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New Zealand may have to spend ‘multiple billions’ buying overseas carbon offsets to hit 2030 climate goals, a Treasury report says

Public Policy / news
New Zealand may have to spend ‘multiple billions’ buying overseas carbon offsets to hit 2030 climate goals, a Treasury report says
Wind turbines in a late event
Photo by Dan Meyers on Unsplash

The New Zealand government may have to spend billions buying carbon credits overseas to meet its climate targets, according to a report by the Treasury and the Ministry for the Environment. 

The Climate Economic and Fiscal Assessment 2023 report, published this month, looked at how climate change will affect New Zealand's economy and finances.

It found NZ would “almost certainly” need offshore carbon mitigation to meet its climate commitments, which could cost anywhere between $3.3 billion to $23.7 billion.  

These costs were a “significant fiscal risk” which could absorb between 3.9% to 28% of all new operating expenditure in the next seven government budgets. 

In the Paris Climate Agreement, NZ promised to reduce its net emissions to 50% below 2005 gross levels by 2030 and will have to use both domestic and offshore mitigation to achieve that goal. 

“For all scenarios considered, our analysis estimates this cost to be multiple billions over the period 2024 to 2030,” the Treasury and the Environment Ministry said in the report. 

This was estimated to cost somewhere between $7.7 billion and $9.9 billion, even in a scenario where the cost of carbon credits aligned with the current price in well-established markets. 

The average carbon price in these markets was about $95 per tonne, compared to NZ units which have recently been trading at about $60. 

However, the bill could be much larger or smaller in different scenarios included in the report. 

The International Energy Association (IEA) has estimated a carbon price for emerging economies at about $41 per tonne, which would mean a cost to NZ of between $3.3 billion and $4.2 billion. 

On the other end of the sale, the IEA also estimated a price of $227 per tonne for advanced economies in a scenario of “advanced global climate action”. 

This would translate into a cost of between $18.3 billion and $23.7 billion. 

Not a sure thing 

The report said these estimates should be treated as “illustrative”, and not as forecasts or projections, as they rely on assumptions about a highly uncertain future.

“The intent of the analysis is to demonstrate the broad size of the potential fiscal cost of the purchase of given volumes of offshore mitigation to achieve New Zealand’s NDC1”. 

NDC1 refers to the first Nationally Determined Contribution, or how much NZ promised to reduce emissions between 2021 and 2030 in the Paris Climate Accord.

“Domestic policy decisions will materially influence the amount of domestic mitigation New Zealand is able to achieve and at what cost. This will have important implications for what volume of offshore mitigation New Zealand may look to procure to achieve its NDC1”. 

The estimates are spread across a $20 billion range with different future carbon prices being the key variable. 

These costs range from anywhere between 3.9% to 28% of the new operating expenditure that will be made available through government budgets from 2024 to 2030.

“However, the source of funding for these costs is subject to future policy decisions; comparison to the operating allowances is used here to provide a sense of scale,” the report said.

The size of the cost of offshore mitigation will depend on whether NZ achieves or exceeds its domestic emissions budgets, and also on the price paid for international offsets.

“The future price of international reductions is unknown, reflecting that many markets are at early stages or yet to be developed”. 

The report said it was clear the “size and breadth of the economic and fiscal costs of climate change” on the country would be large and have significant implications for its fiscal position. 

“The physical impact of climate change and the choices the country makes to transition to a low-emissions future will affect every aspect of the economy and society for generations”.

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82 Comments

Who are we going to pay the money to and what can they spend it on.

So if we don't pay what are the ramifications?

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4

whats the money for - More COP Junkets

Benefit to NZ - debt and more costs/ taxes/ Inflation for you.

Ramifications - JAmes Shaw will cry, then get angry, then tell Kiwis/Government to step up some more $$$

Meanwhile the big polluters will keep on polluting in an hour what we pollute in a decade.!!!

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23

Tell the world that because of there inaction, we can not meet our old politician's commitments (they are not in power any more), as we are having to pay for reconstruction from global warming activity (cyclones etc) that these country's manufacturing apparatus have produced.

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3

There has been no inaction.  Because of fossil fuels the world is safer, people know when to avoid 'normal' weather events (cyclones).  Global activity has dramatically increased (fossil fuel use) some in the wrong areas, so move.  It will be inaction (no fossil fuels) that kills people.

