There’s a risk the Government will not reduce emissions enough to meet its first emissions budget.

But this does not necessarily mean the Government has fallen short of the emissions reduction rules it has set itself. While net emissions reductions might not be sufficient to fall within the budget, the Government can “borrow” against a future budget, meaning it technically lives within its commitments.

Prime Minister Chris Hipkins’ decision to scotch a slew of climate policies earlier this year blew a hole in the already-tight first emissions budget, which runs from 2022 to 2025.

The hole left by those policies is equal to roughly one megatonne of CO2e, and comes mainly from the Government’s decision to bin the sustainable biofuels obligation, a policy that would have forced firms to blend low-emissions biofuels with conventional fuels, reducing the emissions of things like petrol.

The hole equates to about 12 per cent of the emissions reductions required to hit the first emissions budget allowing New Zealand to have net emissions worth 290 megatonnes of carbon dioxide equivalent greenhouse gases over the four-year period, or 72.4 megatonnes a year. Modelling prior to the policy bonfire had the Government meeting the first budget by reducing net emissions by about two megatonnes a year from historic averages.

When Hipkins announced he had killed the emissions policies in March, he also said the Government had not changed its emissions budgets, and that it would continue to reduce emissions.

Prime Minister Chris Hipkins binned a host of emissions reduction policies in March. Photo / Mark Mitchell

“As I’ve indicated, our emissions reductions budgets have not changed. We’re still intending to continue to reduce emissions,” he said then.

While Hipkins has announced some large emissions reduction policies in the intervening months, particularly two big investments to significantly reduce the emissions of NZ Steel and Fonterra, these will only begin reducing emissions during the second emissions budget, which begins in 2026 and runs to 2030.

The Government can, however, “borrow” these emissions reductions to help it meet its first budget, which runs from 2022 to 2025.

How the budgets work

New Zealand’s climate change legislation forces the Government to set emissions budgets. The Government is responsible for reducing net emissions so they fall within those budgets, which last for five years each, with the exception of the first budget, which takes in the three years 2022-2025.

The emissions budgets have some wriggle room. If emissions run over the budget, up to 1 per cent of the next budget can be “borrowed” to cover the previous one. If emissions reductions in one budget exceed those required to hit the budget, the reverse applies, and the overrun can be credited against the next budget.

On Tuesday, Hipkins said that decisions on whether to roll some of the second emissions budget into the first had not yet been taken.

“We haven’t made decisions on that yet,” Hipkins said.

“We haven’t got to the point of actively considering that yet. Obviously, there is still some time to run before we make those decisions. The criteria around what we can do is very clear, everyone understands that. We haven’t got into the consideration of the decision-making of that yet,” he said.

Time is running out to hit the budget without “borrowing”, however.

The Government’s 2023 fiscal Budget included little to plug a one-megatonne hole, meaning the Government will rely on Budget 2024. Budget 2025 spending will begin on July 1, 2025, meaning any emissions reduction initiative is unlikely to be able to reduce emissions significantly by the time the first emissions budget ends six months later at the end of 2025.

Treasury officials warned that Budget 2023 did little to reduce emissions, saying emissions reduction policies “were minimal and do not offer significant immediate abatement, particularly for the first Emissions Budget to 2025″.

Climate Change Minister James Shaw said the “first emissions budget is very tight, we said that at the time that we set it”.

“I still think there is a chance that we will be able to meet it, but ultimately that depends on how well we execute the policies that we already put in place,” he said.

Shaw agreed the gap between the emissions allowed by the first budget and New Zealand’s current trajectory was roughly one megatonne, but said it was difficult to be conclusive now because the data was moving too quickly.

Part of the difficulty with knowing how the country is performing against its budgets is the fact the reporting of emissions data comes with a significant lag.

Climate Change Minister James Shaw said there was still a chance New Zealand would hit the target. Photo / Sylvie Whinray

“The data moves all the time. It is one of those things where you can get some sense of where things are going, but given just how finely balanced it is, it is hard to be definitive when you’re in the middle of it,” Shaw said.

The emissions reduction policies announced on Hipkins’ watch have been significant, although the two best-known were funding decisions from the Government Investment in Decarbonising Industry (GIDI) fund set up under his predecessor Jacinda Ardern.

Wednesday’s announcement of $90 million towards a $790m plan to cut Fonterra dairy plants’ coal use will halve the dairy giant’s manufacturing emissions by 2030 and deliver 2.69 per cent of New Zealand’s required emissions reductions for the second budget

The NZ Steel project, which saw the Government give $140m towards a $300m decarbonisation upgrade, will reduce New Zealand’s total emissions by 1 per cent, or about 800,000 tonnes a year, meeting 5 per cent of the second budget.

Greenpeace’s spokeswoman on climate and agriculture Christine Rose told the Herald it was “not good enough to borrow emissions from the second emissions budget.”.

“We are in a climate crisis that’s very evident, and there are hundreds of families across Aotearoa who are out of their homes because of this year’s climate disasters,” she said.

“We haven’t got a moment to lose, and no political parties should be kicking the can down the road on the real emissions reductions that are needed,” she said.

Rose noted that the Fonterra project did nothing to address the issue of on-farm emissions, which were a far larger problem for the sector.

National’s climate change spokesman Simon Watts said that his party was “absolutely committed to our emissions reduction targets, including net-zero by 2050″.

He did not respond to a question that asked whether National would also borrow from future emissions budgets to hit present ones.

Watts attacked the GIDI investments as poor value for money.

“It is not good enough that Labour has wasted millions of dollars on ineffective policies and corporate welfare while crashing the ETS price,” Watts said.

“If elected in October, National will inherit Labour’s failed legacy on climate change with only limited time to turn the ship around. We will assess the circumstances if we are fortunate to form a government,” he said.