Climate Change Regulation 2025

Last Updated July 04, 2025

New Zealand

Law and Practice

Authors



Anderson Lloyd is one of New Zealand’s oldest and most respected law firms. It is a unique national firm with four integrated offices (Auckland, Christchurch, Dunedin and Queenstown) across New Zealand. Across its multidisciplinary team, the firm has experts in climate change areas such as renewable energy projects, the Climate Change Response Act, the emissions trading scheme, carbon forestry projects, carbon trading arrangements, and the climate change aspects of the Resource Management Act. Anderson Lloyd is committed to sustainable practices and it takes responsibility as custodian of a multi-generational firm, caring for its people, community and environment. The firm takes ownership of, and is accountable for, its measurable emissions while conducting day-to-day business. Anderson Lloyd was the first large New Zealand law firm to attain Toitū net carbonzero accreditation and is an active member of the Sustainable Business Council, Climate Leaders Coalition, and the NZ Green Building Council.

Multilateral and Regional Regimes

New Zealand has been a party to the United Nations Framework Convention on Climate Change (UNFCCC) since its inception and has entered into all significant agreements made under it including the Kyoto Protocol, the Doha Amendment, and the Paris Agreement. New Zealand participates in the annual Conference of the Parties (COP) meetings, where UNFCCC member countries discuss and negotiate climate-related issues, as well as review and assess the implementation of the convention. New Zealand has made various commitments under the UNFCCC. In particular, it has pledged to reduce its greenhouse gas emissions, contribute to climate finance for developing nations, and take steps to adapt to the impacts of climate change. It has adopted the Paris Agreement, joining the global effort to limit global warming to well below 2 degrees Celsius above pre-industrial levels, while pursuing efforts to limit the temperature increase to 1.5 degrees Celsius.

Negotiation Blocs

New Zealand is not a party to any climate related collective-interest negotiation blocs at the UN. While it is considered part of the “Western Europe and other States” group (as per the UN’s standard regional grouping procedure), this grouping is not generally used to negotiate the collective interests of its members.

Stance on Primacy Climate Change Issues

Mitigation

Domestically, New Zealand has taken a number of steps towards climate change mitigation. It has:

  • legislated emissions reduction targets;
  • implemented an “emissions budget” system, setting out the pathway to its emissions targets in five-year periods;
  • implemented an “emissions reduction plan” (ERP) system, under which it communicates to the public its proposed policy initiatives for each emissions budget period prior to the beginning of that period;
  • implemented a domestic “emissions trading scheme” (ETS), which aims to incentivise emissions reduction and sequestration;
  • signalled an intention to establish a “split gas” emissions pricing system for “on-farm” agricultural emissions by 2030; and
  • created He Pou a Rangi – the Climate Change Commission (Climate Change Commission) to provide independent advice to the government on emissions budgets, climate mitigation, and adaptation strategies to assist it achieving its climate change targets and to hold the government accountable through the public release of the Climate Change Commission’s advice.

Adaptation and capacity building

In 2022, the New Zealand government released its first National Adaptation Plan (NAP) for the period 2022–2028, which considers the impacts of climate change now and into the future and sets out how we will adapt to those impacts under proposed strategies, policies, and actions.

This includes addressing risks (identified in the first National Climate Change Risk Assessment (NCCRA), released in 2020) to:

  • the natural environment, by addressing risks to ecosystems and biodiversity due to climate change;
  • homes, buildings, and places, by mitigating climate change risks to existing homes and places where possible, and ensuring that climate hazards are considered when making urban development decisions;
  • infrastructure, by reducing the vulnerability of assets exposed to climate change, and ensuring that all new infrastructure is fit for a changing climate;
  • communities, by supporting communities facing climate-related disruption and disasters, and educating communities on climate change issues to enable those communities to adapt and participate in local decisions; and
  • the economy and financial systems, by giving businesses the tools and information they need to respond to climate risks, and to lower the barriers to adaptation and innovation addressing those risks.

The government has also signalled an intention to develop a climate adaptation model, which will include frameworks for investment and cost-sharing, roles and responsibilities and climate risk and response information sharing. The government is currently considering how to implement this, following completion of an inquiry into climate adaption in October 2024.

Domestic climate finance

New Zealand currently has various finance initiatives in place which have gross emissions reduction as an objective, including:

  • the Sovereign Green Bonds programme, under which the government issues green bonds to finance projects that contribute to climate and environmental objectives;
  • the Energy Efficiency and Conservation Authority (EECA), through which support is provided for businesses and the public sector to accelerate decarbonisation;
  • the Centre for Climate Action on Agricultural Emissions, which seeks to help farmers cut their emissions while remaining competitive with overseas farmers; and
  • the Public Transport Decarbonisation Fund, which has provided funding to New Zealand’s urban areas for the acquisition of zero-emission public transport busses.

Until recently, various additional funds were available to subsidise decarbonisation in the private sector, including the “Clean Car Discount” scheme, the “Government Investment in Decarbonisation Fund”, and “New Zealand Green Investment Finance”, a Crown-owned green investment bank. These initiatives have now been discontinued.

International climate finance and technology transfer

The government has committed to providing NZD1.3 billion in international climate aid over the period 2022–2025, of which at least 50% of this will be going towards nations in the Pacific region (including the Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Papua New Guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu).

