Carbon budgets are a series of legally binding emission targets.
To drive New Zealand’s transition to zero carbon, the Act will require the Government to set emission reduction targets called ‘carbon budgets’. Carbon budgets are five yearly milestones which will set out a pathway to zero carbon by 2050.
‘Carbon budgets’ is the general term for these targets. More precisely, there are two types of budget: a budget for long-lived GHGs, and a budget for short-lived GHGs. A reference to ‘budgets’ in this section refers to both types of budget.
Under our proposed ‘two baskets’ approach, the Zero Carbon Act will set different targets and pathways for long-lived and short-lived greenhouse gases (GHGs). Both budgets will limit GHG emissions for a five year period.
Budgets for long-lived GHGs: This budget includes GHGs such as carbon dioxide and nitrous oxide. These emissions must reduce to zero by 2050.
Budgets for short-lived GHGs: This budget includes GHGs such as methane. These emissions must reduce to sustainable levels, but not to zero.
To stop global warming, long-lived GHGs must be reduced to net zero. The budgets for long-lived GHGs are designed to set out this pathway to zero carbon.
Short-lived GHGs like methane are different. To stop global warming, they must be significantly reduced to sustainable levels, but do not need to go to zero. We think that the Zero Carbon Act should establish a separate pathway of legally binding targets for short-lived GHGs like methane. This pathway will be set following advice from the Climate Commission about the appropriate long-term target for short-lived GHGs. (See Expert advice on targets and policies).
Both types of budget will apply for a five year period, and are set the same way. The main difference is that budgets for long-lived GHGs will set a pathway to zero carbon, whereas budgets for short-lived GHGs will set a pathway to a different long-term target.
How budgets work
Budgets are legally binding. Each budget spans a five year period. The Minister must ensure that New Zealand’s total emissions in each five year period is less than the budget.
Budgets cover a five year period so that year-by-year fluctuations can be taken into account. Unexpected events (such as a dry winter) may significantly increase or decrease New Zealand’s emissions for a single year. A five year budget will average out these fluctuations. Five year budgets also match the five year framework of the Paris Agreement.
Budgets must be set by the Minister well in advance. The Minister must set the first three budgets for long-lived GHGs, and the first three budgets for short-lived GHGs, within two years of the Zero Carbon Act becoming law. Depending on this date, the first three budget periods might be 2021-2025, 2026-2030 and 2031-2035.
All other budgets must be set 12 years in advance. For example, a budget beginning in 2040 must be set in 2028. The purpose of the 12 year advance is to provide long-term certainty for businesses, investors, communities and public authorities.
As soon as possible after setting a budget, the Minister must prepare an emissions reduction forecast statement. This statement will show how much the Minister expects New Zealand’s emissions to fall in each year of that budget period.
How are budgets set?
Budgets must be consistent with the Zero Carbon Act’s long-term target. For long-lived GHGs, the target is net zero carbon by 2050. The Minister must take into account the Climate Commission’s advice, and publish a statement if they depart from the Commission’s recommended budget level. The Minister must also consider a range of other factors, such as New Zealand’s economic and social circumstances.
Budgets are set by Ministerial order. The Zero Carbon Act will require budgets to be set consistently with meeting the relevant long-term target. For long-lived GHGs, this target is net zero carbon by 2050 or sooner. For short-lived GHGs, this long-term target will be set following advice from the Climate Commission. (See Expert advice on targets and policies).
When setting a budget, the Minister must also consider:
Scientific knowledge about climate change.
Tikanga Māori, and Māori interests.
New Zealand’s social circumstances, in particular the likely impact of the decision on fuel poverty and employment.
New Zealand’s economic circumstances, including the competitiveness of particular sectors of the economy.
New Zealand’s fiscal circumstances.
New Zealand’s adaptation measures to address climate risks.
Energy policy, including energy supply and the carbon intensity of the economy.
Co-benefits of emissions reduction measures.
Minimising cumulative emissions of long-lived GHGs.
New Zealand’s estimated international aviation and shipping emissions.
These factors do not limit the Minister from taking into account other matters.
The Act will require the Climate Commission to provide advice to the Minister on a recommended level for the budget, based on the long-term target and the factors above. The Minister must take the Climate Commission’s advice into account. If the Minister sets a budget which is different from the Climate Commission’s recommendation, the Minister must publish their reasons for doing so. This must include evidence that the Minister’s budget is consistent with meeting the long-term target.
Finally, budgets must be set consistently with Te Tiriti o Waitangi and other principles of the Zero Carbon Act. This means giving effect to meaningful partnership between iwi and the Crown, which includes a duty of active protection, and a duty to consult with Māori about important issues. (See Purpose and Principles).
Once the Minister has set a budget, it must be affirmed by Parliament. This means Parliament must formally recognise the budget by passing a motion in the House of Representatives.