Summary of key Climate Emergency Response Fund initiatives
At Budget 2022 the Government has allocated $2.9 billion across the forecast period for the CERF. This is in addition to pre-commitments of $840 million total operating for international climate finance under the Paris Agreement, and $25 million total operating for the Government Investment in Decarbonising Industry Fund.
This first tranche of public investment on climate change mitigation establishes a number of key work programmes detailed in the Emissions Reduction Plan. Particularly notable investments in the Budget 2022 CERF package include a significant $1.3 billion Transport sector bundle, $692 million for the Energy sector, and $380 million for the Agriculture sector.
Table 1 - Key Climate Emergency Response Fund initiatives
|Initiative title||Description||Total funding over forecast period|
|Funding Further Decarbonisation of Process Heat and Implementation of Supporting Policies||This initiative increases funding to reduce emissions from industry and process heat and resource the implementation of new regulatory measures. With this funding, businesses will improve energy productivity, bring forward fuel-switching projects, and reduce exposure to carbon price risk. It increases the Government Investment in Decarbonising Industry Fund, provides support to small and medium enterprises, provides rebates for renewable and efficient equipment, and resources the implementation of an energy and emissions reporting scheme and national direction on industrial emissions.||$653 million|
|Cleaner Vehicles for Low-Income New Zealanders - Vehicle Scrap and Replace Scheme||This initiative provides funding to implement and operate a vehicle scrap and replace scheme that provides funding and in-kind support to low-income households to shift to low emission alternatives, upon scrapping a vehicle.||$569 million|
|Mode-Shift and Reducing Light Vehicle Kilometres Travelled||This initiative provides funding for activities, infrastructure and services that reduce reliance on cars and supports the uptake of active and shared modes. It commits funding to four indicative investment areas including the rapid roll out of urban cycle networks, creation of walkable neighbourhoods, support for safer, greener, and healthier school travel, and provisions for more reliable and user-friendly public transport. It also provides funding for Waka Kotahi NZ Transport Agency and third parties to develop urban Vehicle Kilometres Travelled reduction plans and programmes that identify activities required to achieve mode-shift and reduce Vehicle Kilometres Travelled.||$375 million|
|Agriculture Emissions Reduction - Accelerating Development of Greenhouse Gas Mitigations||This initiative will accelerate development and uptake of high impact agricultural mitigation technologies. Funding will accelerate research, grow capability, expand greenhouse gas measurement capacity, streamline the path to market, and deliver demonstration programs to ensure there are fit for purpose tools for use on farm. Expanding international collaborations and our cleantech sector through innovation prizes will further raise both our international standing and contribution to reducing global agricultural emissions. Funding will also support mātauranga-based approaches to reduce agricultural emissions, providing further options for Māori and non-Māori landowners to improve sustainability.||$339 million|
|Establishing Native Forests at Scale to Develop Long-Term Carbon Sinks and Improve Biodiversity||This removes barriers for native afforestation: increases propagation capacity, using automated technology to scale up native seedling production and reduce costs; facilitates innovation in seed collection, propagation and forest establishment including restoration, through focused research; and develops a long-term national strategy and action plan to grow native forests in partnership with rural landowners, iwi/Māori, foresters, communities and the private sector.||$145 million|
|Maximising Carbon Storage: Increasing Natural Sequestration to Achieve New Zealand's Future Carbon Goals||This initiative will fund research to link forest carbon storage to management actions; enable changes to ETS look-up tables to more accurately reflect carbon stock changes and incentivise improved management for new and existing forests and quantify the carbon impact of management in non-forest land use, soil, and coastal ecosystems; and stimulate investment in wood processing to maximise carbon stored in wood products. Together these initiatives will directly contribute to reductions in the first three emission budgets by more than 9.3 million tonnes over 2022-2035.||$111 million|
|Reducing Emissions from Waste||
This initiative seeks to implement a suite of proposals to reduce emissions in line with the target reduction pathway in the Emissions Reduction Plan. This initiative will reduce and divert organic waste from landfill and enable emissions to be reduced through delivering:
|Increasing Woody Biomass Supply to Replace Coal and other Carbon Intensive Fuels and Materials||This initiative will increase biomass supply and stimulate private sector investment to alleviate projected shortages, through Crown planting 10,000ha of short rotation energy forest, and targeted research and development. The initiative will help transform forestry and wood processing to a high-value, high wage sector.||$91 million|
|Decarbonising the Public Transport Bus Fleet||This initiative provides funding to support Public Transport Authorities to invest in bus decarbonisation initiatives, such as deploying zero-emission buses or investing in associated infrastructure, to reduce greenhouse gases and harmful emissions from the bus fleet.||$41 million|
|Agriculture Emissions Reduction - Supporting Producers and Māori Entities Transition to a Low Emissions Future||This initiative ensures farmers, growers and whenua Māori entities can access support and have the confidence to move to low emissions farm systems. Building on the He Waka Eke Noa partnership, it funds access to credible information and communications to help shift practices. It will increase on-the-ground and on-farm activities aimed at helping producers change farm practices and adopt new technologies, including through local producer groups focused on reducing emissions. It funds tikanga-based programmes to develop and support long-term low emissions profiles for whenua Māori.||$35 million|
