Draft advice to inform the strategic direction of the Government’s second emissions reduction plan

The Commission’s role, as laid out in the Climate Change Response Act 2002 (the Act), is to provide independent, evidence-based advice to successive governments on the actions needed to achieve the country’s climate change objectives. It is the responsibility of the relevant Ministers and government entities to consider our advice and determine and implement specific policies and measures.

The Act put into law Aotearoa New Zealand’s 2050 target, as well as the process for reaching it. Under the Act, the Government sets emissions budgets – which confirm the total allowable emissions across a five-year period – and emissions reduction plans, which outline the actions it will take to achieve those budgets.

In line with our role, we are preparing to provide advice to the Government on the direction of policy for its second emissions reduction plan. This plan will cover the second emissions budget period, from 2026-2030. This report is a draft of that advice prepared for public consultation. Our final advice will reflect the feedback we receive through the engagement process and will be delivered to the Government at the end of this year.

As an independent Crown entity, we have based our draft advice on research and analysis, and in the interests of helping the Government make decisions to transition to a thriving, climate-resilient, and low emissions Aotearoa New Zealand.

We are following a similarly robust and rigorous process to the one we employed when preparing our advice to the Government on its first emissions reduction plan, Ināia tonu nei: a low emissions future for Aotearoa. This includes drawing on a broad base of engagement and evidence, following our established methodology to develop proposed recommendations, and consulting on those proposals so that we can revise them as appropriate.

This consultation process seeks the input of Iwi/Māori, academics, businesses, communities, farmers, local government, NGOs, sector bodies, unions, individuals, and others. We are looking for evidence, perspectives, insights, and other information that tests and improves the advice we give to the Government.  

Action is needed now

Actions underway as part of the first emissions reduction plan and actions taken by households, businesses, and communities are all positive signs that the country is committed to achieving a low emissions future. The uptake of electric vehicles, conversions away from coal, and awareness of the importance of and options for reducing agricultural emissions indicate that we are starting to make progress on reducing our emissions.

Aotearoa New Zealand now needs to build on that momentum to broaden, strengthen, and accelerate action to meet its climate change objectives.

This draft report contains proposed recommendations which are the urgent, critical actions required to achieve the second emissions budget and ensure Aotearoa New Zealand is on track to achieve the third budget (2031-2035) and beyond. We provide a strategic perspective across the second and third emissions budget period through the lens of achieving the 2050 target and contributing to the global effort under the Paris Agreement to limit the global average temperature increase to 1.5°C above pre-industrial levels.

Our draft report is divided into three parts:

• Fundamentals for success
• Creating low emission options
• Enabling system transformation

Each part contains chapters focused on specific areas of action required, including the context and rationale for our proposed recommendations. We have focused on identifying critical gaps in action as well as where existing actions need to be urgently strengthened and accelerated, as together these pose the greatest risks to Aotearoa New Zealand’s ability to achieve its emissions reduction goals. In this way, our work draws and builds on our previous work, including Ināia tonu nei.

Aotearoa New Zealand has joined international efforts to address climate change in addition to and beyond its domestic targets. Emissions reduction plans, however, are focused specifically on meeting emissions budgets, the domestic 2050 target, and Aotearoa New Zealand’s domestic contribution to limiting warming to 1.5°C. This advice on the direction of policy for the second emissions reduction plan therefore does not focus on these global contributions, including the Nationally Determined Contribution (NDC) under the Paris Agreement.

We note, however, that these international contributions remain relevant to this advice, as any emissions reductions achieved over and above those required within a budget period will help close the gap between Aotearoa New Zealand’s domestic and global contributions.

Part 1: Fundamentals for success 

The first part of our draft advice relates to the fundamental elements of success that underpin Aotearoa New Zealand’s climate action. Getting these fundamentals right is critical for meeting our climate objectives, as they will lay the foundation for effective action across all emissions budget periods.

These fundamentals include the Government committing to a specific level of gross emissions reduction in the second and third emissions budget periods that ensures Aotearoa New Zealand is on track to meet the 2050 target, including achieving and sustaining net zero emissions of all long-lived greenhouse gases. A path that relies heavily on planting new forests to achieve net zero would increase exposure to risks such as fires, pests, and diseases. This could mean carbon is released back into the atmosphere and carbon storage is lost.

We propose recommending that in the second emissions reduction plan the Government provide clarity on the outcomes it is seeking on gross emissions reductions and carbon dioxide removals. This includes committing to a specific level of gross emissions for the second and third emissions budgets, no less ambitious than 362 MtCO₂e and 322 MtCO₂e respectively and ensuring that policy choices align with delivering this outcome. We also propose that the Government communicate indicative levels of gross emissions and carbon dioxide removals out to 2050.

These actions will help guide policy development and send clear signals to businesses and households about the importance of taking actions to reduce emissions.

