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Need to Know: The Emissions Reduction Plan

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Issue date

The Rundown

The government’s draft plan to meet our emission reductions plan by 2035 is out, and it will have a major impact on how we do business.

Expect changes to how electricity is produced, and how we get around, as the government seeks to reduce carbon emissions.

Consultations are open to comment on proposed government policy until 24 November 2021, and members should have their say on how the changes will affect their business. 

In Brief 

The prioritisation of climate policy is evident throughout government—from energy, to transport, to agricultural policy. 

Under the bipartisan Zero Carbon Act, New Zealand has committed to carbon neutrality by 2050, and under current government policy government has also committed to a carbon neutral public sector by 2025.  

Recently, the government announced its draft Emissions Reduction Plan—it’s 15-year plan to green the economy. With new regulations, costs and incentives, the plan has potential for a major impact on your business. 

The first emissions reduction plan will set the direction for climate action including a pathway to meeting New Zealand’s 2050 net-zero greenhouse gas emissions and biogenic emissions. 

This What You Need to Know paper is a closer look at emissions reductions. This is a complex area of policy, and we do not consider the work of the Climate Commission or other climate initiatives going on within the country.

What’s Being Proposed? 

Under the Zero Carbon Act, the Climate Change Commission sets targets for the government on reducing our emissions. The Emissions Reduction Plan—or ERP—is the government’s response, outlining changes to the New Zealand economy to meet the targets. The plan focuses on two key areas of change: energy and transport. 

The first emissions reduction plan is due to be delivered by the end of May 2022. The government seeks to transition energy— both electricity and industrial process heat—away from coal and natural gas and toward renewables such as wind, solar, and water. 

The government also aims to shift transport use away from traditional vehicles. To reduce transport emissions by 41% by 2035, the ERP seeks to reduce car usage through congestion charging, promoting public transport, and higher-density housing. 

For those who continue to drive, one in three cars will be zero emissions by 2035—encouraged by the promotion of electric vehicles. Expect ongoing incentives to push your business towards purchasing EVs.

What’s the Impact on your Business?

Electricity prices are likely to rise 

New Zealand already operates at around 80% renewable electricity, making our power some of the cleanest in the world. But reaching 100% renewable energy is much harder. When the wind isn’t blowing and the sun isn’t shining, we need energy alternatives. 

As we saw this year, these problems can compound into high prices, burning coal to keep the lights on, and in the worst-case scenario, blackouts. 

Our partners at the Business Energy Council have highlighted the importance of balancing sustainability, with energy security and affordability. They point out the importance of natural gas as a transition fuel to fill the gap—gas is cleaner than coal and can be burned during peak times. 

The government’s other measures will boost demand for electricity too. New electric vehicles, heating, and processing will compete with your house and your business to buy electricity, even as they reduce New Zealand’s emissions. As fuels are phased out, demand increases on other types of energy and cost structures change. 

Rising costs and changes in energy use patterns may create pressure on business. Unpredictable and higher electricity prices pose a threat to productivity and global competitiveness for New Zealand.   

The way we get around will change 

A shift toward electric vehicles is coming. This has already materialised in the government’s feebate scheme – putting up prices for businesses that use Utes and four-wheel-drives, while reducing the price of electric vehicles. 

There are reliability concerns for EVs—without enough charging stations, long trips are risky, and without electric alternatives, utility and freight vehicles will struggle to meet the needs of the transition. The government hopes to address this through a national EV infrastructure plan, which will focus on building more, and faster electric charging stations. 

The plan signals a wider shift away from cars (including EVs) and toward walking, cycling, and public transport. This means support for congestion pricing for cars is likely, along with higher density housing, and large-scale public transport projects. In the coming years, we can expect to see further incentives and eventually bans on non-electric vehicles being imported. This will have an impact on business fleets and future planning. 

One thing we repeatedly hear from businesses is that this goal can only be achieved if the market for EVs considerably improves in supply and price. 

The role of the ETS 

The emissions trading scheme—or ETS—is the market-oriented approach to meeting our carbon targets. It puts a price on each tonne of carbon sent into the atmosphere, leaving business to reduce emissions efficiently. It also pays businesses who take carbon out of the atmosphere—specifically forestry, whose trees create carbon credits that can be sold to other industries. 

As government policy around climate change has tightened in recent years, the price of emitting a tonne of carbon has risen from $10 in 2016, to $65 now. Businesses should expect the price to continue rising as government policy tightens further.
The government’s plan includes the ETS as the main tool driving emissions reduction across the economy. However, some aspects of the plan, particularly in transport, look beyond emissions trading. As Climate Change Minister James Shaw pointed out, the changes in electric vehicles would require a carbon price of over $500 per tonne to be viable under the ETS alone. 

Businesses should not expect the government to rely on emissions pricing alone. Instead the government will likely pursue emissions reductions through regulation in certain sectors of the economy. 

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