At last count in 2020, the energy and industry sector made about 18 million tonnes of emissions a year, much of it from the dirtiest fossil fuel - coal (file image). Photo: Cultura/Monty Rakusen
New Zealand is not on track to meet its climate targets, according to a new review, and it could end up costing the government millions making up the shortfall.
Officials warned earlier in the year the country did not have enough policies for cutting planet-heating gases.
Since then, the new government has scrapped several more policies, including subsidies to wean companies off coal boilers and discounts for electric cars. Pricing emissions from farming have been delayed until as late as 2030.
An independent review from the Climate Change Commission released this evening said the government should find ways to cut industrial emissions (for example burning coal to dry milk powder), pursue pricing farm gases (which make up around half of reported emissions) and take a razor to free pollution subsidies given to major exporters.
Its recommendation to: "Support moves to swap fossil fuels for renewable energy in heating and industry" comes after the new government scrapped the government Investment in Decarbonising Industry fund (GIDI), a polluter-funded scheme to help big factories wean off their coal boilers, which big polluters including Fonterra and NZ Steel made use of.
The commission said by taking more climate action the government could create new jobs and save businesses and households about $2 billion a year by 2040.
That is the estimated saving from replacing fossil fuels with renewable electricity in areas like transport and heating.
Between 2026 and 2030, the commission said country needs to reduce its climate pollution by the equivalent of 43.5 million tonnes of carbon dioxide - about the same as 3.6 million cars would produce in the same period.
It has recommended making walking and cycling easier, insulating more buildings to make them cheaper to run, and stopping connecting new buildings to the gas network unless there are no viable alternatives.
Commission chairperson Rod Carr says the government has choices about how to meet the budget, but it needs to make the maths add up.
One of the main pieces will be electrification, he says. Carr says the government's commitment to electrifying transport and industry is real and important "but needs to go beyond fast charging for electric vehicles", given New Zealand needs to add the equivalent of two large wind farms a year. He says private investment won't flow into certain areas without regularity certainty, for example on offshore wind turbines.
The government now has a year to write an emissions reduction plan for the five years from 2026.
Cost of failure
If New Zealand misses its own targets, it may end up paying millions extra to other countries, for climate projects to make up the shortfall.
National has committed to meeting both the country's international climate targets, and the domestic emissions budgets (the subject of today's report).
The international target for 2030 under the Paris Agreement has two parts: Domestic efforts and the purchase of extra carbon offsets from projects overseas, like solar or wind energy. That's because the commission has previously calculated it would be too costly and disruptive to make all the pre-2030 greenhouse gas cuts here in New Zealand.
Already the cost of topping up with overseas projects is expected to be $3b to 23b.
That assumes the country meets its own, domestic budgets - if it fails, more offshore help is needed.
The budgets are a series of five-year steps, reducing emissions downwards.
The first one runs from 2022-25. Officials previously told the Labour government New Zealand was only on track for that because of accounting changes to how emissions were calculated, despite real policies achieving too little.
Such technical changes are unlikely to come to the rescue again.
Today's advice concerns the second budget, which runs from 2026-2030, the crucial final four years for meeting New Zealand's international climate promises.
The energy and industry sector is crucial to meeting this budget.
About 40 percent of the cuts are expected to come from energy and industry, by the commission's count.
The sector was slated to make a big dent by retiring coal boilers, getting a cleaner electricity supply and reducing reliance on gas.
At last count in 2020, the sector made about 18 million tonnes of emissions a year, much of it from the dirtiest fossil fuel: Coal. This covers burning coal, gas and diesel to make electricity for the national grid (4.6m tonnes), burning gas and coal in industrial boilers, for drying milk, pulping wood into paper and other low-hear processes (3.9m tonnes) and Industrial production of cement, steel, and aluminium made (3.1m tonnes).
The National Party said throughout the election campaign that it would scrap GIDI but it also expected emissions pricing, under the Emissions Trading Scheme, to fill the gap, by prodding companies to clean up without needing subsidies.
The commission's conclusion that the country is off-track suggests new policies (like a stable ETS and doubling renewable energy by 2050) have not yet filled the gap left by policies scrapped.
National said rising polluter levies under the Emissions Trading Scheme would get companies to take action without taxpayer subsidies and promised to stop tweaking the scheme to give businesses more certainty.
But the commission's advice suggests the ETS will not deliver the emissions cuts needed under its current settings, which promote cheap pine planting and give large, free allocations to big, polluting exporters.
There is, however, more synergy between government plans and the commission's renewable energy recommendations, which calls for reducing barriers to consenting wind and solar farms - something the coalition has already said it will do, as part of goal to double renewable electricity by 2050.
The report lands just days after Climate Change Minister Simon Watts spoke at the world climate summit in Dubai, where he talked about how New Zealand was already being hit by climate extremes such as this year's Cyclone Gabrielle and was bracing for fires during the hot, dry summer ahead.
In his speech, Watts reaffirmed New Zealand's target of making a net cut of 50 percent off 2005's gross greenhouse gas emissions by 2030, which in real terms translates into producing roughly 150m tonnes fewer emissions than it usually would have over the decade to 2030.
The commission says meeting emissions requires pulling levers in all sectors, including energy, transport, farming and industry.
About half of New Zealand's emissions are not priced because they are from farming.
The other half is under the ETS. But there are big carveouts for companies that export goods, and no limits on how much of the country's pollution can be offset by planting pine trees.
The commission has said that for ETS to function properly, the government needs to look at these carveouts again, meaning the millions in free subsidies granted to exporter-polluters, including Methanex, NZ Steel and Rio Tinto. These big emitters currently have little incentive to clean up their factories, because of the free allowances.
The National Party scrapped a review of the ETS which Labour was undertaking, to address risks that the market would be flooded with cheap credits from converting farmland to pine trees in the 2030s.
National has said the proper place to limit pine planting is in local and regional planning rules. It cited a desire for certainty in the market when scrapping the review.
The commission repeated in its advice today that it doesn't believe current settings will achieve New Zealand's targets.
Carr says the commission is only advising and the government has choices about how to meet the budget, but it needs to make the maths add up.
"At the end of the day it is the government that needs to provide the leadership," he said.
The commission's advice includes:
- Build more renewable electricity, such as solar, wind, and geothermal, and ensure networks keep up with growing and variable demand
- Support moves to swap fossil fuels for renewable energy in heating and industry
- Retrofit buildings so they are healthier, more resilient, lower emissions and cheaper to run
- Avoid installing new fossil gas in buildings where there are affordable low emissions alternatives
- Encourage households and businesses to switch to electric vehicles
- Make it easier for more people to choose public or active transport
- Prepare for the rapid roll-out of low emissions technologies and practices on farms
- Directly resource iwi/Māori efforts to reduce climate pollution
- Sort out the New Zealand Emissions Trading Scheme and the role of forests
- Commit to how much climate pollution must be cut at its source