Related to this, we propose recommending that the Government revisit the design of the incentives created by the New Zealand Emissions Trading Scheme (NZ ETS) to ensure it supports the desired outcomes for the transition to net zero long-lived gas emissions. The existing NZ ETS architecture, combined with the relatively low cost of using forests to capture carbon, is likely to result in extensive afforestation in the near term, which in turn is likely to slow efforts to reduce emissions at their source. In addition, over the long term the NZ ETS will not provide the durable incentives for planting forests needed to reach net zero long-lived gas emissions across the economy by 2050.

The NZ ETS is an important part of Government’s strategy to reduce emissions. Putting a price on emissions, which in turn raises the price of emissions-intensive activities and goods, encourages participants to make different choices and innovate to find low emissions alternatives. However, to be effective it needs to be calibrated to achieve the outcomes the Government is seeking. The NZ ETS is a tool, not a strategy in and of itself.

We also highlight that industrial free allocation policy is not consistent with the 2050 net zero long-lived gas emissions target and does not appear to be proportional to the risk of emissions leakage, noting the global context has significantly shifted since industrial free allocation was first introduced.

We note that some Iwi/Māori entities have a significant stake in the NZ ETS, particularly in relation to forests, and have heard from some that the NZ ETS in its current form is inequitable. Any Government decisions about amending the NZ ETS uphold Te Tiriti o Waitangi/The Treaty of Waitangi.

Similarly, we recognise that the Crown and Iwi/Māori need to work in partnership to accelerate progress towards the 2050 targets and collectively build climate-resilient communities. Mitigation and adaptation pathways that consider the Crown-Māori relationship, te ao Māori, and specific effects for Iwi and Māori will lead to more enduring and equitable outcomes.

We propose recommending that the second emissions reduction plan accelerate Iwi/Māori emissions reductions and climate change adaptation initiatives by exploring and implementing a mechanism to allocate resourcing direct to Iwi and increase funding to Māori landowners. We also propose recommending that the plan support Iwi/Māori to drive the integration of mātauranga Māori into policy design, development, and implementation at central and local government levels by providing sufficient resources.

While transitioning to a low emissions and resilient future will improve the health and wellbeing of all New Zealanders, the Commission also recognises that the cost and impacts of the low emissions transition may not be experienced equally. Often those least able to take advantage of low carbon alternatives, therefore potentially facing higher costs, will also be most at risk from the physical impacts of climate change.

To address the compounding needs of different groups arising from mitigation and adaptation, we propose recommending that the Government expand the scope of the Equitable Transitions Strategy to include adaptation.

Emissions pricing through the NZ ETS will have greater impacts on low-income households than high-income households, as higher income households likely have more capacity to adapt. The Commission has previously advised (in its 2023 NZ ETS settings advice) that developing targeted, complementary policies will better enable Aotearoa New Zealand to address issues of social and economic equity and tackle climate change in parallel.

Rather than using the NZ ETS price control settings or otherwise delaying climate action, we propose recommending that Government utilise existing mechanisms to manage transitional impacts as it develops its Equitable Transitions Strategy.

Part 2: Creating low emissions options

The second section of our draft advice contains specific proposed recommendations for different sectors, all with a part to play in meeting the second emissions budget.

Ensuring that agriculture reduces emissions will be an important factor in meeting the second emissions budget and the 2030 biogenic methane target. A broad suite of actions and policies is required to ensure an equitable transition to a low emissions sector.

It is crucial that agricultural emissions pricing is not delayed, as this would make it less likely for Aotearoa New Zealand to meet its climate targets. We propose recommending that the Government advance the agricultural emissions pricing system to enable recognition of multiple gross emissions-reducing practices and technologies and drive gross emissions reductions in line with the 2050 target.

Farmers will need support to change practices, so we also propose recommending that the Government enhance advisory and extension services to farmers to accelerate the adoption of emissions-efficient practices, appropriate land-use diversification, and emerging technologies to reduce gross emissions. These services should be co-designed and implemented  working with industry. The Government should also partner with Iwi/Māori and Māori-collectives to further develop and fund Māori-focused advisory services targeting the specific needs of Māori-collective landowners.

The way towns and cities are shaped impacts emissions across land use, transport, buildings, energy, and waste through our built environment. Existing urban form in Aotearoa New Zealand is not compatible with our climate challenges and change is required for the second budget period.

Our proposed recommendations include incentivising comprehensive retrofits to deliver healthy, resilient, low emissions buildings, prohibiting the new installation of fossil gas in buildings where there are affordable and technically viable low emissions alternatives, and implementing an integrated planning system that builds cities upward and mixes uses while progressively avoiding climate risks.

The largest share of emissions reductions in the second emissions budget period is expected to come from energy and industry. Therefore, getting the settings right to support electrification is crucial.

Our proposed recommendations include prioritising and accelerating renewable electricity generation build. We estimate that if renewable generation build is six months behind the Commission’s updated demonstration path, emissions would increase on average by 0.9 MtCO₂e and a 12-month delay would increase emissions by 1.8 MtCO₂e across the second emissions budget period. This is because fossil gas generation will need to operate more to meet projected demand. Continued uncertainty and build delays could make it challenging to meet emissions budgets.