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There has been no inaction.  Because of fossil fuels the world is safer, people know when to avoid 'normal' weather events (cyclones).  Global activity has dramatically increased (fossil fuel use) some in the wrong areas, so move.  It will be inaction (no fossil fuels) that kills people.

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Great question, who receives the billions we pay for carbon credits?

Perhaps some of it goes to bureaucrats and the rest goes to developing countries to buy sports cars and gold tapware for the ruling elites?

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It goes to the people who grow the trees ( in most cases ) to create the carbon credits . 

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This added to funding the current account deficit is a call for IMF intervention. Thereafter, state owned enterprises will be flogged off to foreigners.

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13

Classic humans. We are no different to the student who procrastinates, does nothing until the night before the exam, then pays someone halfway across the world to do it for them online.
Nothing gained, only excuses to continue acting in exactly the same way as they always have.

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8

Doing nothing has been great for global greening. What's not to like?

For $600 million a year we could be "carbon zero" tomorrow. Just do that and spend the difference on hospitals rather than local, expensive, carbon bludgers.

https://www.nature.com/articles/nclimate3004

https://ourworldindata.org/explorers/natural-disasters?facet=none&Disas…

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Don't worry, adding billions to the trade deficit (and paying interest to overseas holders of debt) isn't a problem at all. We can offset this spending by selling even more meat and milk powder. Oh, wait... 

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We could always decarbonise our economy at a much faster pace, which would mean importing tens of billions of dollars more worth of EVs, electric boilers, heat pumps, wind turbines, solar panels, batteries, inverters, transformers, HV/MV/DC cables, etc.

In either scenario, our trade deficit ballooning to new highs is the most likely outcome.

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"our trade deficit ballooning to new highs is the most likely outcome" - temporarily maybe, our energy imports would obviously decrease. 

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3

Exactly - we imported $10 billion of fuels in 2022 (about 11% of total goods imports). Mind you, we managed to import $11 billion of vehicles and parts too!  

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To be honest, I would vote for anyone who could present a viable 10 - 15 year plan for the transition off oil. Yes, that will involve some heavy investment up front, and a trade deficit to match, but it should be more than feasible to navigate from here to a country with clean air, water and an improved quality of life,   

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I will vote for anyone who could present a viable 0 - 10 year plan to drill for oil, gas and coal and extract these resources, to provide cheap energy (power plants, etc), to the people.  Heavy investment that pays quickly unlike your un-sustainables that will further NZ's debt problem.

Fossil fuels produce a cleaner air, improved water and a hell of a lot better quality of life.

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3

If we are going to spend billions on carbon credits, why not subsidise electric cars, buses and trucks, and get rid of diesel and petrol.

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No.  Subsidize the extraction of fossil fuels, as they do in the USA.

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In the Paris Climate Agreement, NZ promised to reduce its net emissions to 50% below 2005 gross levels by 2030...

I don't understand the premise of this article, a quick google suggests Kiwis have already reducing their emissions substantially:

https://data.worldbank.org/share/widget?end=2019&indicators=EN.ATM.CO2E…

 

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There is a gap between our domestic emissions budget and our international one. The domestic emissions budget is a net ~670 megatonnes, while our international budget is ~570 megatonnes. So if we exactly meet our domestic budget, we'd have to buy ~100 megatonnes of international mitigation to make good on our Paris promise. 

But you are right, we'll have to buy less (plausibly none) if we beat our own domestic target. I'm not sure that is likely to happen, however. 

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6

We have no show - no one really wants to change.

Even this report shows we need to spend $500 million per annum on new native forests. Well has anyone spoken to the farmers who own the land?? This equates to well over 1 million ha of current farmland to be put into natives by 2050 - just over 25 years away. They say they want natives - not exotics - but the land area they see will be out by a large number of zeros I can assure you to what is needed here.

A. We don't have people to plant it 

B. No nurseries can produce the volumes

(Plus 80% will die and be eaten anyway)

The report basically admits we have no idea where to get the overseas offsets, and by the way every other developed country is doing the same - where is this mystical land with boundless offsets they wish to sell cheaply??.

Unless we all reduce our OWN emissions not much will happen - or plant 500,000 ha of permanent exotic trees at a fraction of the cost on erodable farmland and problem solved and slowly change as technology moves - too cheap, doable and achievable. 

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Budget? It's seems I need a lesson in accounting.

Surely if people just half their carbon dioxide emissions by 2050 we'll be OK.

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How many people have to stop breathing for that result  ?

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Potentially $4000+ per citizen, why?

I feel a monkey could come in and explain better economics to our govt at this point.

