally bring emissions down in line with what science requires," he said.
The Government now has until 31 December 2021 to respond to the advice through an emissions reduction plan, and set the first three emissions budgets out to 2035.
Some have argued that the carbon price rather than wider policy should be a focus for effecting the transition to a low carbon economy. In its final advice, the Climate Change Commission offered strong rebuttal against the approach of using the NZ ETS alone to reach New Zealand's targets, pointing to a wide range of structural, political and behavioural barriers that prevent people and businesses from making the most of cost-effective opportunities to reduce emissions. While it said emissions pricing should be key to any policy package, it was clear in its view that emissions pricing works better when accompanied by other policies that address the full range of market failures and barriers.
This has culminated in the Commission's recommendation for a package of complementary policies, across a wide range of sectors, to address these market failures. As recognised by the Commission each of the policies comprising this package will need to be designed in a manner that is efficient and effective in their own right as well as part of the wider policy package, with a real need for the policies to reinforce, not undermine, each other or emissions pricing.
The Commission has clarified any confusion over its role. It has said its policy advice is intended to provide strategic direction. However, it is the Government's role (not the Commission's) to consider the detailed design and implementation of policies, guided by that direction. There is a clear recommendation that the Government will need to develop further policy to effect transition and the response from Government has already been a commitment to further action.
The Government has until the end of 2021 to determine its package of policies that will comprise its climate action plan. This will be determined in a Cabinet decision, and then detailed design and implementation will need to occur in 2022 before the policies come into effect. Where such policies require legislative or regulatory change, then there is a further step (and delay) to enable the change to be progressed and the policy implemented. If there is a desire to have those policies take effect in time to affect the first updated emissions budget period (2022-2025), it is likely we will see significant action sooner rather than later, with work on some policy areas already underway.
The final report has provided strong insight for businesses on the path of travel over the next 15 years and beyond. Disregarding this would be a risky strategy. Most businesses of scale will already have or are working on their own strategies to respond to the economic transition to come. Those that opt to wait in their individual response could face a more painful adaptation forced by regulatory change in the future.
As mentioned, the Government has until 31 December to respond to the advice with its emissions reduction plan. The Commission has set out its expectation that the Government's plan will include the date by which each policy or action will be initiated, implemented and completed by, along with milestone reporting periods and reporting on matters such as budgeting and resourcing. One of the Commission's roles is to monitor the Government's progress in implementing its emissions reduction plan and assess its adequacy. The Commission will report on this annually from 2024.
Accordingly, by 31 December 2021 we will have certainty of the Government's choice of a package of policies comprising its emissions reduction plan along with an implementation roadmap. Some of the policy proposals may also emerge throughout the remainder of this year.
We recommend businesses review the final advice to inform their individual strategies and look to engage in what has to date been an open process which has sought to be responsive to real-world feedback. Waiting to see definitive policies before taking this step would result in a lost opportunity for a business to understand how it should individually engage on policies relevant to its sector. The time any policy process will take offers opportunity for further engagement in the future.
Businesses should also be aware of the significant role the NDC plays in the path ahead, and alert to any changes that may emerge from New Zealand's approach to COP26, the 26th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change. It will be held in Glasgow 1-12 November 2021.
If you have any questions about the final advice or require guidance on climate change-related issues, please contact our climate change team or your usual Bell Gully advisor.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.