The goals of this funding include:

  • accelerating climate change mitigation within the recipient nations, helping them to meet their nationally determined contributions;
  • enhancing resilience and adaptation to the impacts of climate change; and
  • improving institutional capability within those nations and enhancing their ability to make evidence-based decisions.

At COP29 in 2024, New Zealand joined the pledge to triple climate finance to developing countries by 2030. Despite this, in the government’s 2025 budget, climate aid has been reduced to NZD100 million per year for the period 2026– 2029. The government has also removed the requirement for the use of international climate funding to be applied directly to achieving climate-related objectives, with the funding now able to be applied to projects that have indirect climate benefits.

Regional Climate Change Legal Regime

Pacific Islands Forum

New Zealand is one of 18 members of the Pacific Islands Forum (PIF), which in 2019 declared climate change as “the single greatest threat facing the Pacific”. In 2022, the Forum formally declared a “Climate Emergency” and emphasised the urgency of limiting the global average temperature rise to 1.5 degrees Celsius through rapid, deep, and sustained greenhouse gas emissions reduction.

In recent years, PIF has:

  • committed to implementing the Paris Agreement and acting on the IPCC’s 6th Assessment Report;
  • committed to the transition away from coal, oil and gas in its energy systems (in line with IPCC pathways for limiting global average temperatures to 1.5°C above pre-industrial levels) and for fossil fuel consumption to peak in the near term; and
  • called on all development partners to provide substantially greater levels of climate finance, technology and capacity to accelerate decarbonisation of the nations of the Pacific Ocean.

At the PIF’s most recent meeting in August 2024, New Zealand backed the establishment of the Pacific Resilience Facility, a pacific-led climate and disaster resilience fund which aims to assist pacific nations with loss and damage caused by climate change and provide finance for climate mitigation initiatives.

Nationally Determined Contribution (NDC)

New Zealand’s NDC is to reduce greenhouse gas emissions by 51–55% below 2005 levels (expressed on a “point-year target” approach). This NDC, submitted in January 2025, represents a 1–5% increase as compared with New Zealand’s previous NDC of reducing greenhouse gas emissions by 50% below 2005 levels.

Scope of NDC

New Zealand’s NDC:

  • is economy-wide, covering all sectors including energy, industrial processes, product use, agriculture, land use and forestry, and waste; and
  • covers all greenhouse gases, including CO2, CH4, SF6, HFCs, PFCs, N2O and NF3.

Scientific Methodologies for Calculating Commitments

New Zealand has historically followed the methodologies recommended by the IPCC, and continues to do so. New Zealand calculates its commitments based on the methodologies prepared by the IPCC and, where applicable, as agreed by the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement.

Biennial Transparency Reports

New Zealand submitted its first Biennial Transparency Report (BTR) in December 2024. It confirmed that New Zealand was on track to meet its domestic portion of its Paris Agreement target, in a large part through sequestration via the ETS. However, much of New Zealand’s target under the Paris Agreement is to be met via offshore reductions, and the BTR has not disclosed how this remainder will be met. The government has not been clear on how these offshore reductions will be achieved, with the Climate Change Minister stating that “the Government has no formal plans to purchase offshore”.

Climate Change Policy

New Zealand legislated its role in addressing climate change through the Climate Change Response Act 2002 (CCRA) and established a national ETS in 2008. In 2019, the Climate Change Response Act 2002 was substantially amended to introduce the emissions budget and ERP mechanisms, as well as to establish the Climate Change Commission.

Emissions budgets are intended to act as “stepping stones” towards New Zealand’s net zero 2050 domestic target. They set out the maximum quantity of net carbon dioxide equivalent emissions that New Zealand is to emit over a five-year period. New Zealand’s emissions budgets are currently as follows.

  • 2022–2025: 290 MtCo2e (EB1).
  • 2026–2030: 305 MtCo2e (EB2).
  • 2031–2035: 240 MtCo2e (EB3).

Prior to the release of each emissions budget, the government is required to release an ERP setting out how the policies and strategies are to be used to meet the targets of the next emissions budget. New Zealand’s first ERP was released in May 2022 (ERP1) and set out the means via which the government intended to achieve EB1. ERP1 has proven a success, with New Zealand on track to meet EB1.

The government has recently released the second ERP for the EB2 period (ERP2). While ERP1 heavily emphasised emissions reductions in the transport sector, ERP2 is relying on anticipated emissions reductions in the agriculture sector. Both ERP1 and ERP2 also rely on emissions reductions in the energy sector, as well as on the continued sequestering of carbon by the forestry sector, as key to meeting their respective emissions budgets. Under the forecasts set out in ERP2, New Zealand is expected to achieve EB2, but to fall short of meeting EB3.

Climate Change Response Act

The CCRA was enacted in response to the 1992 Kyoto Protocol. Its purpose is to:

  • enable New Zealand to meet its international obligations under the United Nations Framework Convention on Climate Change, the Kyoto Protocol, and the Paris Agreement;
  • provide for the implementation, operation, and administration of a greenhouse gas emissions trading scheme in New Zealand that supports and encourages global efforts to reduce the emission of greenhouse gases; and
  • provide for the imposition, operation, and administration of a levy on specified synthetic greenhouse gases contained in motor vehicles and another levy on other goods to support and encourage global efforts to reduce the emission of those gases.

