Climate Strategy Rautaki Āhuarangi

Committed to our climate change targets

The Government is committed to meeting New Zealand’s climate change targets. The Climate Change Response Act 2002 sets out the Zero Carbon Framework, which guides how we meet our 2050 net zero target.

Our 2050 target takes a split-gases² approach:

• reduce net emissions of all greenhouse gases (except biogenic methane) to zero by 2050
• reduce emissions of biogenic methane to 24–47 per cent below 2017 levels by 2050, including to 10 per cent below 2017 levels by 2030.

New Zealand uses a system of emissions budgets and emissions reduction plans to navigate towards net zero. Emissions budgets place limits on emissions in five-yearly budget periods and serve as stepping stones towards the 2050 target. Each emissions budget has a corresponding emissions reduction plan, which sets out the policies and strategies that enable New Zealand to meet the target for that budget period. This plan covers the second emissions budget period (2026–30).

Our 2050 target is net based. This means it can be achieved by both reducing gross emissions and increasing emissions removals. Net emissions are the difference between gross emissions and carbon removals (figure 1.1).

² New Zealand has a ‘split-gas’ target for domestic emissions, which considers biogenic methane separately from all other greenhouse gases. This reflects the different warming impact that methane has compared with other greenhouse gases, such as carbon dioxide.

Figure 1.1: Achieving net targets by reducing emissions and increasing removals

Cost-effective action

The Government wants to reduce net emissions in cost-effective ways. This means the Government, businesses and households will take actions that have the greatest impact on net emissions for a given investment in reductions or removals.

Cost-effective emissions reduction policies minimise the cost-of-living impacts of climate change policies and increase the likelihood of successful delivery of targets and budgets.

The New Zealand Emissions Trading Scheme is the main tool to reduce net emissions

The New Zealand Emissions Trading Scheme (NZ ETS) raises the cost of emissions and reduces the cost of removals. It encourages businesses to find cost-effective ways to reduce emissions and increase removals across the economy. Chapter 4 provides more information on the NZ ETS and how the Government intends to support a credible carbon market through the second emissions reduction plan (ERP2).

Role of complementary policies

Complementary policies work alongside the NZ ETS and make it cheaper or easier for businesses and households to reduce net emissions. They do this by:

• expanding the pathways available to New Zealand for emissions reduction – for example, by introducing new technologies or removing barriers to investment in low-emissions technologies like renewable energy
• lowering the cost of some emissions reduction opportunities, such as partnering with the private sector to plant trees on Crown-owned land
• encouraging emissions reductions in areas not covered by the NZ ETS, particularly agriculture, such as supporting investments in technologies to reduce biogenic methane emissions.

Chapters 7–13 set out the package of complementary sector-based policies for ERP2.

The role of the private sector

The private sector plays an important role in reducing New Zealand's emissions, and their feedback on the ERP2 discussion document has provided additional insights into their work and areas for additional focus from the Government.

One of the most significant changes to the modelling for ERP2 since the discussion document is the inclusion of the plan by Genesis Energy to transition the Huntly power station from coal to biomass, which represents a reduction of 1.1 Mt CO₂-e over the second emissions budget period. 

The Government will continue to reduce emissions and ensure the regulatory and economic environment can support the efforts of others to reduce emissions alongside and in addition to government action.

Avoiding unwanted outcomes

Taking a cost-effective approach to emissions reduction has the potential for some unwanted outcomes.

For example, forestry is an affordable and scalable form of abatement. The NZ ETS could encourage more farm conversions to plantation forestry than rural communities would find acceptable. The Government will use legislation or regulation to manage unintended consequences and maintain focus on cost-effectiveness within those constraints. A recent example of this ‘constrained optimisation’ approach is the proposed limits on whole-farm conversions to exotic forestry on high-quality productive land (more information on this policy is in chapter 11).

