Contributed By Anderson Lloyd
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 subsequently 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 come together to 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:
Adaptation and capacity building
In 2022, the New Zealand government released its first National Adaptation Plan (NAP), 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 to:
Domestic climate finance
New Zealand has implemented various climate finance initiatives, including through:
International climate finance and technology transfer
The government has committed to providing NZD1.3 billion in 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:
Regional Climate Change Legal Regime
Pacific Islands Forum
New Zealand is one of 18 members of the Pacific Islands Forum, which in 2019 declared climate change as “the single greatest threat facing the Pacific”.
At the Forum’s 2022 meeting, it:
Nationally Determined Contribution (NDC)
New Zealand’s NDC is to reduce greenhouse gas emissions by 50% below 2005 levels (expressed on a “point-year target” approach), equating to a provisional emissions budget of 571 Mt Co2-e over the period of 2021 to 2030.
This NDC, submitted on 31 October 2021, is a 20% increase on New Zealand’s original NDC of reducing greenhouse gas emissions by 30% below 2005 levels.
Scope of NDC
New Zealand’s NDC:
Scientific Methodologies for Calculating Commitments
The methodologies used by New Zealand in calculating its commitments are as follows:
In the future, New Zealand intends to consider methodologies also introduced by the 2013 IPCC Wetlands Supplement and the 2019 Refinement to the 2006 IPCC Guidelines.
Climate Change Policy
New Zealand legislated its role in addressing climate change through the Climate Change Response Act 2002 and established a national ETS in 2008.
Domestic climate targets are legislated under the Climate Change Response (Zero-Carbon) Amendment Act 2019. A Climate Change Commission has also been established to provide advice to the government on emissions budgets, climate mitigation and adaptation strategies to achieve its climate change targets.
In 2022, the government set New Zealand’s first three emissions budgets for the periods of 2022–2025, 2026–2030, and 2031–2035. It also published the first ERP for New Zealand, setting out how the government intends to meet its first emissions budget.
New Zealand’s emissions budgets are currently:
Climate Change Response Act
The Climate Change Response Act 2002 (CCRA) was enacted in response to the 1992 Kyoto Protocol. Its purpose is to:
In 2019, the CCRA was significantly amended to reflect New Zealand’s obligations under the Paris Agreement by legislating the following climate targets:
The CCRA also:
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. 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 Emissions Reduction Plan and National Adaptation Plan when making and changing Regional Policy Statements, Regional Plans, and District Plans. This amendment took effect on 30 November 2022, so is in the early stages of implementation throughout the country.
The New Zealand Government is debating the potential repeal of the RMA and its replacement with three new statutes, including the Climate Change Adaptation Bill (expected to be introduced in 2023). The detail of the Climate Change Adaptation Bill is not yet known, but it is anticipated that it will seek to help New Zealand better address climate change, and, in particular, managed retreat.
The Natural and Built Environment Bill that will be the main replacement of the RMA specifically identifies 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 Act will be required to provide for. This Bill also requires that at all times there be a suite of Regulations (secondary legislation) that apply nationally, to be called the “national planning framework”.
It will be mandatory for the national planning framework to provide direction for each of the system outcomes including those relating to climate change.
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 that climate change is entirely in the domain of a political and policy response. Unlike evolving jurisprudence in other countries recently, where courts have adjudged constitutional and human rights issues vis-à-vis climate change, including holding governments responsible for inaction on climate mitigation, New Zealand’s legal system does not provide for this. In the context of climate change, the courts have shown a disposition to leave any decisions of climate change mitigation to parliament as a matter of policy.
New Zealand has focused on increased investment in climate aid, particularly in the Pacific, with the aim of taking up a greater and more invested role in the region in combatting climate change. New Zealand’s primary goal in the region is building Pacific resilience to the impacts of climate change, through climate finance and by generally drawing attention to the issues faced by our 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.
In October 2021, New Zealand committed to spend NZD1.3 billion in grant-based climate finance between 2022 and 2025 with much of that finance commitment put forward to support Pacific Island countries with climate change adaptation. This built upon earlier climate finance announced in 2018 through a dedicated Climate Change Programme (operating until June 2023) which delivered NZD150 million towards preventative climate change action.