More spending future generations will have to take on board in inflation and loss of wealth.

Keep it up and we will see a revolution in the next 20 years.

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11

when will someone with authority hold the greens, their supporters and the Govt accountable for this waste.

 

Nationals policy - we will stop all enviromental expenditure and withdraw from the Climate change accord until such time as China, USA and India have met their targets for three years in a row.

" we are not compromising our economy on 0.02% of the emissions while the world claps our stupidity

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13

So nats and their supporters are no longer the party of individual responsibility promoters? Now just a bunch of freeloading whiners? Mike Hosking clones. 

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only to you. as your people in poverty  go broke!

 

you don't get it do you!...

 

its like you cleaning your pavement, at great cost to you, while the rest of the street remains dirty... or like you conserving water at home while the councils leak millions of litres a day while charging you for the waste!!!

better a Hosking lone than a Shaw puppett!

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9

The US, UK and a whole host of other first world countries HAVE decreased their emissions over the last decade. NZ has not.

If the US is decreasing emissions why aren't we?

And also, lets take your argument to its logical conclusion because you seem incapable of doing that. Say there is a city in China of 10m, why should the city decrease its emissions when it won't even make a dent in total Chinese emissions. And say there is a suburb in the city, why should they decrease their emissions when it won't even make a dent in the cities?! and say there is a household in the suburb......

I hope I have illustrated that everyone (especially the first world who have a much higher standard of living AND higher emissions per capita than the likes of India) needs to pull their weight, if we all wait for the next guy nothing will change.

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Bang on.

I dont get why we are trying to buy our way out. We need to lead by example and all give stuff up and hit the target.

Luxons plan where we refuse to budge until everyone else budges is childish...  basically we all burn up together. I would rather we follow the leaders -= USA/UK etc.  Which incidentally is likely to lead to a hugh tech productive economy as we invent tech that helps and that can be sold to others who are behind.

 

 

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6

Is that really the National plan/position?  I can't find it anywhere on the party's website.  Any links to confirm that position would be welcome.

 

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No, it's not, he obviously gets his "facts" from hosking type rants.

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@OldSkoolEconomics I think you'd better brush up what Nationals plan actually is before you continue to go around telling everyone what you think it is, misrepresenting it.

It would be hard to miss it, they made announcements on it recently, where they want to get rid of red tape around getting more generation of wind, hydro and geothermal going a lot more.

Seems like a very sensible idea to me, but no doubt Labour and the Greens won't like this beause there will be some touching feeling, feelings hurt by some people type of reason for this no doubt.

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good luck with that windmill casting it's shadow on your house and the noise pollution you will hear all night

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Not many, if any are anywhere near houses, so a moot point, a lot better than throwing 16 billion down the toilet on something that might not work, and will probably triple in cost, Lake Dunston.

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Facts - There is a big diff between reducing a small amount from a shit load of emissions ( USA etc) and increasing a small amount from a tiny amount ( NZ)

The US have not reached anywhrre near there Target

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@Shaft

So to be clear - your policy and National’s is to be last behind India & China? 

Will old Lex Luxon personally verify their emissions compliance by sampling the air in Delhi, or perhaps a tour of Shanghai led by Dear Leader Xi?  

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@Larry76 his policy might be that, but pretty sure it's not Nationals, they announced the other day removing red tape to get hydro, wind, geothermal much better fast tracked, pretty sensible stuff really.

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fast tracked all over your property rights - National will shoot the horse for the reins to the buggy and when the passengers start to walk off, proclaim - We saved you from the other driver's reckless driving!

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lol so when the nats try to make moves on fast tracking green energy production it's ok to be a nimby? I'm sure there would be lots of crying of nimbyism if one of Liebours plans got the same criticisms.

Sure beats paying billions overseas for carbon credits.

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except there are already 11 windfarms that have been consented , and not built . its not the consenting process that's the problem . its the electricity market. 

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Surely the economics is simple - if you don't make people pay for CO2 emissions, they will keep emitting. You could easily be a citizen that doesn't pay that $4000. 

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The solution is simple.

Subsidise clean air motors

Stop deforestation

Blah blah blah

 

But!? Get the big polluters to lead the way rather than bankrupting the " canary in the mine" NZ.

 

 

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2

How much will China / USA / India have to pay?

And to whom?   I am not sure anyone is producing enough credits OR that implies we are sinking as much carbon as we are creating thus no more warming?