Under subsequent amendments, the CCRA now also:

  • regulates the ETS;
  • requires the government to prepare ERPs, NCCRAs, and NAPs; and
  • establishes the Climate Change Commission and mandates it to provide advice to the government on emissions budgets, climate mitigation and adaptation strategies to achieve its climate change targets.

As part of the CCRA amendments that occurred in 2019, the following domestic emissions reduction targets were enshrined within the legislation:

  • net zero greenhouse gas emissions (other than biogenic methane) annually by 2050;
  • 10% less biogenic methane emissions than 2017 levels by 2030; and
  • 24–47% less biogenic methane emissions than 2017 levels by 2050.

Domestic Targets

In 2024, the Climate Change Commission conducted a review of the Domestic Targets. Alongside this, the government commissioned an independent review of the biogenic methane target specifically. Both of these reports are now released.

In the Climate Change Commission’s report, it issued the following recommendations:

  • net emissions of all greenhouse gases other than biogenic methane to reach at least net negative 20 MtCO2e by 2050, and emissions from international shipping and aviation should be included in this target; and
  • gross emissions of biogenic methane to reach at least 35–47% below 2017 levels by 2050.

In the government’s review of the biogenic target, the panel found that:

  • if the rest of the world “rapidly increases its climate policies to meet the 1.5 degree” Paris Agreement goal, New Zealand would need to reduce its biogenic methane by 24% by 2050 to achieve the goal of “no additional warming” from New Zealand’s methane emissions; but
  • if the rest of the world does not take sufficient action to rapidly reduce emissions in the coming decades, then New Zealand would only need to decrease biogenic methane emissions by 14–15% in order to satisfy the goal of “no additional warming” from New Zealand’s methane emissions.

The government has not yet amended the Domestic Targets following the release of either of the above reports.

Resource Management Act

The Resource Management Act 1991 (RMA) governs how people interact with natural resources. All people exercising powers and functions under the RMA are required to recognise and provide for the management of significant risks from natural hazards (includes droughts, fires, flooding and landslips) and have particular regard to the effects of climate change.

The RMA was amended by the Resource Management Amendment Act 2020 (RMAA) to bring climate change issues explicitly into the RMA for the first time. In doing so, the RMAA removed the previous restriction on decision makers’ ability to consider the adverse effects of greenhouse gas emissions when making decisions on local plans and consents. That amendment took effect on 30 November 2022.

The RMAA also introduced the requirement for decision makers to “have regard to” the ERP and the NAP when making and changing regional policy statements, regional plans and district plans. This amendment also took effect on 30 November 2022. The Natural and Built Environment Act 2023 (NBEA), which was intended to replace the RMA, was enacted in August 2023 but repealed in December 2023 following a change in government. The NBEA specifically identified the reduction of greenhouse gas emissions, the removal of greenhouse gases from the atmosphere, and the reduction of risks arising from, and better resilience of the environment to, natural hazards and the effects of climate change as part of the suite of “system outcomes” that all decisions under the NBEA would have been required to provide for. The NBEA also required that there be, at all times, a suite of regulations (secondary legislation) that apply nationally, to be called the “national planning framework”. The national planning framework would have been required to provide direction for each of the system outcomes, including those relating to climate change.

Following the repeal of the NBEA, the RMA remains the legislation governing the environmental effects of particular activities. There is an intention to replace the RMA with laws based on the enjoyment of private property rights, however, it is not clear at this stage how any new legislation will address climate change-related matters. Before replacing the RMA, the government proposes to make amendments to it, including measures that will help increase renewable energy.

The Fast-Track Approvals Bill passed its third reading on 17 December, becoming the Fast-Track Approvals Act 2024 (FTAA). The FTAA  provides an alternative and simplified consenting pathway to the standard process under the RMA. The FTAA contains 149 “listed” projects selected by Ministers that have the right to use the fast-track. Other eligible projects can apply to the Minister for Infrastructure to be referred to the fast-track. A referral application needs to include specific information requirements, including a description of whether and how the project would be affected by climate change and natural hazards. In determining whether to refer a project to the fast track, the Minister may consider how a project will support climate mitigation, adaptation, reduce risks arising from natural hazards, or support recovery from events caused by natural hazards (although it is not mandatory to do so).

Constitutional Position

The CCRA and the RMA are not part of New Zealand’s “unwritten” constitution and are not “entrenched”.” They are able to be repealed with a 50% majority in parliament.

New Zealand’s constitutional framework, with its separation of powers between the judiciary and parliament, means climate change is in the domain of a political and policy response. While other countries have seen courts adjudge constitutional and human rights issues with regard to climate change, including holding governments responsible for inaction on climate mitigation, New Zealand’s legal system has not previously provided for this. However, a recent Supreme Court decision may result in a shift in that situation. In Smith v Fonterra Co-Operative Group Ltd, the Supreme Court declined to strike out claims in nuisance, negligence and a proposed novel tort of “climate system damage” against seven corporate defendants who were each involved in either an industry that emits greenhouse gases or one that manufactures and supplies products that emit greenhouse gases when used. Whether the claim will ultimately be successful remains to be seen, but this case represents the potential evolution of the common law on climate change in New Zealand.

