Businesses, communities and households in the transition Ngā pakihi, ngā hapori me ngā wharenoho i te whakaumutanga

Chapter at a glance

Impacts across the economy and society

Meeting New Zealand’s climate targets will involve businesses, communities and households in making different choices about how they trade, work and live. These choices will create benefits for New Zealanders, including new, low-emissions jobs and business opportunities. 

In addition, meeting targets is expected to have additional benefits from the avoided loss of international reputation that could result in trade impacts in key export markets. The benefits are difficult to quantify but are likely to be widely distributed. In this chapter we focus just on the distribution of the costs. 

We have analysed the expected impacts of the second emissions reduction plan (ERP2) for different groups of New Zealanders. This was informed by modelling, qualitative analysis by government agencies, and public feedback during consultation. It shows that: 

• the policies in ERP2 are consistent with meeting the second emissions budget, without adding significant costs to households 
• the impacts will likely be similar to what is projected without ERP2 policies; they are also expected to be similar to the initial analysis included in the ERP2 discussion document 
• ERP2 will have very limited impact on inflation or the cost of living. The impacts mainly come from emissions pricing.

Table 14.1 shows the expected impact on the cost of living for households with different income levels, before and under ERP2.

Table 14.1: Household expenditure resulting from New Zealand Emissions Trading Scheme prices before and under ERP2

* This estimates the amount of annual household expenditure on New Zealand Emissions Trading Scheme prices that are included in the cost of other goods and services, mostly fuel and electricity.

** Based on the impact of emissions reduction policies in place before the introduction of ERP2.

*** Based on the impact of emissions reduction policies introduced through ERP2.

The modelling: 

• suggests that the economy will grow between now and 2050, increasing New Zealand’s prosperity 
• extends the current economic structure out to 2050 
• does not predict what the future economy will look like, with new goods, services and exports.

Table 14.2 summarises the impacts that emerged from our analysis. For full analysis, see the technical annex.

Table 14.2: Key impacts of ERP2 policies

Note: GDP = general domestic product.

Strategy to mitigate impacts

Our efforts to minimise the costs of climate action to New Zealanders mean that existing, funded support measures are able to reduce impacts on those who are affected. Listed below, they give people options to manage the disruptions and changes stemming from Government policies to reduce emissions.

We are focused on reducing the impacts on the cost of living and have already taken several actions to ease this. Through Budget 2024, proceeds of the auction of New Zealand Units have been returned to low- and middle-income households as part of the adjustment to income tax brackets. We are also supporting families with young children through the FamilyBoost tax rebate.

The commitment to cost-effective climate policy will ensure every dollar spent has the maximum possible impact. However, we know that impacts are uncertain and may emerge over time. We will continue to monitor them and respond with further support when necessary.

Financial support

Financial support will benefit all groups. Existing government financial assistance and the income support system (including the Winter Energy Payment) will help New Zealanders who are facing higher costs or employment challenges related to emissions reduction efforts.

Many of these supports are indexed to the consumer price index. As the cost of goods and services increases, some benefits will increase as well. This will further offset financial impacts for lower-income households.

The Government’s ‘climate dividend’ tax relief began in 2024. It is returning money from New Zealand Emissions Trading Scheme (NZ ETS) revenue to New Zealanders to meet rising costs, including from mitigation. While all taxpayers benefit from this, it will bring extra relief to those who are likely to face the greatest additional costs.

Support for retraining

Several supports are available for employers or employees looking to re-skill or up-skill to respond to mitigation efforts. These include a range of government employment services available through the Ministry for Social Development and Apprenticeship Boost, which provides financial aid for employers to take on and retain apprentices.

Employees will have pathways to retrain if changes lead to fewer jobs in their line of work. Employers will have greater access to needed skills and be supported to provide training for potential workers. Retraining support will be particularly important for people in the regions and Māori, as they may be more at risk of disruptions to employment.

Providing information

The Government’s Climate Data Initiative, currently under development, will equip New Zealanders with data and tools related to climate mitigation. This will give people and businesses the information they need to decide on a way to manage the economic and social effects of climate policies.