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They pull out of the agreement, de-globalisation continues and we all continue jockeying for power and status like schoolboys until the next world conflict where someone takes a little too much offence from another and pulls out the guns

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6

Stop this madness now. Time to throw the greens down the hall. CO2 is not the bad guy (harmless trace gas, plant food). let’s look at plastics, top soil loss, chemicals in the environment etc 

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14

Well yes, lets look at all those things, while at the same time kicking the morons insisting shifting the energy balance of our entire planet is something that civilisation can survive.

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2

hey leftie, do you want 3 waters too! its people like you that get NZ into so much debt and disfunction!

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6

hey rightie, global warming may also cause debt and disfunction!

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7

Yip, but only if the big polluters keep polluting

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Actually it’s pretty clear we are Righties and you’re simply Wrongie.
 

Keep your outdated Marx/Rand epithets, they mean nothing. 

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Urgh... classic cherry picking, and a twitter link? Geez, get better sources. It's well known that the Antarctica will warm slower than other parts of the world, lots more reflection of solar energy, lots more ice causing temperature inertia.  But sea ice extent tells you whats happening in the area around Antarctica and if you don't believe in the 2nd law of thermodynamics, that's not my problem.

If you are expecting global warming to be uniform in a chaotic system that has many different areas with different features, then you don't understand the subject.

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4

Correct, global cooling also is not uniform, with many different features.  Mini Ice Age on the way?

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1

All that hydrogen dioxide in the soil is killing the Hawke's Bay productivity.

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Trace gas lol.

So because you haven’t personally choked on it yet, it must be insignificant and harmless.

You must also really struggle with Germ Theory and Earth-Roundness, since you know - can’t see it. 

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3

New Zealand may have to spend ‘multiple billions’

It's a nice political soundbite though.... however impractical it is,

Solar panels/ wind turbine  on every roof might do it - and at least the money would stay here!

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9

exactly. 

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2

Yes indeed, I'm currently starting to look at the cost of getting solar panels second hand from AUS and having them shipped to NZ as they get sold off at a pittance second hand over there when people upgrade their systems.

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Please report back. Some more solar would be good, but not new.

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1

Instead of Chairman Mao bikes we could all have state supplied Chip-cycle eBikes to go along with them solar panels perhaps? 

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E bikes require fossil fuel use in production. Maybe the greenies can walk…..oh no that’s for the peasants. We greenies will have nice quiet holidays at our favourite destinations while the plebs cycle everywhere……what I despise most about the greenies is their sheer arrogance. The greenies I know are all loaded, have the toys and can afford to pay whatever the cost is for fake meat. They just want to kick the ladder out from others.

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And petrol cars just pop out of a magical hole, which actually sucks co2 in, so they are carbon neutral.

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No, but they are affordable and necessary. When the people at the top start living by their convictions then so will I. And on that note my main transport is the old fashioned bike. In reality I am more green then the majority of them

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good on you . whats your problem then?

 

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Exactly a much better use of the money.

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Good.

If it becomes expensive to pollute, people will take that into their decision making.

 

Also, people will be worse off. Good, less largesse = less emissions.

 

People seem to forget (or not yet believe) climate change is an existential threat. On current trajectory, our species is gone in 100 years. 

Sure technology may save us, but do existential threats deserve a plan b? Not according to most of the above commenters, they're happy to take that risk, to support their current lifestyles. 

 

This is why we need politicians to make 'for the greater good' decisions, because individually, we are selfish - if you think you aren't, ask yourself 'would I have the same view if I was going to be born in year 2100"

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Agree - if the election comes down to Labour saying they will solve the environment and National saying not - then for the sake of the kids Labour gets my vote.

Moneys not much use if you are dead.

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Climate change has been a threat for 5 billion years.  Politicians are the problem, using their media sponsorship, to induce fear into the masses.  In a 100 years humanity will be fine, only you and I will not be there to witness the destruction caused by hideous government policies bought about by corporate influence.

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Look chumps, we don't make the rules, the more powerful countries do. If we don't reduce emissions we will be penalised through trade. It's not the Greens that are to blame for anything here. They are trying to help. 

I repeat, if we do not pull our weight on emissions reputable international companies will not be allowed to trade with us. End of story. 

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Nice to see a sane comment amongst the abundance of the ignorant hysteria above. 

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We knew this 6 or so years ago when our PM described CC as this generations nuclear free moment. 

Their party then did next to nothing about it and have recently weakend their rather pitiful actions already.  Classic can kicking, eventually we will have to deal with it environmentally and financially, now both at the same time.