International Climate Aid

New Zealand’s international climate aid has generally been prioritised towards Pacific nations. New Zealand has sought to do this by way of climate finance and by generally drawing attention to the issues faced by the country’s Pacific neighbours. New Zealand’s overall goal in the Asia-Pacific region is to support and collaborate with developing countries in meeting their Sustainable Development Goals.

New Zealand has also supported the development of renewable energy in Southeast Asia, including by announcing a contribution of NZD41 million (USD25 million) to the Asian Development Bank’s Energy Transition Mechanism in 2024. This fund primarily aims to assist Indonesia, the Philippines and Vietnam in making a fair and equitable transition to renewable energy.

Bilateral Agreements

While New Zealand has not entered into any formal agreements pursuant to Article 6.2 of the Paris Agreement, it has entered into agreements that contemplate climate change matters with Paris Agreement partners, including the following.

  • The EU–NZ Free Trade Agreement, concluded in June 2022 – this agreement contained key provisions relating to labour standards, gender equality, climate change, emissions trading, environmental goods and services, forests, fisheries subsidies, and fossil fuel subsidy reform. Such an agreement is significant as it represents the first time that the EU has made commitments in a trade agreement to refrain from granting or maintaining harmful fisheries subsidies. It also contains the EU’s first trade agreement article on fossil fuel subsidy reform.
  • The UK–NZ Free Trade Agreement – this deal confirmed the importance of other multilateral avenues for advancing climate goals. The agreement explicitly recognises the commitments of the Paris Agreement to achieve net-zero emissions and the commitments of the 26th UN Climate Change Conference of Parties (COP26) to phase out “inefficient subsidies” for all fossil fuels. New Zealand also included in the agreement the importance of creating a platform to co-operate on issues of relevance to Māori, reinforcing the broader COP26 theme of protecting indigenous rights.

Paris Agreement Crediting Mechanism

The Ministry for the Environment is New Zealand’s designated national authority to deal with the Paris Agreement Crediting Mechanism (PACM). New Zealand has been actively involved in the development of PACM, and has made submissions on its rules, modalities and procedures.

Non-Market Mechanisms

New Zealand has been involved in the work programme being performed by the Glascow Committee on Non-Market Approaches. However, it has not been advocating for any specific forms of non-market mechanisms.

Key Regulatory Bodies

Ministry for the Environment

The Ministry for the Environment is responsible for several key aspects of the country’s environmental management, including:

  • conducting research, analysis and consultation processes to inform policy developments, including advising on and implementing the ERP and the NAP;
  • leading and co-ordinating climate change policy efforts in New Zealand, including those to address climate change mitigation, adaptation and resilience; and
  • collecting and analysing data on greenhouse gas emissions and climate change impacts in New Zealand, including producing national greenhouse gas inventories and reports on progress towards meeting emissions reduction targets.

Environmental Protection Authority

The Environmental Protection Authority (EPA) is responsible for:

  • administering and regulating the ETS, including setting emission unit caps, managing the registry, monitoring compliance, and providing guidance to participants in the ETS; and
  • assessing and providing approval for certain applications regarding activities that have potential environmental impacts, including those related to climate change.

Climate Change Commission

The Climate Change Commission is not a regulatory body but an independent Crown entity that advises the government on climate change policy within the framework of the CCRA. Its purpose is to:

  • provide independent, expert advice to the government on mitigating climate change (including through reducing emissions of greenhouse gases) and adapting to the effects of climate change, including preparation of the NCCRA; and
  • to monitor and review the government’s progress towards its emissions reduction and adaptation goals.

Ministry of Business, Innovation, and Employment & Energy Efficiency and Conservation Authority

The Ministry of Business, Innovation, and Employment is responsible for implementing policies that decrease emissions in the energy and industry sectors, including overseeing EECA, the agency responsible for New Zealand’s transition towards a sustainable energy system (underpinned by clean energy use). In particular, EECA is responsible for:

  • ensuring that products and vehicles sold in New Zealand meet energy and fuel efficiency standards; and
  • educating New Zealanders on climate change issues and on leading low-carbon lives through its “Gen Less” brand.

Ministry for Primary Industries

The Ministry for Primary Industries is responsible for the implementation and regulation of policies in the primary sector, including:

  • providing guidance related to the eligibility, accounting, and reporting of emissions offsets through forestry and other sequestration activities; and
  • the development of an emissions pricing system for the agricultural sector.

Local government

Regional and district councils are the regulatory authorities at the “local” government level that implement the RMA through the development of regional policy statements, regional plans, and district plans, and decisions on resource consent applications. Councils’ decisions on both plans and consents can be appealed to the Environment Court. Proposals deemed to be of national significance may be “called in” to be determined directly by either the Environment Court or a Board of Inquiry appointed by the Environmental Protection Agency.

There are also other bespoke plan-making and consenting processes that might see a change to a plan, or a consent, considered by the Environment Court at first instance, rather than a council.

Regional and district councils’ knowledge and capacity to manage climate change mitigation and climate change impacts varies widely, particularly as the mandatory requirements to have regard to the ERP and the NAP have only been in force since 30 November 2022, and many councils are still building knowledge and resources.

