Spending from the Climate Emergency Response Fund
In the Budget Policy Statement for Budget 2022, the Government established the CERF as a permanent feature of the annual Budget process. The CERF supports New Zealand’s climate change objectives by providing dedicated funding to initiatives that support the transition to a low-emissions and climate-resilient economy.
The CERF is an enduring, multi-year fund that has to date been sized proportionally to the cash proceeds from the New Zealand Emissions Trading Scheme (NZ ETS) over a four-year rolling forecast. The CERF’s balance has been updated regularly at Economic and Fiscal Updates to reflect changes to the forecasts of NZ ETS cash proceeds. In the Half Year Update 2022, the balance of the CERF was $3.6 billion.
For Budget 2023, we have refreshed the criteria for CERF funding to include activities that help us adapt to climate change, in addition to those that help us to mitigate it. An initiative is eligible for funding from the CERF if it:
- is included in an Emissions Reduction Plan, or directly supports emissions reductions (domestically or internationally)
- is included in a National Adaptation Plan, or directly reduces vulnerability or exposure to the impacts of climate change
- supports a Te Ao Māori approach to the climate response
- addresses the distributional impacts of climate change or the climate policy response, or
- supports the development of any initiatives meeting these criteria in the future.
To date, the CERF has allocated $5.7 billion in climate-related spending. This includes $865 million of commitments prior to Budget 2022, a $2.9 billion package at Budget 2022 to implement the Government’s first Emissions Reduction Plan, and a $1.9 billion package in Budget 2023 to remove barriers to emissions reduction and enhance our resilience to climate change.
The size and make-up of the Budget 2023 CERF package reflects the scale and breadth of the challenge ahead of us, whilst prioritising resources according to where they can have the greatest impact. Investments made this year directly support households to reduce emissions, help accelerate our transition to a low-emissions and climate-resilient economy and build our resilience to climate change and its impacts.
Since its establishment, the CERF has been sized proportionally to the Treasury’s forecast cash proceeds from the NZ ETS. These are updated in each Economic and Fiscal Update. The forecasts in the Budget Update 2023 show that since the Half Year Update 2022, cash proceeds from the NZ ETS have fallen by $2.7 billion in the forecast period, largely due to reductions in the secondary market price of New Zealand Units.
Budget 2023 makes investments that will strengthen the integrity of the NZ ETS and increase confidence in the market for New Zealand Units. However, in the interim, instead of reducing the size of the CERF proportionally to reflect lower NZ ETS cash proceeds, Cabinet has decided to return $605.8 million of savings from reprioritised Budget 2022 CERF initiatives to the CERF, and top up the Fund with an additional $1.9 billion. This leaves $1.5 billion remaining in the CERF for us to continue supporting high-priority climate initiatives. This decision reflects our enduring commitment to facing the climate challenge and the fact that we cannot delay taking climate action. We will review the size of the CERF again at the next Half Year Update.
Prioritising high-value climate initiatives
In addition to the new investments in Budget 2023, $605.8 million allocated at Budget 2022 is being returned to the CERF to focus on high-priority climate initiatives that deliver good value for money.
When we established the CERF, Cabinet agreed that the Treasury should work with the recipients of funding to track climate-related spending through the fund along with its impacts. By monitoring and reporting on the progress and impact of spending on climate initiatives, we are able to identify the impact of our investments and use that information to inform funding decisions.
Given the role of Waka Kotahi in the recovery from the North Island weather events and the significant work already underway to improve transportation equity and reduce emissions, the Government has decided to return funding from the Clean Car Upgrade Scheme – Vehicle Scrappage and Clean Car Upgrade Scheme – Social Leasing Trial to the CERF to allow resources to be directed to the most urgent and highest-priority initiatives. The climate change package in Budget 2023 builds on the significant investments made in low-emissions transportation in Budget 2022, including by funding high-value initiatives such as supporting the public transport workforce and improving the affordability of public transportation.
In Budget 2023 the CERF also provides additional funding for the Clean Car Discount scheme. Monitoring of the scheme has showed it outperforming initial expectations and incentivising record low-emissions vehicle uptake, while reducing New Zealand’s reliance on imported fossil fuels and lowering transport emissions. Updated forecasts project that the programme, alongside the Clean Car Standard, will collectively reduce emissions by an additional 50 percent out to 2035 over and above what was forecast when it started.
Some other initiatives from Budget 2022 have also recorded lower-than-expected costs, including the Community Connect programme, allowing this funding to also be returned to support the Budget 2023 CERF package.