The Government risks running out of money for the climate response if it keeps blunting its carbon-cutting tools and raiding climate funds, Marc Daalder writes
Comment: On the face of it, Budget 2023 makes an impressive investment in fighting climate change and adapting to a future of increasingly frequent and intense extreme weather events.
Nearly $2 billion has been allocated from the Climate Emergency Response Fund, including headline measures like free public transport for under 13s and half-price buses and trains for those under 25. The Warmer Kiwi Homes programme has received a $400m boost over four years, which will see another 100,000 homes retrofitted. Its scope has also been expanded to include LED lighting and more efficient water heating.
Of course, as with all things climate, the devil is in the detail.
The two policies above make up $700 million of the $1.9 billion climate spend. While they sound impressive and have very positive co-benefits, the direct emissions impact is pretty modest. The 100,000 homes already retrofitted under Warmer Kiwi Homes since 2009 have cut emissions by just 5500 tonnes – 0.1 percent of New Zealand’s annual greenhouse pollution. And the nationwide public transport fare cuts since March have been estimated to have a negligible carbon effect, too.
READ MORE: * Budget 2023: Climate fund slashed by $800m * Cabinet overrides Shaw and Commission on carbon price
This is something ministers would contest.
"The emissions impact [of Warmer Kiwi Homes] isn't huge because of course most New Zealand households are already heated from electricity which is already 85 to 90 percent renewable," Energy and Resources Minister Megan Woods told Newsroom.
"Where, from an energy perspective, it has an incredible utility in terms of the electrification of New Zealand is not only the foregone generation through efficiency but also foregone distribution and transmission upgrades. If we are going to electrify, we have to make sure that we're not just keeping the same utilisation rates."
Transport Minister Michael Wood also defended the public transport fare changes but wasn't able to say they'd have a significant emissions impact on their own.
"It makes a difference, but in public transport it's about the way the whole system works together. Yes, fares will make some difference but actually the big gain in association with the fares is rolling out more routes," he said.
Still, that means more than a third of the climate money committed on Thursday goes to policies that won't directly reduce emissions by a weighty amount.
There are some useful and likely effective policies in the Budget. A $30m programme to provide grants to decarbonise heavy trucks will definitely put a dent in emissions. An expansion of the national EV charging network, at $120m, also goes some way towards fulfilling one of the recommendations of the Climate Change Commission’s most recent report.
But none of this rises to the scale and urgency that the climate crisis demands.
In fact, in out-years, climate spending will be lower than previously expected because of the Government’s decision last year to ignore the commission’s advice on price controls in the Emissions Trading Scheme (ETS). Revenues from ETS auctions are where the money for the climate emergency fund comes from. Since the Government’s decision, the price of carbon has crashed and one auction failed to even clear.
The total effect of this is that ETS revenue forecasts are now $2.7 billion short of covering the cash appropriated for the Climate Emergency Response Fund. While the Government has said it will borrow $1.9 billion to cover some of the gap, it has cut the size of the fund by $800 million to make up the rest.
Climate Change Minister James Shaw told Newsroom he didn't view the reduction in the size of the fund as a hard cut, because it could be reinstated if the carbon price rises.
"We've still got another three auctions to go this year and we don't know how those are going to pan out. We won't really know what the long-run effect of it is until you get to the end of this calendar year and you see what's happened at the other auctions," he said.
"Obviously, if we have more successful auctions in the future and we start bringing revenue in again, as we did last year, that gives us more options in terms of the resource that we've got available to help decarbonise the economy."
If the carbon price doesn't recover, however, Shaw said the Government will need to find the money elsewhere next year.
"We're starting the process of writing the second Emissions Reduction Plan. That target's even more challenging than the target period that we're currently in, which is hard enough, and that's going to require significant resource."
He also pointed to Finance Minister Grant Robertson's comments when the climate fund was first established, that the ETS revenues were only a "down-payment" on what's needed to fight the climate crisis.
"So it was always going to require other revenue."
Exactly where that money will come from, however, is yet to be seen. And when the Government has chosen – this year, at least – to cut the climate fund rather than find another way to pay for it, does it really have the intent to stump up even more cash in future years?
For now, the cut means there’s just $1.5 billion to cover climate spending in the next three budgets – far too little to make a meaningful difference.
If the Government doesn’t change tack on climate policy, showing the carbon market that it means business and that carbon should have a hefty price, it will find itself running on empty for funding the low-emissions transition.
