NZ may miss climate goals as opposition vows to delay on-farms emissions pricing

New Zealand's carbon market participants said the country could miss its climate goals after the National party, which has emerged as a strong contender to the ruling Labor party for the October elections, said this month that it will delay current plans to price agricultural emissions from 2025 to 2030 and restrict the conversion of farmland to carbon-based forestry.

The ruling coalition's policies on emissions from agriculture make it likely that New Zealand will fall short of fulfilling its 2030 Nationally Determined Contribution, or NDC, said Matt Raeburn, principal - climate change and sustainability, at WSP, an Auckland-based engineering consulting firm.

"But National's intention to use only 'technology, not less production' to reduce emissions would make New Zealand even less likely to deliver on our NDC," Raeburn added.

The policy will further delay the action that is required in reducing New Zealand's national emissions and likely require the country to offset even more of its emissions overseas to meet NDCs, said Sebastian Gehricke, senior lecturer and director at Climate and Energy Finance Group, University of Otago.

Agriculture emissions

The government in October opened a consultation to price greenhouse gas emissions from the agriculture sector, which currently contributes over half of New Zealand's gross emissions.

The framework, which was further relaxed in December due to strong pushback from farmers, is expected to come into effect from Jan. 1, 2025.

National said that New Zealand farmers were among the most carbon efficient in the world but there was no technology widely available to reduce methane emissions.

"That means any environmental costs lumped on farmers will push up food prices or send production overseas to higher emitting countries," National said in its most detailed climate policy statement ahead of the elections.

There was a lack of evidence to support the fact that New Zealand farmers were among the most carbon-efficient, Gehricke said.

Farming groups welcomed National's stance, with some adding that emissions can be reduced more effectively through new technologies such as methane inhibitors, vaccines and gene editing.

"Methane vaccines and the like have been talked about for years and won't materialize in time, if they do at all," according to Raeburn.

The hold-up in the policy is only going to delay the pain coming for the farmers, Raeburn said, adding that it was not the farmers' fault that governments have incentivized dairy for decades.

Forestry policy

The National had also said it will place limits on new conversions of farmland to forests to protect local communities and food production.

The New Zealand ETS is forecast to drive the planting of between 410,000 hectares and 670,000 hectares of new forests by 2035, according to cabinet minutes.

The policy will include a moratorium on whole farm conversions to exotic forestry on high-quality land from 2024.

This will result in New Zealand missing its planting budget by 17,000 hectares a year, said James Treadwell, president of the New Zealand Institute of Forestry, adding that this will potentially mean the country will need to purchase offsets from overseas to meet its targets.

"The policy has caused a massive loss of confidence and some capital flight, so it is likely even lower areas will be planted, increasing the costs to New Zealand proportionally," Treadwell said.

National's moratorium on exotic forestry conversions could – at least temporarily – disrupt ETS forestry activity and NZU supply further, Raeburn added.

The party also aims to recognize more forms of carbon sequestration on farmlands, in addition to tree planting, to support farmers through the generation of carbon credits.

Delaying agricultural emissions pricing while also increasing the activities that can earn NZUs will certainly increase the supply side of the ETS, which would likely decrease prices, Gehricke said.

"There is just too much uncertainty to know which way it (election) is going to go. I would suggest whichever way it goes, there is going to be some sort of limit on the amount of forestry," a carbon broker said.

Platts assessed the price of NZUs at NZ$39.50/mtCO2e ($24.01/mtCO2e) on June 28, S&P Global Commodity Insights data showed. This represents a near two-year low, according to market sources.

The market is also facing a lack of confidence due to the government's latest consultation on redesigning ETS rules, sources added.

"To sum up, there's a lot of uncertainty, which doesn't portend an 'orderly transition' toward New Zealand's 2030 emissions reduction targets and net-zero carbon by 2050," Raeburn added.