New Zealand joined other Paris Agreement partners in enforcing more ambitious targets for preventative action by updating its NDC in October 2021. New Zealand continues to establish partnerships to explore, develop, and co-operate in supporting emissions reductions globally. New Zealand has recently established several bilateral agreements with Paris Agreement partners, including:
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:
Environmental Protection Authority
The Environmental Protection Authority (EPA) is responsible for:
Climate Change Commission
The Climate Change Commission is not a regulatory body, but is an independent Crown entity that advises the New Zealand government on climate change policy within the framework of the CCRA. Its purpose is to:
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 the Energy Efficiency and Conservation Authority (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:
Ministry for Primary Industries
The Ministry for Primary Industries is responsible for the implementation and regulation of policies in the primary sector, including:
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.
National Climate Policy Mechanisms Relating to Climate Change Mitigation
The CCRA requires the Minister for Climate Change to prepare both an ERP and a NAP.
The ERP outlines New Zealand’s emissions reduction strategy. The purpose of the ERP is to enable New Zealand to contribute to the global effort to limit global warming to 1.5 degrees Celsius with a target of zero long-lived gases.
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.
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:
Emissions Trading Scheme (ETS)
The primary mechanism in New Zealand to mitigate greenhouse gas emissions and support sustainable development is the ETS. The ETS operates like many other emissions trading schemes across the world whereby emitters are required to surrender “units” to cover their emissions and removers are given units in recognition of their removal of emissions from the atmosphere.
The ETS 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:
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 the gases emitted by the sector are short-lived by nature and there was a view that these should therefore be treated differently, and that 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 2025.
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:
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:
Agricultural emissions pricing scheme
Instead of adding the agricultural sector to the ETS, the government has afforded the sector the opportunity to propose its own scheme to run alongside the ETS. The He Waka Eke Noa Partnership, a joint initiative between the sector, Māori, and government, was formed to develop this proposal.
The partnership provided its recommendations to the government in 2022, and the government has now released its proposed agricultural emissions pricing system. The key feature of this system is a farm-level, split-gas levy for agricultural emissions that would price biogenic methane and nitrous oxide (including from fertiliser) separately for each farm. Revenue raised through the levy is intended to be recycled back into the sector through investment in emissions reduction technologies.
Should the government proceed with the proposed system, it is intended that the pricing of agricultural emissions would occur from 1 January 2025. Should this target be met, New Zealand would likely be the first country in the world to price agricultural emissions.
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’ allowance for an indefinite amount 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.
In July 2022, the Climate Change Commission released advice to the government seeking to address this issue.
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 Climate Policy That Applies to Adaption
The NAP seeks to enable New Zealand to prepare for, and adapt to, the effects of climate change.
The Climate Change Adaptation Bill (expected to be introduced in 2023) is intended to be the primary piece of legislation to address climate change adaptation when it comes into force. It is also likely to change the framework of implementation; however, its detail is not yet known.
In the meantime, implementing the NAP requires action across government. A climate change interdepartmental executive board is being established to oversee the NAP (along with the ERP). The adaption plan is based on a risk assessment, and is produced on recurring six-year cycles.
All spheres of government are affected by the NAP, but particularly local government. The government is currently working on implementing funding and financing mechanisms to enable local government to act in accordance with ERPs, and the implementation of NAPs.
The Climate Change Commission has a statutory obligation to report to the Minister for Climate Change every two years on the adaption plan’s implementation and effectiveness.
New Zealand Emissions Trading Scheme
The ETS is a domestic “cap and trade” scheme 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.
This year, the ETS has undergone 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 bi-lateral offtakes). Such groups include indigenous groups (Iwi), local authorities, conservation trusts, and private forest owners. Current trends in New Zealand also point towards emitters seeking to become further involved in the ETS.
