Sustainable Business and Finance: Climate change - an undeniable imperative for the Government

13 November 2023

This was first published as an opinion piece in NZ Herald’s Sustainable Business and Finance report

As we await the final shape of the coalition deal between National, Act and New Zealand First, we already know that the climate crisis will be an undeniable imperative for the incoming and all subsequent New Zealand governments.

Front and centre for the National Government will be climate adaptation — including managed retreat, building critical infrastructure resilience, and crisis response in the face of more frequent and severe weather events.

There is a broad consensus across the political spectrum that these are necessities. There may be divergence, though, on the detail of cost allocation and on the use of statutory powers to compel managed retreat.

The question of mitigation — how the country goes about reducing its emissions, and how quickly — is less clear cut. National, for example, has publicly reiterated its support for the Zero Carbon Act’s emissions reduction targets and budgets, while Act wants the legislation to be repealed.

Prime Minister-in-waiting Christopher Luxon has said that any government he leads will meet all of its emissions budgets, although he has yet to articulate a detailed plan to course-correct our present reduction track which is 114 million tonnes short of hitting the 2023 target.

All three prospective coalition partners see a role for the Emissions Trading Scheme (ETS) but none has declared a position on specific operational changes, including amendments consulted on by the Labour Government in June which would limit the ability to use carbon forests to offset emissions. There will also be scope for disagreement on how strong the ETS price signal should be, particularly following the July 2023 policy-setting change that substantially tightened the ETS unit supply and increased prices.

How ETS revenues are to be used will also be a big question, with a signalled move away from central government support for private sector decarbonisation.

As climate change is hardly a defining issue for either Act or New Zealand First, however, National may have a reasonably free hand in determining the incoming government’s climate response.

So, what was National offering the electorate in terms of climate change policy in the run-up to October 14? And how might that be modified by the interests of Act and New Zealand First?

  • National will defer the inclusion of agriculture into the ETS (or an alternative pricing structure) until 2030 (five years later than the current deadline) but will require farm-level emissions reporting by 2025.

The “carrot” is that it will provide financial assistance to farmers to lower their carbon profile, and remove the “ban” on genetic engineering and genetic modification technologies.

As Act and New Zealand First are engaged in a white-knuckle battle for the rural vote, the prospect of further deferrals or other forms of policy softening cannot be ruled out.

  • National will close the Climate Emergency Response Fund, set up by Labour in 2021 to funnel income received through the ETS into emissions reduction initiatives. Instead, those unallocated funds and future ETS revenues will go to the Government to be directed toward income tax cuts.
  • National will abolish the Government Investment in Decarbonising Industry (GIDI) Fund — a proposal that is causing some disquiet among would-be recipient businesses that will otherwise struggle to raise capital or make the business case for capex to invest in decarbonisation.
  • National will repeal the feebate programmes under which “clean car” discounts are funded through fees on high emitting vehicles (the infamous “Ute Tax”). A higher than anticipated uptake of EVs and hybrids since the fund’s introduction in 2021 meant that it has needed to be topped up by around $200 million. Instead, National plans to encourage electrification of the fleet by investing $250 million over four years in EV charging infrastructure.
  • National has also committed to abandoning the Lake Onslow battery project in favour of an ‘Electrify New Zealand’ strategy aimed at doubling renewable generation by providing a more enabling and truncated consenting process.

While there will be some changes in approach and, perhaps, in ambition on climate change under a Luxon-led Government, it appears likely that the architecture created by the Zero Carbon Act — with its long-term emissions targets, carbon budgets, and independent Climate Change Commission — will remain broadly intact.

That will be welcome news for the various business groups that have called for policy stability across election cycles.

Whatever the shape of policy, the reality is that the transition to a low carbon economy is now largely being driven from outside the domestic regulatory realm. At the national level, for example, Free Trade Agreements (FTAs) require New Zealand to uphold environmental standards and our most recent FTA, with the European Union, obliges us to effectively implement the Paris Agreement.

Meanwhile, many of our largest enterprises are already investing in decarbonisation and disclosing and managing their climate-related risks, not just to comply with regulation but also to continue to attract international investment, access debt capital and meet customer and wider stakeholder expectations.

These rapidly evolving international benchmarks will dictate the playbook for New Zealand companies seeking to borrow in global markets and to sell to the world — a set of levers out of the hands of a government of any stripe.

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