Consultations on the second budget period have begun

The Government has signalled a change of direction towards achieving net zero emissions by 2050 by publishing proposals for New Zealand’s second Emissions Reduction Plan (ERP2).

The proposals are set out in a discussion paper that consolidates the government’s policies and strategy to reduce emissions and meet our national budget over the next five years (2026-2030). They will feed into the final ERP2 publication, due by the end of 2024.

Policy approach focused on offsetting emissions

In the preamble to the discussion paper, Climate Change Minister Simon Watts sets out a clear intention to increase production, while relying on technology and offsets to meet New Zealand’s emissions targets. The proposals for ERP2 set out below reflect this ‘net’ policy approach: ERP2 will focus on offsetting emissions through carbon removal and forest plantations, and avoid abatement-based policies that could limit or reduce production in high-emission sectors of the economy.

The aim of this strategy is to keep New Zealand on track to achieve our second emissions budget of 305 megatonnes of carbon dioxide (Mt CO₂-to me).

However, updated Ministry of Environment projections presented here show that New Zealand is not on track to achieve its third emissions budget of 240 Mt CO2₂-e, our national target of net zero carbon emissions by 2050. These calculations are based on an updated baseline that takes into account changes in climate policy made by the Government over the past year. The discussion paper does not address this issue directly.

Focusing reductions on key sectors

Broadly speaking, the ERP2 proposals focus on offsetting and reducing emissions in the energy, transport, agriculture, forestry and waste sectors. These policies include:

• Strengthen and restore market confidence in the Emissions Trading Scheme (ETS) by stabilising ETS prices and avoiding policy changes that could threaten its credibility.
• Collaborating with the private sector to plant trees on low conservation value public lands.
• Reducing the cost and time of obtaining consent for renewable energy generation to support private investment in new projects such as offshore wind farms
• Investing in carbon capture, use and storage technologies to prevent CO emissions₂-e entering the atmosphere.
• Facilitating private investment in 10,000 electric vehicle charging points by 2030, thereby incentivising reductions in transport emissions.
• Improving public transport accessibility, including through Auckland’s rapid transit network, which will again encourage reduced transport emissions.
• Investing in technology that will help the agricultural sector reduce emissions without reducing production. This could include the potential of breeding genetically low-methane rams or introducing methane inhibitors into milk, sheep and beef.
• Investing in infrastructure to remove and process organic waste and capture landfill gases.

Agriculture

Agriculture is a priority in the second budget period, reflecting coalition government agreements to liberalise the use of genetic technologies in the primary sector. The inclusion of agricultural sectors in the ETS has been delayed from 2025 to 2030. In the meantime, proposed policies for ERP2 rely on new technologies that are not yet commercially available. These tools include low-methane sheep genetics and EcoPond^TMmethod to reduce methane emissions from dairy effluent ponds. These technologies are expected to be available to farmers from 2027/28, while other methods, such as methane inhibitors and vaccines, are still in the early stages of research. To prepare, the government is proposing to remove regulatory barriers to encourage research, development and approval of new technologies.

Forestry

To increase afforestation, the Government plans to explore options for planting a mix of native and exotic plantings on Crown lands through partnerships with the private sector. Although research is in its early stages, the Government believes there are areas of Crown land that are currently unsuitable for farming, have low conservation value and could be converted to forest for carbon sequestration. Partnership options for planting will be explored by the Department of Primary Industries, Land Information New Zealand and the Department of Environmental Protection once a land availability assessment is completed. While the Government’s proposals encourage afforestation, this is balanced by a preference for avoiding conversion of farms to forestry on high-quality productive lands. To achieve this, the Government proposes to limit the number of ETS registrations for conversion of whole farms to exotic forestry on high-quality productive lands.

Energy

In the energy sector, reductions are expected in the second fiscal period, mainly due to increased electrification and energy efficiency improvements. The Government has committed to doubling renewable energy by 2050 through the Electrify NZ work programme, such as investment in removing consent barriers to offshore wind farms. More details on this project will be announced soon. In addition to the ERP2 policies, we note that the Government is progressing plans to lift the ban on oil and gas exploration in New Zealand to help address concerns about depleting oil and gas reserves. This approach is expected to reduce reliance on coal as we transition to renewable energy.

Transport

Transport emissions account for 17.5% of New Zealand’s greenhouse gas emissions and are the fifth highest per capita emissions among industrialised countries. As highlighted above, the Government plans to focus primarily on the rollout of electric vehicle charging points across New Zealand to encourage the use of electric vehicles in the short term and ensure there is sufficient infrastructure to meet expected demand. In addition, the Government intends to maintain the Clean Car Importer Standard introduced by its predecessor, which established an annual carbon dioxide target that vehicle suppliers must meet each year. Investment in public transport projects is also expected to reduce emissions. Over the next decade, the Government has indicated that these projects include the Auckland City Rail Link, the Eastern Busway, the Northwest Rapid Transit, the Airport to Botany Busway and rail upgrades in the lower North Island.

Possibility of making a contribution

The proposed rules set out in ERP2 will influence future regulatory and non-regulatory developments in the key sectors discussed above for the period 2026-2030 and beyond.

The government is seeking feedback as it finalises ERP2 in the coming months. Consultation has launched Wednesday, July 17, 2024 and closes on Wednesday, August 21, 2024If you are interested in applying, please contact one of our experts.

The government will be presenting information webinars on ERP2 in the coming weeks, where experts from the Ministry of Environment will provide an opportunity to ask questions. Registration for each webinar is available here.

This article was co-authored by Imogene Jones, a solicitor in our Environmental team.