Targeted support for Māori

The Māori Climate Platform will focus on investing in Māori-led climate action to ensure whānau, hapū and iwi are at the forefront of the Government’s climate response. Chapter 15 has more information on how the impacts on Māori will be lessened.

The Government also supports Māori through programmes such as the Māori Agribusiness Extension Programme and Māori-led approaches to reducing biological emissions. These programmes support Māori agribusinesses to:

• identify, develop and implement innovative, scalable and culturally appropriate ways to reduce emissions 
• enhance resilience in food and fibre production 
• improve overall sustainability.  

Sector-specific support

Some of the largest distributional risks we can see are caused by conversions from farmland to forestry. These will impact regional communities, Māori and agricultural manufacturing. We have taken steps to reduce these impacts by:

• committing to limit on-farm conversions registering in the NZ ETS, to restrict shifts on productive land from agriculture to forestry 
• delaying the pricing of agricultural emissions 
• providing substantial support for research and development on mitigation tools for farming in order to offer alternatives to land-use change.²⁸ 

See chapter 10 and chapter 11 for more detail. 

²⁸ Including investing in the Centre for Climate Action on Agricultural Emissions, support for the Global Research Alliance on Agricultural Greenhouse Gases and funding through the Sustainable Food and Fibre Futures Fund.

Approach

As New Zealand reduces emissions, the Government and Māori will need to work together to address risks and realise opportunities for the Māori economy. Chapter 14 describes the specific impacts of climate policies on Māori.

This chapter outlines the Government’s plan to:

• give effect to the principles of the Treaty of Waitangi
• lessen the impacts of climate policies on iwi and Māori.

Four principles guide the implementation of the plan.

• Existing universal support. As outlined in chapter 14, government financial assistance and the income support system will help New Zealanders, including Māori, who are facing higher costs or employment challenges related to actions to reduce emissions.
• Sector-led initiatives. We aim to support sector-specific initiatives with Māori, such as the Ministry for Primary Industries’ Māori-led Approaches to Reducing Biological Emissions, subject to ongoing evaluations and available resources. These programmes prioritise Māori participation and leadership in sectors with a disproportionate impact on Māori communities, particularly in rural and land-based economies.
• Māori-led climate priorities. The Māori Climate Platform enables action by Māori communities to adapt, lead local resilience efforts and build on opportunities to reduce emissions.
• Recognising mātauranga Māori as a guide to local action. The Government recognises the importance and opportunity of mātauranga Māori to iwi, hapū and whānau as a guide to reducing emissions and adapting at place.

Fostering partnership in climate action

The second emissions reduction plan supports Māori-led initiatives through the Māori Climate Platform, which drives:

• funding and resources for Māori-led projects to reduce emissions at place
• community-based adaptation initiatives tailored to local Māori needs
• greater Māori involvement in the design and implementation of climate policies across key sectors.

Partnering with the National Iwi Chairs Forum

Mitigation of adverse climate impacts is a key aspect of the Ministry for the Environment and Pou Take Āhuarangi²⁹ joint work programme. Pou Take Āhuarangi have conducted a comprehensive adaptation risk stocktake, assessing vulnerabilities across 1,062 marae and identifying high-risk sites affected by climate impacts such as flooding and coastal erosion.

The joint work programme has also piloted focused climate risk assessments for marae. This work has highlighted immediate action pathways, including infrastructure upgrades like flood defences and water storage.

These efforts build our understanding of the spectrum of needs within Māori communities and support targeted mitigation work and resilience planning for marae under climate pressure. 

²⁹ Te Pou Take Āhuarangi is the climate group (pou) within the National Iwi Chairs Forum.

Improving how New Zealand adapts to climate change 

New Zealand must take action to adapt to the impacts of climate change. If sectors do not consider the risks and manage the impacts, they will become less efficient over time, and this will affect their ability to reduce their emissions.

The Government has several existing initiatives to support sectors to adapt, including those described below.