Climate change-related litigation is an emerging feature of New Zealand’s climate change legal landscape. However, litigation in this area is still considered novel in New Zealand and there is currently a lack of clear legal pathways litigants can pursue for climate change recourse. Climate-related litigation has so far tended to be between climate activists and organisations whose actions are seen to be contributing to climate change. It is an attempt to enforce accountability – activism through litigation. The extent to which climate issues can be litigated varies depending on the nature of the claim and the persons involved. Generally, New Zealand’s climate change litigation can be split into two strands. The first is litigation between the public and the government. The second is between private individuals.

Climate Litigation Between the Public and the Government

The major aim of climate litigation between the public and the government in New Zealand has so far been to compel government organisations to uphold their commitments to better climate outcomes and ensure consistency of policy. Judicial review is the primary mechanism through which climate-related decisions made by the government can be challenged and tested. In the latter half of 2024, the Better New Zealand Trust issued proceedings against the Minister for Transport, questioning whether the government’s decision to change the “Clean Car Standard” (which aims to reduce CO2 emissions of imported vehicles) was consistent with New Zealand’s emissions reduction plan (which was required by the Climate Change Response Act 2022) and increasing the supply of zero and low emission vehicles. The courts are yet to release a decision on this case.

It is worth noting that judicial review is inherently limited. New Zealand’s constitutional structure grants parliamentary “supremacy”, which limits the courts’ ability to make enforceable orders against the government. This limits the extent to which litigation can effectively influence government decision-making on climate-related issues.

Climate Litigation Between Private Individuals

There are currently no existing climate-specific causes of action in New Zealand. Litigants are forced to rely on other courses of action, such as a tortious claim of negligence or a claim for breach of environmental consents or breach of contract.

However, this may change with the case of Smith v Fonterra Co-Operative Group Limited & Others. In this case, the claimant brought forward a claim against seven high-emitting New Zealand companies in the agriculture and energy sector, claiming that the defendant’s actions (which allegedly resulted in climate damage) constituted public nuisance, negligence and a novel climate change damage tort: a breach of duty to “cease contributing to climate change”. These claims were struck out by the Court of Appeal on the basis that allowing them would introduce an “ad hoc way of addressing climate change”. However, the Supreme Court subsequently granted leave to appeal, indicating its willingness to engage with the existence of this type of action against private companies. This development has the potential to establish a new climate-specific tortious action in New Zealand. This appeal has not yet proceeded to a hearing, and it is not expected to be decided for several years.

National Climate Policy Mechanisms Relating to Climate Change Mitigation

Under the CCRA, the government must have released a current version of both the ERP and NAP.

The ERP is intended to set out a clear policy direction in the short to medium term as to how New Zealand’s will meet its emissions budgets and targets. The government must release each ERP prior to the emissions budget to which it relates taking effect. While the ERP is intended to set out a clear policy direction for the country and provide certainty to individuals and businesses, the ERP is not set in stone and the government of the day can choose to abandon or modify aspects of the plan as it sees fit.

The NAP considers the impacts of climate change now and into the future and sets out how we will adapt to those impacts under proposed strategies, policies, and actions. The government must release each NAP within two years of the latest NCCRA being delivered.

Reporting of greenhouse gas emissions

New Zealand reports its emissions annually through the New Zealand Greenhouse Gas Inventory report released by the Ministry for the Environment. This report:

  • is the official basis for measuring New Zealand’s progress towards its emissions reduction targets;
  • provides inventory reporting for the seven greenhouse gases covered by the UNFCCC (CO2, CH4, SF6, HFCs, PFCs, N2O and NF3); and
  • analyses trends when comparing the annual data with that of previous years.

Emissions Trading Scheme (ETS)

The ETS is a key tool utilised to meet domestic and internal climate change targets. It is a domestic “cap and trade” system that operates through the issuing and surrendering of New Zealand Units (NZUs). It is designed to incentivise emissions reductions by pricing emissions, while also increasing the removal of atmospheric CO2 by rewarding those who carry out sequestration.

For each tonne of carbon dioxide equivalent emissions emitted by a participant in the ETS, one NZU must be surrendered to the government. For each tonne of emissions removed, one NZU is issued.

Approximately half of New Zealand’s gross emissions are captured by the ETS. It covers businesses and organisations carrying out certain activities in the below sectors.

  • Forestry – anyone carrying out deforestation of more than two hectares of pre-1990 forest land.
  • Liquid fossil fuels – all importers or producers of petrol, diesel, LPG, or other liquid fossil fuels.
  • Stationary energy – all large users of coal or natural gas.
  • Industrial processes – all businesses that produce certain products such as steel, aluminium, cement or glass.
  • Synthetic greenhouse gases – all importers or manufacturers of synthetic greenhouse gases such as hydrofluorocarbons or perfluorocarbons.
  • Waste – all operators of landfills that dispose of more than one kilotonne of waste per year.

Almost all of New Zealand’s industries are covered by the ETS, apart from the agricultural sector. The agricultural sector was originally exempt from the ETS on various grounds, including that biogenic gases emitted by the sector are short-lived by nature and there was a view that these should therefore be treated differently, and there was a perception that the industry has limited ability to reduce gross emissions. Notwithstanding this, the government intends to have a pricing system for agricultural emissions in place by 2030.