|Māori Climate Action||This initiative will provide funding to establish a platform to strengthen the Crown/Māori partnership and support a holistic approach to climate change that supports an equitable transition for Māori. The platform will include mechanisms to ensure diverse Māori participation in climate policy and climate action, support development of a Māori climate strategy, and activate kaupapa Māori, tangata Māori solutions for the climate emergency. A pilot approach to activating kaupapa Māori, tangata Māori solutions will be piloted in year one, with further funding held in contingency subject to Ministers' agreement on the more enduring form of the Māori Climate Partnership and Representation platform.||$31 million|
|Decarbonising Freight Transport - Resourcing and Seed Funding||This initiative provides funding for activities that support decarbonising the freight and supply chain sector. This includes funding for business cases and research programmes, capability and capacity, and contestable funding for low emission freight solutions.||$20 million|
|Supporting the energy transition to a low emissions economy||The components of this initiative are development of a strategy to decarbonise the energy system, developing a regulatory framework for offshore renewable energy, and developing a roadmap for development and use of hydrogen. These will facilitate the introduction of low carbon fuels and greater renewable electricity to drive New Zealand's transition to a low carbon economy.||$18 million|
|Equitable Transitions Programme||This initiative will fund a programme to co-design an Equitable Transition Strategy in partnership with iwi/Māori and other stakeholders, as a key initiative in the Emissions Reduction Plan and responding to the Climate Change Commission's advice. The Strategy will seek to better understand and respond to the distributional impacts that emerge as a result of the transition to a low emissions economy. By working in partnership with identified affected groups we can determine measures to manage challenges and seize opportunities in the transition.||$16 million|
Source: The Treasury
See the CERF Summary of Initiatives on page 157 for a more detailed outline of the Budget 2022 CERF package.
Review of the size and scope of the CERF
The Government has indicated that more funding will be required to address the complex, multi-faceted issue of climate change. We expect to review the size of the CERF alongside the main Budget allowances as necessary, to ensure that it can continue to invest in high-value initiatives that will help achieve New Zealand's climate objectives.
The Government is also looking to extend the scope of the CERF to fund measures that support climate change adaptation in future Budgets, including through the Government's first National Adaptation Plan which will be released in late 2022.
The next review of the size of the CERF is likely to be in the Budget Policy Statement for Budget 2023. At that time, we expect to roll out another year of the Fund so that it extends to cover the 2026/2027 financial year.
Monitoring and reporting on the Climate Emergency Response Fund
All initiatives that receive funding through the CERF will be subject to new monitoring and reporting arrangements, to ensure that dedicated CERF funding is contributing sufficiently towards meeting the Government's climate change commitments. As part of this monitoring and reporting it is expected that the financial performance and impact of these initiatives will be publicly accounted for on a regular basis.
Complementary Policy Settings
Meeting Aotearoa New Zealand's climate goals will be a complex, cross-sectoral policy challenge that cannot be achieved through public investment alone. Regulation and other policy settings will be critical to complement Government spending and drive mitigation and adaptation across our economy. Key examples include:
New Zealand's Emissions Trading Scheme
The ETS is Aotearoa New Zealand's core emissions pricing scheme. It requires emitters to obtain and surrender New Zealand Units (NZUs) for each tonne of carbon dioxide equivalent they emit. The scheme creates a price signal through the interactions of unit supply, which is ‘capped' at a certain level by the Government, and unit demand, driven by emitters in auctions and on the secondary market. A robust price signal ensures that emitters factor the cost of their emissions into day-to-day business decisions. Over time, as the cap is tightened in line with emissions budgets, the emissions price will increasingly incentivise emitters to reduce their emissions and invest in abatement technologies.
The ETS is central to Aotearoa New Zealand's climate mitigation policy response. Public investment through the CERF can serve to strengthen and complement this signal and drive further and faster emissions reductions that will support Aotearoa New Zealand's transition to a high-wage, low-emissions economy.
New Zealand Green Investment Finance (NZGIF)
NZGIF was established by the Government to accelerate investment that supports decarbonisation in a way that lowers domestic emissions, crowds-in private finance, makes investments on a commercial basis, and undertakes a market leadership and demonstration role. To date, the Government has committed over $400 million of capital into NZGIF, including over $300 million through the 2021 Budget process. As at February 2022, NZGIF has invested $77 million in capital and committed a total of $123 million. This includes, for example, supporting the deployment of electric bus fleets under long term lease agreements with major operators in New Zealand in partnership with EV fleet and battery storage specialist Zenobē, and supporting solarZero to finance Power Purchase Agreements for solar installations on commercial buildings which will enable up to 40MW of solar generation. We anticipate that NZGIF will continue to play an important role in supporting Aotearoa New Zealand's transition to a low-carbon economy.
Sovereign Green Bonds
Green Bonds are debt instruments that provide financing for specific projects with established environmental outcomes, such as energy efficiency, clean transport, living and natural resource and land use, and climate change adaptation. Using Green Bonds to finance Aotearoa New Zealand's climate transition demonstrates the Government's commitment to managing climate change and supports investor demand for Aotearoa New Zealand sovereign debt. Projects financed by the bonds will be subject to additional scrutiny and, over time, the project selection, evaluation, and reporting requirements will help to ensure high-quality, value-for-money projects with robust environmental outcomes are delivered. The Government will issue its first sovereign Green Bonds later this year.