The first national adaptation plan (NAP1) aims to help New Zealand prepare for the impacts of climate change. It has four priority areas for adapting by 2028, and addresses the priority risks identified in the first National Climate Change Risk Assessment.³⁰  

Work is underway on the adaptation framework, which is expected to:  

• minimise expected long-term costs
• ensure responses and funding support to property owners, if any, are predictable, principled and rules-based wherever possible
• improve information flows on climate risk and response
• address market failures and support market efficiency
• ensure people have the incentive and ability to manage risks.

Sectors also have a responsibility to ensure they are resilient and can adapt. There are initiatives across the private sector to raise understanding of climate risks, impacts and ways to manage them. For example, The Aotearoa Circle has worked with many sectors on sector-level analysis to develop climate change scenarios as part of its climate-related disclosures. For some sectors, the scenarios have informed adaptation pathways.  

Some businesses are already assessing risks and opportunities for their own operations, and managing them, but others will need more support.

³⁰  Under the Climate Change Response Act 2002, the Government must publish a national adaptation plan (NAP) to set out how it will address the most significant risks identified in the National Climate Change Risk Assessment (NCCRA). NAP1 was published in 2022, and each NAP must be published within two years of the latest NCCRA. The next NCCRA is due in 2026. 

Adaptation goals for the second emissions reduction plan

While both Government and private sector initiatives are supporting sectors to adapt, sectors need to do additional work when reducing emissions. This includes: 

• considering climate risks  
• maximising co-benefits  
• avoiding maladaptation  
• building future resilience through emissions-lowering initiatives.  

To support sectors to adapt while they reduce emissions, the second emissions reduction plan (ERP2) has three adaptation goals (figure 16.1).³¹

³¹ Under the Climate Change Response Act 2002, emissions reduction plans must outline how the Government will improve the ability of sectors to adapt while they reduce their emissions.

Figure 16.1:  Adaptation goals for ERP2

Goal 1: Sectors understand climate risks and opportunities as they reduce emissions

Lack of awareness, education, tools and methods to manage climate impacts is affecting the ability of sectors to make risk-informed decisions. In some cases, sectors are continuing development in high-risk areas, without plans to manage that risk. Limited access to resources and expertise is limiting sectors’ ability to take action.³²

We are supporting sectors to understand climate risks and opportunities by developing data, information and guidance. This will be addressed in part by NAP1. The adaptation framework is also considering the availability of and access to risk information to improve the information flow, which will have benefits for wider economic sectors.

New national direction instruments under the Resource Management 1991 may also play a role in supporting consistent risk management across the country.

Sectors will be able to make risk-informed decisions about where to locate infrastructure, assets and services, and how to manage exposure and vulnerability to climate impacts. This can help to improve the resilience of infrastructure and communities (pillar 1) and support energy security (pillar 3). Sectors will also have a better understanding of the many benefits from nature-based solutions (pillar 5).

³² Ministry for the Environment. 2024. Adaptation preparedness: 2024 update – A summary of responses to the second information request from reporting organisations under the Climate Change Response (Zero Carbon) Amendment Act 2019. Wellington: Ministry for the Environment.

Goal 2: Actions to reduce emissions deliver adaptation cobenefits and avoid maladaptation

How sectors reduce emissions can create positive effects (co-benefits) or negative effects (maladaptation) on their ability to adapt. For example, nature-based solutions, such as wetland restoration and mangrove protection, can help manage the impacts from sea-level rise. On the other hand, exotic forest plantations, if not well managed, could pose an increased wildfire risk.

Existing reporting on adaptation preparedness and mandatory climate-related disclosures can help sectors to better align their emissions-reduction initiatives to support adaptation and resilience.

Goal 3: Efforts to reduce emissions build future resilience

Emissions reduction initiatives must be resilient to future climate impacts. However, the cost of upgrading infrastructure, adaptation planning and recovery work can make this challenging. We are seeking to clarify cost-sharing, investment, and roles and responsibilities through the NAP1 and adaptation framework. New national direction on managing natural hazards and changes to land-use planning also seeks to support sectors’ growth and development, while ensuring their resilience to future challenges.