The “point of obligation” for the surrender of NZUs arises in a manner that prevents the consumers of New Zealand from directly interacting with the ETS. For example, the NZU surrender obligation for fuel arises at the point that the fuel goes through New Zealand Customs, rather than at the fuel pump. This cost is absorbed by the importer and then passed on to the consumer through the price of fuel.

NZUs can be obtained via the following methods.

  • Industrial allocation – certain mandatory participants who have a limited ability to pass the costs of the ETS on to consumers, or who are trade-exposed to overseas competitors that are not subject to an equivalent carbon tax in their jurisdiction, are eligible to receive an industrial allocation of NZUs annually to help ensure they are not disproportionately affected when compared to other participants.
  • Government auctions – every three months, the government runs an auction for NZUs. Auctions are a key tool in the government influencing the supply and price of the units through the setting of quantity limits and reserve prices at each auction.
  • Earning units – participants that undertake eligible sequestration activities can “earn” NZUs.
  • Secondary market – NZUs are able to be bought and sold on secondary markets and exchanges.

Since the ETS was decoupled from equivalent overseas systems in 2015, overseas units are not valid for surrendering. New Zealand opted for a domestic-only system in an effort to:

  • increase its control over the quantity of emissions that can occur and the terms upon which emitting can occur (in turn giving greater control over its ability to meet its climate targets); and
  • ensure the environmental integrity of the units surrendered under the system.

Implementation of greenhouse gas emissions caps

New Zealand’s greenhouse gas emissions caps are set through its “emissions budget” system.

The ETS is the key tool used to control (and cost) emissions. However, the current design of ETS does not allow for the quantity of units issued under the scheme to necessarily align with the quantity of emissions permitted under an emissions budget. This is due to the ETS’s allowance for an uncapped quantity of units to be earned through sequestration activities, which may lead to more units being available during an emissions budget period than the gross emissions permitted under that budget.

Public sector to be carbon neutral by 2025

The government has committed to the public sector being carbon neutral by 2025. Beginning in 2025, the public sector will be required to measure and publicly report on their emissions. If an agency has not achieved carbon neutrality, it will be required to offset any surplus emissions.

National Policy Statement and National Environmental Standards for Greenhouse Gases from Industrial Process Heat

The NPS and NES for Greenhouse Gas Emissions from Industrial Process Heat came into force in July 2023. They set out how New Zealand is to achieve net-zero carbon emissions by 2050 and governs the production of greenhouse gases from activities that burn fossil fuels in industrial process heat activities. Industrial process heat is defined as thermal energy used in industrial processes, including manufacturing and processing of raw materials or growing plants and other photosynthesising organisms indoors. It does not include thermal energy used to warm spaces for comfort, such as heating commercial offices.

National Climate Policy That Applies to Adaptation

The NAP seeks to enable New Zealand to prepare for, and adapt to, the effects of climate change. Implementing the NAP requires action across government. A climate change inter-departmental executive board has been established to oversee the NAP (along with the ERP). The NAP is based on the NCCRA, and is produced on recurring six-year cycles.

The Climate Change Commission has a statutory obligation to report to the Minister for Climate Change every two years on the NAP’s implementation and effectiveness.

The government has consulted on a draft National Policy Statement for Natural Hazard Decision-Making. If implemented, it will direct how decision-makers consider natural hazard risk in planning decisions for new developments under the RMA.

New Zealand Emissions Trading Scheme

The ETS is a domestic “cap and trade” scheme that operates through the issuing and surrendering of NZUs. It is designed to incentivise emissions reductions by pricing emissions, while also increasing the removal of atmospheric CO2 by rewarding those who carry out sequestration.

In 2023, the ETS underwent significant change through the introduction of a new activity in the ETS known as “permanent forests” along with other technical improvements to make the scheme easier to participate in. Permanent forests are “post-1989” forests that cannot be clear-felled for at least 50 years with penalties handed out if clear-felling does take place.

Nationally there appears to be growing interest in the area of carbon forestry projects with a greater number of participants in the forestry industry looking to meet the ETS requirements and become involved with carbon trading (including bilateral offtakes). Such groups include indigenous groups (Iwi), local authorities, conservation trusts, and private forest owners.

The Climate Change Commission is required to deliver annual advice to the government on its suggested ETS unit limits and price control settings for the following five years, with its advice for the 2025–2029 period being released on 1 February 2024. The Climate Change Commission has recommended further changes to the way volume limits and prices are set in the ETS in order to accelerate New Zealand’s decarbonisation. The suggested changes aim to reduce the surplus units stockpiled in national accounts through decreasing the volume of units available at auction each year.

The Climate Change Commission has also stated that it does not believe that the ETS (in its current form) adequately incentivises emissions reduction at source. As a result, the government has commenced a general review of ETS, with the scope of the review including a redesign of the recently introduced “Permanent Forest” category. The results of this review are yet to be seen. The government’s ongoing reviews of the ETS will also consider:

  • what balance of gross and net emissions reductions is expected to be driven by the current design and settings of the ETS, and what the economic, environmental, and distributional impacts of this balance will be;
  • what balance of gross and net emissions reductions the ETS should incentivise in the future;
  • how the ETS could be amended to support the government’s preferred balance of gross and net emissions reductions; and
  • what levels of net emissions reductions should be from exotic forests and indigenous forests, and how to improve ETS incentives for indigenous afforestation.

