The New Zealand government has recently released a discussion document for the Emissions Reduction Plan (ERP). This plan, the second of its kind, has captured the attention of many, especially those involved in the primary industries, and emissions trading scheme (ETS). With the consultation phase in progress, it's set to shape our country’s approach to climate actions for the coming years.
In this blog, we’ll break down what ERP2 means for New Zealand, how it ties into our international commitments, and why it’s so important for our environment and economy.
Background of the ERP
To understand ERP2, we need to start with a bit of background. Let’s break down some key agreements and terms that set the stage for where we are today.
New Zealand's formal climate commitments began with the Kyoto Protocol. Adopted in 1997 and entering into force in 2005, this protocol laid the groundwork for global emission reduction efforts. Its second commitment period ran from 2013 to 2020.
The Kyoto Protocol has since been succeeded by the Paris Agreement. Signed in 2015 and effective from 2016, the Paris Agreement requires countries to set and periodically update their climate targets. These targets are known as nationally determined contributions (NDCs).
The first set of targets, NDC1, committed New Zealand to cutting net emissions to 50% below 2005 levels by 2030. This spans from 2020 to 2030, with a total emissions budget of 571 megatons of CO2 equivalent. We’re now looking ahead to NDC2, which will outline our goals for the next decade, with updates expected soon.
New Zealand’s Roadmap to Emissions Reductions
New Zealand has established a structured approach to manage and reduce its emissions through a series of budgets and detailed plans.
Emissions Budgets
Think of emissions budgets as New Zealand’s carbon spending limits for set periods:
Emissions Budget 1 (2022-2025) 290 megatons of CO2 equivalent
Emissions Budget 2 (2026-2030) 305 megatons of CO2 equivalent
Emissions Budget 3 (2031-2035) 305 megatons of CO2 equivalent
These budgets aim to progressively reduce our annual emissions, and future projections indicate a continued decrease in annual emissions.
Emissions Reduction Plans (ERPs) serve as our playbooks for staying within these emissions budgets. ERP1, which is nearing completion, has guided us through the past few years. Now, ERP2 is under discussion, laying out strategies and actions for the next phase. The government has opened this discussion document for public feedback. It's a great opportunity for you to share your thoughts on how we can meet our Emissions Budget 2 targets.
Harnessing the Power of Forestry and Carbon Markets
To keep everything in check, we use Mandatory Emissions Reporting Periods (MERPs) that align with global agreements. These periods help to accurately track and report our emissions and reductions, supporting transparency and accountability.
The Emissions Trading Scheme (ETS) serves as a key tool for managing New Zealand's emissions. It covers a wide range of activities, including:
Domestic forestry, which plays a crucial role in carbon sequestration
Energy production
Industrial processes
Waste management
By participating in the ETS, we can also collaborate internationally to offset emissions. The ultimate goal is to achieve net-zero emissions for long-lived gases by 2050 and significantly cut biogenic methane emissions. Forestry plays a particularly important role in our strategy, as trees can absorb and store significant amounts of carbon dioxide from the atmosphere
Financial Implications and Market Mechanisms
New Zealand could face a significant financial challenge in meeting its climate goals. Relying too much on international solutions to meet our climate goals could prove to be costly. Estimates suggest that this could cost us anywhere between $5 billion and $12 billion, which is why boosting our domestic efforts is so important.
Key to achieving our goals is the ETS, and key to the ETS's success is a stable and predictable carbon price. Currently, this price has been hovering between $50 to $55 per tonne. Stability creates an environment for long-term investments in emissions reductions and carbon removal projects. The government is actively working to restore and maintain this market confidence, ensuring that our ETS remains a robust tool for emissions reduction. Check out our June 2024 webinar to learn more about what’s happening in the NZ carbon market.
Future Policies and Projections
Key proposed policies to keep an eye on in ERP2 for forestry participants include:
Restoring Price Stability and Confidence to the ETS
One of the primary goals is to restore stability and confidence in the Emissions Trading Scheme (ETS). This involves ensuring a predictable and stable carbon price, which is crucial for encouraging decarbonisation and investment in forestry projects. Currently, the carbon price is around $55 per tonne.
Exotic Forest ETS registration constraints
To protect highly productive agricultural land, the government is considering constraints around whole farm conversions to forestry, especially exotic forestry. This policy seeks to protect highly productive agricultural land while still promoting forestry as a means to sequester carbon. By carefully managing these conversions, New Zealand can balance agricultural productivity with its emissions reduction goals.
Public Private Planting Partnerships
Partnerships with the private sector are being explored as a key part of the plan. These partnerships aim to support the planting of more trees, both indigenous and exotic, which are crucial for carbon sequestration. By collaborating with private entities, the government can leverage additional resources and expertise to expand its reforestation efforts.
Non-Forestry Removals
ERP2 also looks beyond ‘traditional’ forestry for carbon sequestration. This includes recognising and managing carbon sequestration from on-farm vegetation and forests planted before 1990. By broadening the scope beyond traditional forestry, these measures ensure that all potential carbon sinks are recognised and incentivised effectively.
No vintaging, no differentiation
To maintain the integrity and flexibility of the ETS, the government has committed to avoid vintaging of New Zealand Units (NZUs) and to ensure no differentiation between forestry NZUs. This approach makes it easier for participants to manage their carbon credits and investments without unnecessary complexity.
Clarity and Confidence
The government aims to provide clarity and confidence in ETS policies. This involves clear communication and consistent implementation of policies to ensure that all stakeholders, from farmers to investors, understand the rules and can plan their activities accordingly. Clear policies help in maintaining market confidence and ensuring that the ETS remains an effective tool for emissions reduction.
By 2050, forestry is projected to remove 21.3 million tons of CO2 equivalent from the atmosphere each year. This significant contribution will be essential in offsetting emissions across various sectors, making forestry a cornerstone of New Zealand’s emissions reduction strategy.
The proposed ERP2 outlines New Zealand's path to meeting international commitments. Understanding this plan and engaging with the consultation is important for anyone interested in New Zealand's path to decarbonisation. At CarbonCrop, we're currently reviewing the consultation document and preparing our response. We'll share our thoughts in an upcoming post, so stay tuned!
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