December 16, 2021

Climate change funding to be boosted in Budget 2022

But will it be enough to meet our targets?

The Budget Policy Statement for the 2022 Budget places focus on two key areas: the restructuring of our health system and climate action. In this article, we will focus on the latter.

Natural capital or the natural world (Te Taiao) is one of the key considerations in the 2018 Living Standards Framework (LSF) and is at the centre of He Ara Waiora, a framework developed alongside the LSF. Protecting the natural environment and ensuring a just transition to a low-carbon economy will mean more equitable and better economic and social outcomes for all groups in society and secure intergenerational wellbeing by reducing the costs of climate change mitigation for future generations.

New Zealand has one of the highest levels of per capita emissions amongst advanced economies.

As of 2018, New Zealand had the sixth highest per capita emissions of all 41 annex one countries. Annex one countries are described by the UN Framework Convention on Climate Change as those that are members of the OECD or are transitioning to a market economy. With pressure increasing from the global community, and in light of significant commitments by other countries, the Government believes that it is imperative that serious efforts are made to tackle the high level of our emissions.

Some of the commitments made by the Government to date towards protecting our natural capital include the goal to halve our emissions by 2030, from 2005 levels, and the clean car package, which encourages the uptake of electric vehicles.

The Government has announced a $4.5 billion Climate Emergency Response Fund, which will be topped up in subsequent years.

The advice submitted by the Climate Change Commission to the Government earlier this year highlighted that significant action is required to meet our emissions reductions targets for 2050. In response to this, the Government has announced that it will establish a Climate Emergency Response Fund (CERF), which will support initiatives that contribute towards reducing our greenhouse gas emissions. The CERF will be established using $4.5 billion of cash proceeds from the Emissions Trading Scheme (ETS). This is based on forecasted proceeds from the Scheme over the next four years.

This initial amount, described as a 'down payment' for climate spending, will be topped up in subsequent budgets and acts as a starting point for climate action funding. The CERF complements existing measures and initiatives that target this issue, such as the National Land Transport Fund. The Government will also begin issuing sovereign green bonds from next year and New Zealand will be the first country in the world to require large publicly listed companies to report on climate change related risks.

It is crucial that agricultural emissions are contained, but there are risks.

The establishment of the CERF using proceeds from the ETS ensures that some of the biggest emitters pay the price for their emissions and contribute towards efforts to green the economy. However, the lack of major efforts to penalise emitters in the agricultural sector remains one of the biggest holes in our climate action. 48 percent of all our emissions come from this sector.

However, according to the OECD, there is significant risk in transitioning the sector to becoming zero carbon. This is because regions such as Southland and Gisborne, which have higher agricultural emissions, tend to have a lower GDP per capita and higher poverty risk than the national average. In its advice to the Government, the Climate Change Commission noted the need to accelerate the reductions in agricultural emissions by rolling out policies, incentives, and tools, while also taking a collaborative approach with the key stakeholders within this sector.

For more information on the Budget Policy Statement’s intentions for health investment, see this article by Nick. More detail on the Half Year Economic and Fiscal Update and the September quarter GDP result can be found in this article.