Voluntary Carbon Markets

Voluntary carbon offsetting is not specifically regulated in New Zealand, although the government has issued guidance on what should be adhered to for a voluntary carbon-offsetting claim to be credible. The guidance contains good practice guidelines on what a voluntary carbon offset is, the requirements of what constitutes a voluntary carbon offset, and examples of how voluntary carbon offsetting by organisations and individuals can be applied in the New Zealand context.

The six principles that must be met for any claims of voluntary climate change mitigation require that the mitigation be:

  • transparent;
  • real, measurable, and verified;
  • additional;
  • not double used;
  • inclusive of addressing any leakage; and
  • permanent.

Surrendering units as part of a legal requirement under the ETS is not voluntary climate change mitigation and cannot be claimed as such.

Paris Agreement Crediting Mechanism

While New Zealand has been actively involved in the development of PACM, it has not yet announced its intentions regarding its involvement in the mechanism once launched, nor whether it will replace, or otherwise how it will interact with, the ETS.

Cement, aluminium, fertilisers, electricity, hydrogen, iron and steel exports to the EU from New Zealand will have to report, and eventually pay for (where required), the embedded carbon emissions in those products. This is to occur on the same basis as where those products are exported to the EU by other countries.

While this is estimated to only impact <0.20% of New Zealand’s exports at this stage, these sectors will likely be required to pay the carbon tariff (once payments are required) as the price of emitting in the EU’s emissions trading scheme has historically been higher than in New Zealand’s ETS.

Should the EU decide to extend the scope of CBAM to agriculture in the future, it will have a much greater effect on New Zealand.

Mandatory Climate-Related Financial Disclosures

In 2023, New Zealand passed legislation making climate-related disclosures mandatory for large publicly listed companies, insurers, banks, non-bank deposit takers, and investment managers. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 required around 200 large financial institutions to start making climate-related disclosures from 1 January 2023.

Reporting is required against climate standards issued by the External Reporting Board (XRB). These climate standards are based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The standards include:

  • Aotearoa New Zealand Climate Standard (NZ CS) 1: Climate-Related Disclosures (NZ CS 1);
  • NZ CS 2: Adoption of Aotearoa New Zealand Climate Standards (NZ CS 2); and
  • NZ CS 3: General Requirements for Climate-Related Disclosures (NZ CS 3).

The Climate Reporting Entities (CREs) subject to the regime include:

  • all registered banks, credit unions, and building societies with total assets of more than NZD1 billion;
  • all managers of registered investment schemes (other than restricted schemes) with greater than NZD1 billion in total assets under management;
  • all licensed insurers with greater than NZD1 billion in total assets or annual premium income greater than NZD250 million;
  • listed issuers of quoted equity securities with a combined market price exceeding NZD60 million; and
  • listed issuers of quoted debt securities with a combined face value of quoted debt exceeding NZD60 million.

In addition, Crown Financial Institutions with greater than NZD1 billion in total assets under management are required to produce climate-related disclosures.

The goal of mandatory climate-related disclosures is to:

  • ensure that the effects of climate change are routinely considered in business, investment, lending, and insurance underwriting decisions;
  • help climate reporting entities better demonstrate responsibility and foresight in their consideration of climate issues; and
  • lead to more efficient allocation of capital, and help smooth the transition to a more sustainable, low emissions economy.

Relationship With IFRS S1 and S2 Disclosure Standards

As New Zealand’s climate standards were released before the IFRS standards, they were prepared based on the recommendations of the Task Force on Climate-Related Financial Disclosures.

Since the release of the IFRS standards, the XRB has undergone a comparison of the New Zealand standards against the IFRS standards and has now publicly released a comparison document (Comparison Document).

In regard to alignment between the documents, the Comparison Document states that:

  • the core content of NZ CS 1 is consistent with that of IFRS S2 (ie, the four pillars in both documents are governance, strategy, risk management, and metrics and targets); and
  • the key concepts and general requirements in NZ CS 3 and IFRS S1, such as the principles of materiality and fair presentation, are also well aligned.

However, the Comparison Document provides that there are also many differences in details which mean that if a reporting entity applies the IFRS standards it may not necessarily comply with the New Zealand standards, and vice versa. In several areas, there are in fact substantive differences in terms of the underlying approach, analysis or effort required by reporting entities in order to ensure compliance. It is important that reporting entities that are unfamiliar with New Zealand’s climate standards (or vice versa) refer to this document when seeking to comply with the other set of standards.

Under New Zealand’s current statutory framework, there are no specific requirements mandating directors to consider the impacts of climate change in their decision-making. However, a 2023 amendment to Section 131 of the Companies Act 1993 introduced in clear terms that directors may consider factors other than the maximisation of profit when determining what constitutes the “best interests” of the company. This amendment explicitly includes “environmental factors” as an example of such additional considerations. Notwithstanding that Section 131 was only amended recently, the current government has pledged to repeal the changes made in 2023. This is on the basis that directors were already permitted to consider environmental, social and governance considerations when making decisions (provided that doing so was not contrary to the constitution of the company) and therefore the recent changes were redundant.