Recently 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 changes aim to reduce the surplus units stockpiled in national accounts through determining the volume of units available at auction each year and increasing auction reserve prices, as well as introducing schemes to monitor these two factors. In addition, the government is considering ways to further prioritise gross emissions reductions over the offsetting of emissions, which will likely require further changes to the ETS.
The government’s ongoing reviews of the ETS will also consider:
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:
Surrendering units as part of a legal requirement under the ETS is not voluntary climate change mitigation and cannot be claimed as such.
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 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 2026, the CBAM will have a much greater effect on New Zealand.
Mandatory Climate-Related Financial Disclosures
New Zealand has 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 requires 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 Climate Reporting Entities (CREs) subject to the regime include:
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:
2023 is the first year in which CREs must publish their climate-related disclosures and therefore the influence of the mandatory climate-related disclosures regime on investment and industrial operational decisions remains to be seen. The New Zealand government has confirmed that it is continuing to investigate further measures to create greater transparency of the climate related financial practices of CREs.
There is currently no express statutory requirement under the Companies Act 1993 for directors to consider the impacts of climate change, but proposed reform is underway.
Similarly, there is no New Zealand case law in which a director has been found liable, under the Companies Act or any other duty, for climate change impacts. However, similar to international trends, it is anticipated that challenges will arise and prudent directors will be identifying foreseeable climate change impacts on their companies and taking those into account in their decision making.
Section 131 of the Companies Act requires directors to act in good faith and in the best interests of the company. The Companies (Directors Duties) Amendment Bill sought to amend this section to expressly clarify that directors of companies may consider recognised environmental, social, and governance factors while making decisions. The Bill received strong opposition and did not obtain select committee endorsement with the Bill subsequently being revised. The Bill now proposes to clarify that directors, in considering the best interests of the company, may consider matters other than the maximisation of profit.
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
Climate Reporting Entities (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 (TCFD).
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 advisors 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.
Currently, 40% of New Zealand’s total primary energy supply, and nearly 28% of total final energy consumption comes from renewable energy sources. New Zealand has set a target of 50% of total final energy consumption to come from renewable sources by 2035. New Zealand had also set a target of 100% renewable energy by 2030. However, the Climate Change Commission described this target as “aspirational”, with a target of 95–98% being more appropriate. In order to increase New Zealand’s use of renewable energy while not jeopardising the country’s power grid in “dry years”, the government has launched the NZ Battery Project, through which it is currently investigating constructing a large pumped hydro scheme at Lake Onslow in the country’s South Island. This proposed hydro scheme is estimated to provide between 3 and 8.5Twh. In addition to increasing the amount of renewable energy used, New Zealand also recognises the importance of using low-emissions fuel to reduce carbon emissions. It is currently developing a “forestry and wood processing industry transformation plan” to stimulate the production of cost-effective, low-emissions products and wood-based biofuels, and also intends to implement a sustainable aviation fuel mandate.
New Zealand offers financial support to the private sector to assist in meeting the costs of transition to more climate-friendly practices and solutions through various climate finance initiatives, such as through the GIDI Fund and via the crown-owned green investment bank, New Zealand Green Investment Finance (NZGIF).
With the dual purpose of accelerating industry decarbonisation and economic growth, the GIDI Fund focuses on investing in, and promoting, cleaner industrial processes and process heat. The fund supports energy efficiency, and the switch from fossil fuels to cleaner renewable energy sources across the industrial and commercial sectors. The GIDI Fund is part of the government’s Climate Emergency Response Fund and is funded via proceeds from the ETS. A total of NZD650 million (NZD1 billion over 7 years) was allocated as part of New Zealand’s 2022 Budget.
NZGIF is a government-owned green investment bank established to accelerate investment that helps reduce greenhouse gas emissions in New Zealand. NZGIF makes independent investment decisions based on an investment mandate incorporating four key principles:
NZGIF has NZD400 million of investment capital and is focused on investments of NZD10 million plus in its target sectors of distributed energy resources, process heat, waste, plastics, energy efficiency, transport, and agriculture. As at 31 March 2023, NZGIF had made 16 investments and had committed NZD279.6 million of capital.
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