New Zealand is on track for the first and second emissions budgets

With this plan, New Zealand is projected to reduce net emissions to 2030 and to meet the first and second emissions budgets (EB1 and EB2).

The first emissions reduction plan has been kept up to date and aligned with the Government’s Climate Strategy.

New Zealand is making good progress and is on track to meet EB1. Emissions are projected to be 284.1 Mt CO₂-e for 2022–25, which is below the limit of 290 Mt CO₂-e set by EB1 (table 2.1). We will know whether we have managed to stay within that emissions budget in 2027, when official data for the period becomes available.

Table 2.1: Net emissions projections for the EB1 and EB2 (Mt CO₂-e)

* The further out we look, the more uncertain the projection becomes. We express this as an ‘uncertainty range’. This shows a spectrum of emissions scenarios, from the lowest expected result to the highest. In the middle is the ‘central estimate’, which we think is the scenario most likely to hold true.

Emissions reductions by sector in EB2

Figure 2.1 shows the impact of the second emissions reduction plan (ERP2) on projected emissions to the end of the EB2 period by sector. Emissions reductions in energy, forestry and agriculture make the largest contribution to meeting EB2.

Figure 2.1: Projected reductions in sector emissions through to EB2, including ERP2 policies

Estimated emissions reductions by key policy

Eight key ERP2 policies have the greatest potential to lower emissions in the EB2 and third emissions budget (EB3) periods (table 2.2).

Table 2.2: Expected abatement from ERP2 policies for EB2 and EB3 (Mt CO₂-e)

* At the time the 2024 New Zealand Emissions Trading Scheme (NZ ETS) settings were decided, the total impact of tightening NZ ETS unit and price control settings was estimated at 0.7 Mt CO₂-e in the EB2 period and 3.1 Mt CO₂-e in the EB3 period. The numbers in this row of the table refer to the impacts of tighter NZ ETS settings that have not been captured in the baseline and elsewhere. See the technical annex for further details.

** The integrated analysis involves modelling the impact of ERP2 policies within the Emissions in New Zealand model to ensure any interactions between policies are modelled, rather than just summing the emissions reduction for individual measures. This allows for the dynamic effects of individual policies to be taken into account. More information on the modelling approaches for ERP2 can be found in the technical annex.

*** Initially emissions rise because there are net emissions from land clearance and soil loss due to conversion to forest.

Updated New Zealand Emissions Trading Scheme settings

The New Zealand Emissions Trading Scheme (NZ ETS) sets an overall limit on emissions units available to emitters in accordance with emissions budgets. The scheme’s supply of units declines over time, consistent with meeting the tightening budgets.

The Government has already aligned supply in the NZ ETS with EB2. We have updated unit and price control settings to reduce the number of units available between 2025 and 2029 from 45 million to 21 million. This decision was estimated to lead to additional emissions reductions of 0.7 Mt CO₂-e in the EB2 period and 3.1 Mt CO₂-e in the EB3 period. The observed market price rose immediately after this decision was announced.

The updated settings will help manage a critical risk to meeting EB2: the large stockpile of units. If more banked units are surrendered than expected, emissions from NZ ETS sectors will exceed our current projections. Chapter 4 has more information on the role of the NZ ETS in ERP2, and the impact of the updated settings.

New Zealand can meet its 2050 target

New Zealand is on track to meet our long-term targets.

Figure 2.2 shows that net emissions are now projected to be zero in 2050.

Projections show New Zealand is also on track to achieve the methane target in 2050. Biogenic methane emissions are expected to have reduced by 24.9 per cent in 2050, which is within the legislated target band of a 24 to 47 per cent reduction, and in 2030 biogenic methane emissions are expected to have reduced by 10 per cent, consistent with the target for that year.