There is currently no New Zealand case law in which a director has been found liable (under the Companies Act, other legislation, or at common law) for climate change impacts. However, the upcoming hearing of Smith v Fonterra Co-Operative Group Limited, will go some way in determining the liability of New Zealand companies in relation to climate change impacts. In a recent decision, the Supreme Court of New Zealand declined to strike out claims in nuisance, negligence and a proposed novel tort of “climate system damage” against seven corporate defendants who were each involved in either an industry that emits greenhouse gases or one that manufactures and supplies products that emit greenhouse gases when used. Whether the claim is ultimately successful remains to be seen, but this case represents the potential evolution of the common law on climate change in New Zealand.

A limited liability company is the most common type of company in New Zealand. It is a separate legal entity and is called a limited liability company because the liability of the shareholders is limited to the amounts provided to the company in return for shares.

Shareholders of limited liability companies are not liable for the company’s debts or liabilities as the company itself is responsible for its own debts and liabilities. Accordingly, shareholders are not liable for climate change damage or breaches of climate change law.

Mandatory Climate-Related Financial Disclosures

CREs comprising large publicly listed companies, insurers, banks, non-bank deposit takers, and investment managers are subject to mandatory climate-related disclosures that are based on the recommendations of the Task Force on Climate-related Financial Disclosures.

NZX Corporate Governance Code and ESG Guidance Note

The New Zealand Stock Exchange (NZX) requires all Main Board listed companies to report against a set of principles and recommendations, called the NZX Corporate Governance Code (NZX Code). The overarching purpose of the NZX Code is to promote good corporate governance, recognising that boards are in place to protect the interests of shareholders and to provide long-term value. The NZX Code is a comply or explain regime, meaning if an issuer does not report against the recommendation of the code, it must explain why not.

The NZX Code contains a recommendation that an issuer should provide non-financial disclosure at least annually, including considering ESG factors and practices. NZX suggest that if an issuer chooses a formal framework to report on ESG factors, it should report against a recognised initiative such as the Global Reporting Initiative guidelines or Integrated Reporting. ESG reporting should be presented as part of an issuer’s corporate governance reporting or as a stand-alone report.

In addition, NZX has a guidance note relating to ESG reporting that is designed to accompany the NZX Code. This guidance note provides a resource to NZX issuers to understand the benefits of ESG reporting, provide information about global frameworks, and support the effective communication of ESG opportunities and risks to investors and other stakeholders.

For CREs, the guidance note provides further guidance in relation to making climate-related financial disclosures.

For M&A and financing transactions, the level and scope of climate change due diligence will depend on the business or underlying assets being acquired or financed and/or the regulatory framework that applies to the relevant business. Unless a business or the underlying assets are particularly at risk to the effects of climate change, or the entity is regulated by New Zealand’s climate change legislation, there is no generally accepted standard of climate change due diligence for M&A or financing transactions. Where climate change due diligence is required, a lender will rely on the relevant borrower to complete the required due diligence, and may seek reliance on any formal reports prepared by the borrower’s advisers in this respect.

For a property transaction, climate change due diligence work focuses on consultation with and receiving information from relevant local authorities about a particular property’s susceptibility to adverse weather and its effects. Such weather events are becoming increasingly common as a result of climate change and due diligence would typically involve investigations into a particular property’s susceptibility to flooding, subsidence, coastal erosion, and other similar weather events. Due diligence would also involve discussions with a vendor of an area to gain insight about historical weather events. The property title will also be checked to see whether any part of the property has been registered in the ETS.

New Zealand already has a relatively low-emitting electricity system, with 87% of electricity generated in 2022 coming from renewable sources. To ensure that the country continues to meet demand for electricity while phasing out fossil fuels, the Climate Change Commission has suggested that generation that can supply over 1TWh per year will need to be built. While the new government has discarded the previous government’s plans to build a NZD16 billion pumped hydro scheme and hydroelectric battery on the South Island’s Lake Onslow, it has signalled an intent to continue to invest in New Zealand’s renewable energy infrastructure and to amend the RMA to include measures that will help increase renewable energy. The Bill governing the new government’s policies in this area are expected to be introduced at the end of 2024.

New Zealand does not provide policy/regulatory and/or other support for the uptake of other forms of climate-friendly investment.

Anderson Lloyd

Level 2
The Regent
33 Cathedral Square
Christchurch 8013
New Zealand

+64 3 379 0037

lawyers@al.nz www.al.nz
Author Business Card

Law and Practice

Authors



Anderson Lloyd is one of New Zealand’s oldest and most respected law firms. It is a unique national firm with four integrated offices (Auckland, Christchurch, Dunedin and Queenstown) across New Zealand. Across its multidisciplinary team, the firm has experts in climate change areas such as renewable energy projects, the Climate Change Response Act, the emissions trading scheme, carbon forestry projects, carbon trading arrangements, and the climate change aspects of the Resource Management Act. Anderson Lloyd is committed to sustainable practices and it takes responsibility as custodian of a multi-generational firm, caring for its people, community and environment. The firm takes ownership of, and is accountable for, its measurable emissions while conducting day-to-day business. Anderson Lloyd was the first large New Zealand law firm to attain Toitū net carbonzero accreditation and is an active member of the Sustainable Business Council, Climate Leaders Coalition, and the NZ Green Building Council.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.