Budget 2018 and climate change

by Catherine Leining, Policy Fellow at Motu Research

When it comes to the climate change portfolio, Budget 2018 feels like the calm before the storm. It focuses more on policy processes for future action than catalysing action now. Budget allocations will support development of international carbon markets (key to helping New Zealand meet its 2030 target under the Paris Agreement), the Zero Carbon Act, the Climate Change Commission, and amendments to the New Zealand Emissions Trading Scheme (NZ ETS).

The major new initiative is a $100 million Green Investment Fund to help reduce carbon emissions. This has exciting potential if it is integrated effectively into existing institutional and financial frameworks and leverages substantial private-sector investment in priority areas. Given the scale of our low-emission investment needs, $100 million won’t carry New Zealand very far on its own. Other climate-relevant budget initiatives include the Billion Trees Programme, the Sustainable Farming Fund, and Auckland’s City Rail Link.

More seeds for low-emission transformation could be buried in the budget’s depths – if we had an effective emission price and overarching low-emissions investment strategy for New Zealand. These would bring climate action into mainstream investments in homes, schools, hospitals and key infrastructure as well as regional economic development. The Provincial Growth Fund is much larger than the Green Investment Fund and both should be gateways to a thriving low-emission national economy.

Policy uncertainty on emission pricing is lethal to low-emission investment. Reforms to the NZ ETS backed by cross-party support are vital if we want to prepare our economy for growing global carbon constraints. Reforms are needed sooner rather than later. Introducing auctioning of emission units will generate substantial revenue and open the door for further initiatives. The government faces fiscal risks from the current emission price ceiling. Until suitable reforms are in place, all government departments should apply a high and rising shadow emission price to guide their investment decisions. 

Laying the policy and institutional groundwork for climate action is essential. But future budgets will not be able to avoid supporting serious action to bridge New Zealand’s looming gap to meet its 2030 Paris target and prepare for the impacts of climate change. 

A shortened version of this blog was published at The Spinoff in their hot take fry up on Budget 2018. Catherine Leining is a Policy Fellow at Motu Economic and Public Policy Research, an independent non-profit research organisation. In 2017, Motu received a standardised ranking of tenth in the world for climate change work internationally by the International Center for Climate Governance.