The Climate Change Commission has warned the Government will have to increase the pace of its emission reductions to achieve the next emissions budget and has recommended 19 policies to help.
These include reforming the emissions trading scheme (ETS), fast-tracking renewable energy developments, retrofitting buildings, improving public transport, and putting a price on agricultural emissions.
The Commission, which provides independent advice on how to achieve the country’s climate change objectives, has released its draft advice for the 2026 to 2030 emissions budget.
Commission Chairman Rod Carr said the headline message was that New Zealand needed to “pick up the pace” of gross emissions reductions.
“We must ensure we are reducing our gross emissions from all sources as much as possible, rather than solely relying on offsetting our climate pollution. Storing carbon should be focused on offsetting emissions from activities that are really hard to decarbonise”.
Current policies were encouraging an over-reliance on sequestration from pine forests, which could threaten the gross emission reductions required to stay net-zero beyond 2025.
In short, he was concerned pine trees storing tonnes of carbon could “burn down, blow down, or die" and unravel climate progress.
Not fit for purpose
To fix this problem, the Commission has called for an overhaul of the ETS, which it said was “not fit to drive gross emissions reductions” over the next two budget periods.
The ETS currently treats gross emissions reductions and forestry sequestration as direct equivalents. One tonne of removal allows one tonne of emissions.
However, establishing and growing pine forests costs somewhere between $25 and $50 per tonne of carbon, while reducing emissions at their source can cost upwards of $100.
This means a lot of pine forests will be planted before it becomes economic for businesses to pursue gross emission reductions.
The Ministry for the Environment has estimated roughly four million hectares of land could be profitably converted into forestry at $50 per tonne of carbon.
Currently policy settings could see vast swathes of the country covered in pine trees, and very little actual reduction in gross emissions.
The scheme needs to be redesigned to create different incentives for forestry and net reductions from businesses.
Changing the rules of the scheme could create uncertainty, disrupt participants' emission reduction plans, and possibly even delay climate action.
However, the Commission believes the only real alternative would be to allow the ETS to become a forestry scheme, explicitly aimed at reducing net emissions, while pursuing decarbonisation through other policies.
This could result in taxpayers bearing higher costs for reductions, just ones that are less visible than in a market-based scheme.
While the Commission was only designed to give strategic advice on the general direction of policy, it did outline some potential options for amending the scheme.
These included limiting the number of forestry units that emitters can surrender to meet their obligations, introducing the minimum emissions price via a levy, limiting the new area of forest land that can be registered in the scheme, or moving forestry into its own separate mechanism.
Each of these come with complexities and would need more detailed policy work. The Ministry for the Environment has begun looking at whether the scheme's settings need to be changed.
Gross targets
The Commission has recommended the Government commit to a specific level of gross emission reductions in the second and third budget periods, in addition to the existing net targets.
How much reduction should come from emissions sources and from forestry should be communicated more clearly to guide both policy development and investment decisions.
The draft advice also suggests advancing agricultural emission pricing to capture a broader range of emission reducing practices.
It encouraged higher density, mixed-used zoning rules, investing in public and active transport infrastructure, and retrofitting buildings to create less emissions.
The Government should complete cycleway networks by 2030 and rapid transport networks by 2035 in large cities.
It also called for renewable electricity developments to be accelerated in order to meet increased demand for energy as the economy decarbonized.
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