IMF Staff Country Reports

This Selected Issues paper on New Zealand discusses addressing climate change. projections suggest the gap between New Zealand’s emissions targets and the projected path have narrowed significantly though more needs to be done if the Nationally Determined Contribution for 2030 is to be met. Three critical policy initiatives were introduced in 2022: the first Emissions Reduction Plan and associated emissions budgets were adopted; the National Adaptation Plan was published; and the government proposed its framework for pricing agriculture emissions, which account for around 62 percent of net emissions and are the missing piece in the emissions pricing framework. However, policies intended to address the cost-of-living crisis such as cuts to fuel taxes and duties could have an adverse impact on the feasibility of New Zealand’s emissions targets if prolonged. The heightened policy uncertainty was reflected in carbon prices: after peaking in November 2022, the price in the secondary market declined sharply and the June 2023 average price was around 40 percent below the peak level. The March 2023 Emissions Trading Scheme (ETS) auction failed to clear, resulting in no new units being released. This is a cause for concern: If falling prices are not arrested, the envisaged emissions reductions may be out of reach. Further, as proceeds from the ETS auctions are intended to be used to support climate investments, shortfalls could put these at risk.