Where was the mass funding of green energy options instead of the pitiful funding being given at the moment? (huge GWh of wind farm developments with expiring consents).  Where was a mass funding of solar rooftops and transport electrification?

Instead we got mass funding of banks, to drive property prices sky high so they can crash again and leave us all poorer than before. The finance minister and RBNZ all need to take a good hard look at themselves and stop making idiotic decisions that doubly burden NZs future.  But they won't, I can see them now, standing in front of the can, pulling their leg back, ready for an almighty kick...

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I fundamentally object to sending even one cent of New Zealand money offshore for climate change measures.  Truely mad that we would do that.   Whoever invented that policy and process suffers bureaucratic policy toxicity.

Any such cash generated should be diverted from going overseas, it should be retained in New Zealand and spent of our own climate measures.

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If there were no penalties no countries would be doing anything and we would all burn up  - so lets say the UK/USA their part and we dont bother...  then in a few years we start to whinge and  refuse to  pay....

I wouldnt expect much assistance from their governments or citizens when their businesses start to cry foul on imports of our products and up the tariffs. Which is fair

Further they see this as a huge opportunity - they (UK/US/EU) are heavily subsidising and encouraging rapid development and deployment of climate tech. Which they have done the numbers on and know will soon mature and create a massive export opportunity for them.  We will again wonder why we arent a leader in another productive high margin tech industry to replace the broken housing ponzi.

 

 

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Given that man made climate change and global warming are negligible effects - to the point of being rounding errors, then this news truly depressing.  Paris accord is non-binding!  Also depressing I heard that the Labour government are spending 70 million on mrna vaccine research.  As if the mnra vaccine rollout wasnt a complete abject failure!  Is there no end to their wasting of public money?  We've possibly witnessed the greatest technological innovation this century with the creation of AGI in gpt4 and they're oblivious to that, but wasting money on crap.  I dislike this government. 

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5

Heck. Such a daunting prospect. We will have to pay someone else overseas to do our heavy lifting or voluntarily reduce our emissions domestically to comply with our 2015 promises in Paris. The latter probably through a reduction in stock numbers and ramping up tree planting to get anywhere near those targets. The USA and UK have large manufacturing bases with which to leverage profits from the transition to new green technologies.What a shame we do not have the same ability. Still probably better to pay our way if we can find a non-corrupt overseas partner to plant on our behalf rather than reduce our overseas income.

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Worth reviewing how things went under Kyoto, see in particular the table: "Percentage changes in emissions from the base year (1990 for most countries) for Annex I Parties with Kyoto targets"

https://en.wikipedia.org/wiki/Kyoto_Protocol

And not forgetting, Canada pulled out when calculating the costs;

https://www.bbc.com/news/world-us-canada-16165033

 

 

 

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Thanks for the link. Do you happen to know what data set is being used to measure and record net CO2e for all parties to the Paris Climate Agreement of 2015? The following link paints a skeptical picture paying a third offshore party to offset our net emissions. Published late last year.

 

https://www.newsroom.co.nz/if-a-tree-falls-in-an-overseas-forest-what-c…

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Sorry, no idea where this measurement data comes from - I assume the Parties to the agreement self-report. NZ bought lots of 'dodgy' credits last time around;

https://www.stuff.co.nz/business/farming/83230321/companies-revealed-for-buying-fraudulent-carbon-credits

 

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What are we missing? Other countries can afford to export emissions credits and have even become net climate positive already. Surely we can do better instead of moaning.

When do we move the conversation frame towards regenerative systems thinking, prosperity without growth and degrowth?

Anyone read Jason Hickel's work or have a perspective on a just transition?

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Ditching coal would be the biggest win. We've got the biomass to do it, and could even export it eventually.

Next would be transport, freight onto electrified rail, more effective attractive public transport, and road tolls. 

Costs a few billions, payback multi billions.

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Definitely a move worth considering, and EECA are working on the supply chain for that.

But I'm looking for the long game too... There's a lot of talk and money going into propping up BAU, but you've got to ask about the investment horizon for these sorts, and whether these props will be a good investment for much more than a couple of years.

As emissions pricing approaches net zero pricing at >$272 a tonne CO2 eq (2018 price plus inflation) we will see new business models and different ways of doing things and meeting needs emerging by necessity.

How do we position to go into this future best prepared, instead of kicking and screaming that it's not fair?

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Pure lunacy.

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