NZ won't meet 2030 emissions promise without further action, IMF warns

Monday, 28 August 2023

The IMF says the country has made progress towards meeting its 2030 commitment, but needs to make more.

New Zealand remains significantly off track to meet a promise it made to the United Nations to reduce its net carbon emissions to half of its 2005 gross emissions by 2030, the International Monetary Fund says.

But it says doubling the real price of carbon credits by 2030, while “politically difficult”, could largely close gap.

The Washington-based financial institution said that New Zealand had made progress in narrowing the gap between its projected emissions in 2030 and the commitment it made to the UN’s Climate Change Conference in Glasgow in 2021.

The IMF expected the country’s net emissions would peak next year and decline sharply from 2030 as recently-planted forests matured and started to absorb more carbon from the atmosphere.

But it estimated the country would miss its 2030 commitment by emitting 17 million tonnes of net emissions more than it had agreed to emit that year.

That was an improvement on the 24 million-tonne miss that was projected last year, it said.

Agriculture Minister Damien O'Connor announces the Government's final plan to reduce agricultural emissions (video first published August 18).

“While welcome, the projections confirm that more abatement is needed to meet the 2030 Nationally Determined Contribution.”

The Emissions Trading Scheme was “a centrepiece” of the country’s plan to cut emissions and a carbon-credit price of $75 was expected to achieve a third of the emissions-reductions New Zealand was aiming to achieve by 2030, it said.

But the IMF said a “more ambitious price scenario” for carbon credits that would further increase the financial penalty for emitting a tonne of carbon dioxide while rewarding abatement measures could help close the remaining 17 million-tonne gap.

An increase in the “real price” of carbon credits – in other words their price before adjusting for inflation –to US$100 (NZ$165.40) by 2030 would mean “about two-thirds of the gap between New Zealand’s projected emissions and its Nationally Determined Contribution could be closed”, it estimated.

“This scenario is an ambitious one as it calls for the real emissions price to more than double in seven years, which would be politically difficult to deliver. But the analysis confirms that a price-centred approach can deliver substantial gains,” it said.

“To fully rely on a price mechanism would entail even higher prices, which may be difficult to deliver politically.”

The price of carbon credits directly impacts the price of many goods and services, including petrol and fossil-fuelled electricity.

An increase in the price of carbon credits from their Monday price of $67 to the inflation-unadjusted price of $165.40 suggested by the IMF for 2030 would appear likely to increase the price of petrol in today’s money by about 28 cents a litre, including GST, for example.

That is based on an estimate quoted by the New Zealand Initiative that a litre of petrol generates 2.45kg of carbon emissions on average.

It would also increase the price of coal-generated electricity by about 10 cents a kilowatt-hour in today’s prices, based on a tonne of coal generating about 1900kWh and emitting about 2.6 tonnes of emissions.