We also propose recommending ensuring electricity distribution networks can support the growth and variability of supply and demand. This will require appropriate consenting and network planning processes to support the deployment of new renewable electricity, backed by energy efficiency and demand-side management.

We also propose recommending that the Government pursue widespread process heat decarbonisation and establish mechanisms for other industrial sectors to decarbonise, as industrial emissions reductions are crucial to meeting the second emissions budget. Industrial emissions can be reduced faster than the Commission originally assumed in Ināia tonu nei. However, barriers will need to be addressed and policy support must be broadened to address large industrial sites like those in the mining and construction sectors.

Forests are important for meeting long-lived gas targets through the removal and storage of carbon dioxide, and can provide wider benefits including enhanced biodiversity, better management of water and air quality, and the stabilisation of land to manage erosion.

However, we caution against over-reliance on this sector. We have therefore proposed recommending the Government set and implement integrated objectives for the role of forests with respect to emissions mitigation and adaptation, while giving effect to the principles of Te Tiriti o Waitangi/The Treaty of Waitangi.

For the second emissions reduction plan, it is critical that the Government focus simultaneously on actions needed to meet the second emissions budget and to enable meeting the third. Transport is a clear example of this. For the second emissions budget period we propose recommending that the Government rapidly resolve the existing barriers to scaling up vehicle charging infrastructure, and at the same time develop incentives to accelerate the uptake of zero emissions commercial vehicles including vans, utes, and trucks.

The greatest opportunities to reduce emissions through increased uptake of walking, cycling, and public transport are in major population centres, which account for 65% of national light vehicle kilometres travelled. We are therefore proposing to recommend that the Government simplify planning and increase funding of integrated transport networks that optimise public and active transport. For major population centres, the Government should also complete cycleway networks by 2030 and take steps to complete rapid transport networks by 2035.

Finally, additional action is required in the waste sector, including F-gases. Emissions from waste can be reduced by decreasing the production of waste, phasing out the landfilling of organic waste, reducing the embodied emissions from waste, avoiding and preventing fossil-fuel waste generation, and ensuring highly efficient gas capture at landfills where organic waste is accepted.

A cohesive long-term waste infrastructure plan for Aotearoa New Zealand to deliver appropriate facilities is needed in the first emissions budget period to support these objectives.  

For the second emissions budget period we propose recommending that the Government apply regulatory and policy instruments to achieve the optimal use and efficiency of landfill gas capture systems and technologies at all landfills. At the same time, it should improve the accuracy and transparency of landfill gas capture data by executing a review of relevant regulatory and policy tools.

Measures should be advanced to increase industry-wide knowledge of – and confidence in – low Global Warming Potential gas alternatives and to promote their uptake across different sectors in the economy. This includes establishing a robust policy and regulatory framework to promote the management and handling best practice of F-gases and refrigerants, enabling effective enforcement. 

Part 3: Enabling system transformation

In our draft advice we have also included proposed advice relating to some key enablers that will support a low emissions system transformation. These include enhancing the research, science, innovation, and technology system, broadening, deepening, and accelerating climate funding and finance, and fostering a more circular economy and sustainable bioeconomy.

A strong research, science, innovation, and technology system is fundamental to transition Aotearoa New Zealand to a thriving and resilient low emissions future.

Strengthening this system requires further targeted investment. This will ensure that the climate change science capacity and capability developed over the last decade through funding mechanisms like the National Science Challenges will support an equitable path to achieving the 2050 targets and a resilient economy.

It also requires creating a regulatory environment that both enables and incentivises early adoption of green technology to drive innovation, backed by openly available social, economic, and climate change data and information.

In Ināia tonu nei, we highlighted that investment will be needed across the economy to support the transition to low emissions, and access to finance and investment capital will underpin emissions reductions in every sector.

While work is underway enabling and investing in a low emissions economy, meeting emissions reduction targets will depend on broadening, deepening, and accelerating current efforts in both the public and private financial sectors. i This work includes ensuring adequate funding is present for initiatives to lower emissions, aligning all public investment with climate goals, developing a unifying strategy to support decision-making, and encouraging and enabling private investors to urgently shift to sustainable finance.

Ultimately, a fair, inclusive, and equitable transition involves putting people at the centre of funding and finance.

A more circular economy and sustainable bioeconomy can promote long-term resilience, generate business and economic opportunities, and provide environmental and cultural benefits domestically and abroad. The failure to move towards this future could put Aotearoa New Zealand’s global competitiveness at risk.

Establishing and implementing a sustainable bioeconomy strategy, supporting the participation of Iwi/Māori in the bioeconomy, improving information gaps, and ensuring appropriate resourcing and support are tangible steps the Government can take to support this growing industry.

Implementation of the circular economy strategy and a commitment to actions like enhancing product stewardship would help avoid the creation of waste through design and support renewable materials and the use of low carbon alternatives. This includes developing complementary right to repair legislation for electronic products.