New Zealand advances Carbon Capture framework, to incentivize under ETS

New Zealand has made key decisions on Carbon Capture, Utilization, and Storage (CCUS) framework development and a legislation is expected to be introduced this year, country's Energy and Climate Change Minister Simon Watts announced in a statement Feb. 21.

The statement, "Carbon capture one step closer," highlights that the government has taken significant steps towards establishing a CCUS framework, which aims to enable businesses to store carbon underground and thereby reduce net carbon emissions.

The statement says that the CCUS framework will reward businesses that capture and store CO2 through the Emissions Trading Scheme (ETS), which serves as the government's primary tool for reducing net emissions.

"Under our CCUS framework, businesses that capture and store CO2 will be rewarded through the Emissions Trading Scheme. This will help reduce emissions obligations for New Zealand businesses as we progress towards a low-emissions economy," Watts said.

Emitters covered by the NZ-ETS are required to purchase and surrender one NZU for every ton of CO2 equivalent emissions they produce. The government sells a portion of NZUs directly to the market through quarterly auctions, while additional NZUs are available in the secondary market.

Platts, part of S&P Global Commodity Insights, assessed the NZU prices at NZ$63.60/tCO2e on Feb. 21.

Energy Sector and role of CCUS

Notably, Platts reported last year that government data showed second-quarter 2024 greenhouse emissions from electricity generation climbed over a three-year high since June 2021 and more than doubled on the year to 1.431 million mtCO2e. The high demand for electricity in winters spiked the third-quarter greenhouse emissions to 1.423 million mtCO2e, the most third-quarter emissions since June-September of 2020.

A report by New Zealand's Ministry of Business Innovation & Employment released last year showed that in 2024, extra coal and gas were needed to generate enough power amid low hydro Lake levels.

"Economic growth is a key focus for this government, and we want the energy sector to be the engine for our economy – driving electrification and unlocking economic growth," Watts stated. The government aims to eliminate regulatory barriers, facilitating the supply of affordable energy for homes and businesses.

Commenting on the release, Energy Resources Aotearoa Chief Executive John Carnegie said, "CCUS projects are an essential technology for meeting our emissions goals. The Intergovernmental Panel on Climate Change (IPCC) has previously stated that CCUS is 'unavoidable' for countries aiming to achieve net emission reduction targets."

Carnegie emphasized the importance of a clear, risk-based framework to instill confidence in potential investors. He stated, "These two things can't be seen in isolation - without a strong supply of gas, New Zealand won't be able to maximize the benefits of this technology or achieve secure and abundant energy for households and businesses."

"Ensuring safe and effective storage of CO2 is critically important," Watts added, noting that any CCUS project will require a thorough assessment of storage site suitability and ongoing monitoring.

Focus on CCUS

The government's second emissions reduction plan, released in December last year, identified CCUS as a critical tool for meeting future emissions budgets.

As per the Second Emissions Reduction Plan (ERP2), implementation of CCUS is estimated to reduce New Zealand's net CO2 emissions by 4.65 million mtCO2e over the next two Emission Reduction Plan periods (2026-30 and 2031-35) and may help the energy sector to reduce 1.0 million mtCO2e in 2026-2030 period.

"Based on that headline it sounds like entities, like geothermal generators, etc., may be rewarded for rolling out carbon capture technology," a New Zealand-based electricity retailer said.

CCUS is gaining momentum globally as a viable solution for reducing emissions. The framework is expected to unlock significant potential in New Zealand, allowing for the capture of CO2 emissions that can be transformed into valuable products and materials.