Draft Second Emissions Reduction Plan open for consultation
17 July 2024
The Government has released its draft plan for achieving greenhouse emissions reductions over the coming years. The draft second Emissions Reduction Plan (ERP2) lays out policies intended to help New Zealand achieve its five year emissions budgets, its international commitments, and the net zero (excluding biogenic methane) by 2050 overall target.
This plan will be the backbone of the Government’s climate policy until 2030 and will have major impacts across the economy. We strongly recommend that affected clients make their voices heard in this consultation. Consultation closes on 21 August 2024.
Summary
The draft ERP2 projects that the country will narrowly achieve the first and second emissions budgets (2022-2025 and 2026-2030) but is currently on course to exceed the 2031-2035 emissions budget. New Zealand will get close to achieving the 2050 target but struggle to get over the line due to increasingly hard to abate emissions remaining. The Government’s removal of a number of significant emissions reduction policies put in place by the previous government has led to an increase in forecast emissions compared to the first emissions reduction plan.
The draft ERP2 relies heavily on the Emissions Trading Scheme, stating “Strengthening the New Zealand Emissions Trading Scheme (NZ ETS) by restoring market confidence is critical to ERP2. A credible NZ ETS with a cap that progressively tightens over time will help drive investment across the economy in emissions reductions and carbon removals at least cost to households and businesses”.
New Zealand calculates its overall emissions on a net basis (emissions minus sequestration/offsets). The Climate Change Commission has been sounding the alarm in recent years that New Zealand is relying too heavily on forestry sequestration to meet its emissions budgets in the near term – saying this will create problems in the longer term, undermining the ETS by creating a flood of offset credits, undermining the carbon price and reducing the incentive for gross emissions reductions. The draft ERP2 rejects these concerns, stating “The net-based approach helps us meet the second emissions budget at least cost.” Forestry sequestration is the largest source of net reductions in the 2025-2030 emissions budget, with the Government also expecting carbon capture and storage to become an important tool.
Key policies
There are no entirely new major policies in ERP2. Instead, it gathers together and shows the projected impacts of previously-signaled or announced policies. Some new details are announced for the first time.
The policies included in ERP2 have relatively little impact on the trajectory of the country’s emissions: a four megatonne reduction during the second emissions budget of a total 50MT reduction from first emissions budget levels, and a 14MT reduction for the third emissions budget out of a total 46MT projected reduction. Most of the reductions will come from existing policies, revitalising the ETS, and private action.
Strengthening the Emissions Trading Scheme
The Government sees the ETS as the central tool for driving emissions reductions – the theory being a tightening cap on carbon credits will drive the carbon price up and emitters and sequestrators will find least cost solutions to reduce emissions as a result.
The ETS has been hampered by an oversupply of forestry credits and a large stockpile of unused credits, which has meant most recent ETS auctions have failed to clear, undermining the carbon price.
In the draft ERP2, the Government rejects some ideas put forward to girder the ETS:
- No expiry date for carbon credits
- No differential treatment of forestry credits
The draft ERP2 provides little concrete detail on how the Government intends to strengthen the ETS and no price targets but signals action in select areas, including:
- Align carbon credit supply with the second emissions budget and update annually.
- Predictability and communicating that the Government understands credibility is important
- Updating industrial allocation settings
- introduce limits on the entry of new forests into the NZ ETS on productive farmland
- Actions to ‘manage potential risks’ related to the carbon credit stockpile
The Government also recognises that relying solely on higher carbon prices to drive net emission reductions would increase the cost of living and will not be entirely effective.
Energy
The draft ERP2 identifies electrification as a key to reducing the 37% of gross emissions that come from energy use. 46% of energy use (measured by emissions) is identified as well suited to electrification and a further 16% as may be suitable for electrification.
Enabling this scale of electrification would require a large increase in renewable electricity generation. The Government has committed to doubling renewable energy by 2050. Specific policies to help achieve this in ERP2 are:
- Electrify NZ – reduce consenting burden
- Investigate carbon capture and storage (CCUS)
Transport
ERP2 identifies electrifying the light vehicle fleet as a priority, as it is responsible for 11% of total gross emissions, followed by the heavy vehicle fleet. The ERP2 lists the following policy priorities:
- enable a network of 10,000 public EV charging points by 2030 and facilitate private investment in EV charging infrastructure.
- Providing grants to support organisations to purchase zero-emissions heavy vehicles or to convert heavy vehicles to hybrid or zero-emissions technology
- review regulatory barriers to decarbonising heavy vehicles – vehicle dimension and mass rules
- Public charging for heavy vehicles
- work with other countries on sustainable aviation fuels and low- and zero-carbon shipping on key trade routes by 2035.
- support public transport in our main cities.
Agriculture
Agriculture makes up half of New Zealand’s emissions and the Government has confirmed that it will keep the sector out of the ETS.
Instead, the draft ERP2 proposes
- accelerating the development of mitigation tools and technologies to reduce on-farm emissions.
- Low-methane genetics are spread through a flock of low methane rams. The impact of low-methane genetics is permanent and cumulative, with a flock becoming more methane efficient each year. Assuming availability from 2025.
- Supporting development and uptake of methane inhibitors. Assuming a 60% effective methane inhibitor is available for dairy in 2027, and sheep and beef in 2030.
- Supporting uptake of EcoPondTM for dairy farms. Assuming availability from 2025.
- developing measurement of on-farm emissions for use by 2025.
- Implementing a fair and sustainable pricing system for on-farm emissions by 2030.
Controversially, the Government is also reviewing methane science and targets, based on the claim that agriculture should be allowed to continue creating the existing level of climate heating.
Forestry
Forestry is the primary offset for gross emissions, with offsets set to grow dramatically as recently planted carbon forests mature and more forests are planted. The draft ERP2 proposes:
- A limit whole-farm conversions to forestry on high-quality land to protect highly productive farmland.
- boosting wood processing by improving the consenting framework, supporting commercial investments and getting the system settings right to be building with wood.
The Government also wants to explore non-forestry removals, such as wetlands and coastal vegetation, which are not currently recognised in international carbon accounting.
Waste
The draft ERP2 sees the waste sector as contributing some of the largest reductions to emissions in emissions budgets 2 and 3. The Government proposes to enable this by:
- Ensuring the New Zealand Emissions Trading Scheme (NZ ETS) incentivises efficient landfill gas capture.
- Allocating a portion of the waste disposal levy to investment in New Zealand’s waste infrastructure.
- further targeted investment in New Zealand’s resource recovery infrastructure and systems (including for construction and demolition waste).
- Working with industry to investigate opportunities to improve organic waste disposal and landfill gas capture.
Building and construction
The draft ERP2 contains no specific policies regarding building and construction but states “The Government intends to support green building practices in New Zealand, and work to establish a clearer picture of this is underway. We’re interested in exploring this topic further as part of ERP2.”
Developing your submission
Capital has the capacity to draft or review submissions to ERP2. Please get in touch if you would like to discuss your needs.