Legal advice shows gas fund breaches new trade deal - but ministers disagree

Tuesday, 24 June 2025

Legal advice commissioned by the Green Party says the Government’s $200 million co-investment into new gas fields is a breach of a trade deal it signed just months ago, which prohibits investment in fossil fuels.

The Government has started a new $200 million fund to invest in new gas exploration.

But the Green Party has presented legal advice showing that fund would breach a trade deal New Zealand agreed to less than a year ago.

There are concerns other trade deals could be put at risk, given commitments from New Zealand not to fund fossil fuel extraction.

The Government insists it isn’t breaching international trade deals with its new $200 million investment fund for local gas exploration, despite new legal advice saying the funding compromises at least one deal.

Legal advice commissioned by the Green Party, from Nura Taefi KC, says the investment breaches a deal signed by Trade Minister Todd McClay just eight months ago.

In November, McClay signed New Zealand to the Agreement on Climate Change, Trade and Sustainability. He said that deal would open trade to at least three new markets and could bring significant “economic benefits”.

But key to that deal was a commitment that New Zealand would eliminate “harmful fossil fuel subsidies”. The definition of “subsidy” in the fine print of the agreement was quite broad, with the Green Party arguing that the investment fund would constitute a subsidy.

Stuff first reported concerns about the implications of the $200 million gas investment fund in May, soon after it was revealed in Budget 2025. At the time, there were also concerns that it could expose New Zealand to push back from the UK and European Union - as separate free trade deals with those markets also included climate change provisions.

The Green Party advice focused only on the latest agreement, which facilitated trade with Costa Rica, Iceland, and Switzerland.

Green co-leader Chloe Swarbrick says the Government is putting free trade deals at risk.

The lawyer, Taefi KC, said this was a simple issue.

“The Investment would constitute a breach,” she said.

The agreement hasn’t yet come “into force” - because the process for making it law in each country is dragging on.

But if it was in force, then Taefi said New Zealand would be required to notify the other countries about the gas fund.

“There would also be a risk that a breach could trigger the dispute resolution process culminating in suspension of cooperation measures, including the reinstatement of tariffs and the suspension of the other trade benefits to New Zealand,” she said.

Trade Minister Todd McClay signed up to the Agreement on Climate Change, Trade and Sustainability (ACCTS) last year.

But McClay rejected that advice.

On Tuesday, he told Stuff her opinion “just doesn’t stack up”. He said he wasn’t expecting any push back from any trade partner as a result of the gas investment fund.

“We get a range of advice, including legal and that’s why I’m able to tell you that [the fund] is within the bounds of the agreement,” he said.

But Green co-leader Chlöe Swarbrick questioned if McClay had received any advice about this issue. She said she had made requests, through parliamentary process, to see what advice the Government received - but the responses had been “not particular clear”.

Shane Jones says New Zealand should welcome more fossil fuel mining.

“New Zealanders should know that the Government’s decisions are actively undermining other decisions that they have made as recently as November,” she said.

She said the $200 million “handout to the fossil fuel sector” was both a bad investment, but a potentially costly one if it compromised exporters’ access to international markets.

Key to the legal opinion, and the Green Party’s argument, is that the investment fund would not result in any short-term increase in New Zealand’s gas supplies.

It could be argued that the funding was justified to fill energy gaps, but Swarbrick said it wouldn’t be until the mid-2030s that any new gas field could start delivering gas.

Shane Jones, the minister in charge of the fund, said he hoped the $200 million gas fund would mean New Zealand could continue producing its own fossil fuels some time into the future.

“We are a party who sees an ongoing role for fossil fuels to maintain industry resilience,” he said.

He accused the Green Party of engaging in “scare-anomics” and trying to “intimidate investors” from the fossil fuel industry.

In the House on Tuesday, Infrastructure Minister Chris Bishop noted none of the $200 million had yet been spent. He said it was held only as a “contingency” to support private companies launching gas exploration missions in New Zealand.