Progress has also been made toward EB3 since consultation in July. Current modelling projects net emissions of 249.2 Mt CO₂-e during the EB3 period (2031–35), 9.2 Mt CO₂-e above the 240 Mt CO₂-e EB3 limit. This is a significant improvement on the interim projections of 17.4 Mt CO₂-e above EB3 in the ERP2 discussion document. This improvement is mostly driven by greater than expected abatement from some new ERP2 policies, updated NZ ETS settings and lower than expected emissions from the energy and industrial processes and product use (IPPU) sectors.

Figure 2.2: Emissions projections with new ERP2 policies and sensitivity range (Mt CO₂-e), 2022–50

How we’re tracking towards New Zealand’s Nationally Determined Contribution

Key policies introduced through ERP2 will contribute to meeting the first Nationally Determined Contribution (NDC). Net emissions are now projected to be 84 Mt CO₂-e above the target.

ERP2 significantly increases the contribution of domestic emissions reductions to future NDCs. The second NDC will be set in 2025 for the period 2031–35, overlapping with EB3. Key ERP2 policies are projected to contribute 17.1 Mt CO₂-e of abatement towards the second NDC. 

Under the Climate Change Response Act 2002, the Government is responsible for meeting emissions budgets and climate change targets. New Zealand’s reputation is affected by whether we deliver on our commitments.

The Government is confident we can deliver the actions in this second emissions reduction plan (ERP2). However, progress toward emissions budgets and targets is affected by a range of factors. Many of those factors that influence the timing and quantity of net emissions are beyond the Government’s control. For example, long periods of dry weather could reduce renewable electricity supply, leading to more gas or coal use to generate electricity.

This is why we need to monitor and respond to meet the second emissions budget (EB2) and support meeting future budgets. This chapter outlines the Government’s adaptive management approach to ERP2 to ensure we meet EB2.

What is adaptive management?

Adaptive management means actively monitoring and responding to policy delivery and changing circumstances that affect how New Zealand is tracking towards EB2.

Every year, the Government will progress through three stages (figure 3.1):

1. tracking policy delivery and leading indicators
2. reviewing projections and risks, and evaluating progress against the emissions budget
3. responding when necessary to stay on track for EB2. 

Figure 3.1: Adaptive management process

Tracking progress

The Prime Minister’s public sector targets require quarterly tracking and reporting. To reinforce the importance of meeting climate targets, we have included the first emissions budget (EB1) and EB2 in Government Target 9. 

The Climate Change Chief Executives Board reports on progress towards Target 9 to the Prime Minister and Cabinet. The reports are released to the public, so New Zealanders can see how we are tracking.

We will track and report on a comprehensive set of indicators through the Target 9 process. These will allow a faster approach to adaptive management, to complement the official, annual updates to the Greenhouse Gas Inventory. The types of indicators we plan to have in place by 2026 are listed in table 3.1.

Table 3.1: Leading ERP2 indicators

The Climate Change Commission | He Pou a Rangi will play an important role in independently reviewing progress towards EB2 through its monitoring and review function for emissions budgets and the 2050 target.

Reviewing progress and risks, and evaluating whether we are on track for EB2 

Cabinet will meet annually to evaluate whether New Zealand is on track to meet EB2. This evaluation will be informed by:

• comprehensive indicator tracking in quarterly Target 9 reporting
• the annual emissions reduction monitoring report from the Climate Change Commission | He Pou a Rangi
• the latest official emissions projections.

Responding to stay on track 

If a risk to meeting EB2 emerges, Cabinet can decide on a proportionate response. This may include:

• ensuring NZ ETS settings are aligned with emissions budgets, international commitments and our 2050 target, through the annual review of settings
• adjusting existing policies
• bringing in new policies
• continuing to monitor indicators.

The Climate Change Response Act 2002 also allows the banking of some emissions across budget periods, to account for the uncertainty of designing emissions reduction plans. If emissions come down by more than is required to meet EB1, the excess could be carried forward and contribute to EB2. Current projections show New Zealand over-achieving EB1 by 6 Mt CO₂-e. Final emissions for EB1 will be known when the New Zealand Greenhouse Gas Inventory is released in 2027.