The Climate Change Commission produced its second annual emissions reduction monitoring report in July, warning current plans won’t meet the 2031–35 budget. The government is bound to respond to the report in accordance with the Climate Change Response Act 2002.

The Commission’s report found that New Zealand is likely to achieve the first emissions budget (for 2022–2025), but while the second emissions budget (for 2026–2030) can be met, there are some areas of significant risk. It also found that current plans are insufficient to meet the third emissions budget (for 2031–2035).

However, the Government has based its response to the Commission's report on new figures, released on Sunday, which are significantly different from the Climate Change Commission's projections for the same period.

"We have recently published updated annual projections for 2025, which reflect New Zealand’s current expected emissions pathway. The 2025 projections have informed the response set out here and were not available to the Commission when producing the 2025 ERM report," the MfE response says.

“The 2025 projections show total emissions of 282.2 Mt CO2e for the period, which are 7.8 Mt CO2e less than the EB1 limit. Given this buffer, and the limited time remaining in the budget period, there is strong confidence that New Zealand will meet EB1,” it said.

The Commission’s report found that the second emissions budget (for 2026–2030) can be met, but there are some areas of significant risk, rising from delivery challenges as well as external factors.

“The 2025 projections show that emissions remain below the EB2 budget limit, with a larger surplus or ‘buffer’ than previously indicated,” the government’s response said. 

“This provides confidence that New Zealand can meet EB2. More broadly, through adaptive management, we will closely monitor progress and identify and address any risks to meeting EB2 as necessary.”

The Commission recommended the Government acts ahead of the third emissions reduction plan, to reduce risk for the second emissions budget and get on track for the third budget and 2050 target.

The government said action ahead of ERP3, due in 2029, will be important to reduce potential future risks for meeting the second emissions budget period and improve the likelihood of meeting the third emissions budget.

“This aligns with the Climate Strategy, which focuses on strengthening the NZ ETS, expanding renewable energy generation, and supporting the development, commercialisation and adoption of new agricultural technology,” the government said in its response.

“Because the EB2 period has not yet begun, timing for action needs to be carefully considered. We remain confident that our current adaptive management approach provides flexibility in managing any emerging risks to EB2. ERP3 will set out how New Zealand intends to meet EB3. 

“However, we are also committed, as the Commission recommends, to looking at opportunities ahead of ERP3. This will help to shape policy development and ensure we are well-placed to meet our climate targets.”  

Industrial allocation counteracting climate action?

The government confirmed the Emission Trading Scheme would remain “at the core” of its climate change response, supported by “policies that reduce the barriers to investment in reducing and removing emissions”.

“We recognise the importance of maintaining a credible and effective scheme towards and beyond 2030. We acknowledge that further work will be required over the long run to ensure its ongoing effectiveness,” the government said. 

“We agree that current industrial allocation settings risk disincentivising decarbonisation efforts in firms receiving industrial allocation. We are committed to exploring options to mitigate this impact in ERP2.

"We are committed to delivering on New Zealand’s climate change commitments while growing the economy. New Zealand can have prosperous communities, affordable and secure energy, increasing primary production and exports, and a thriving economy while meeting its climate change commitments.”

Govt responses by sector

The Commission’s report found that delivery risks to meeting EB2 and EB3 have increased, compared with last year, particularly for EB3. While the level of risk varies by sector, the Commission found that the largest risks come from agriculture, energy, and forestry. The government addressed the Commission's findings for these sectors in its report.

Agriculture

The Commission assessed that ERP2 is heavily weighted towards technological solutions to reduce emissions, particularly in the third emissions budget (EB3) period. The Commission warned that, if these solutions are delayed or fail to deliver, alternative options are limited. This would make it harder to reduce emissions in future.

As a result, the Commission assesses delivery risks for agriculture as moderate in the second emissions budget, rising to significant in EB3.

“We recognise the importance of supporting a mix of mitigation options for the agriculture sector to support emissions reductions," the government said in its response.

"We are partnering with industry to accelerate new mitigation technologies and support improvements in farming methods. 

“We have committed more than $400 million over the next four years to accelerate the development and availability of new tools and technology to reduce on-farm emissions. Initiatives, such as AgriZero, are lowering cost barriers, unblocking bottlenecks and enabling large-scale adoption. We are streamlining regulatory processes to speed up the delivery of mitigation technologies, while managing risks."

Forestry

The Commission found that under ERP2, forestry removals are expected to comprise 33 per cent of net emissions reductions sought in EB2, and 46 per cent in EB3. It also found that there are moderate delivery risks in EB2, because there could be more deforestation than anticipated, and afforestation could fall short of expectations.  

The government responded by acknowledging that forestry plays an important role in reducing net emissions and meeting New Zealand’s climate change targets.

"Projections for 2025 increase the certainty of forest removals for EB2. We acknowledge there are delivery risks to the scale of forestry needed in EB3, due to uncertainty about registering exotic forests in the NZ ETS," it says.

“However, the Climate Change Response (Emissions Trading Scheme—Forestry Conversions) Amendment Bill is likely to mitigate some of this.”

Energy

The Commission found that recent high energy prices highlight the risk to energy affordability and reliability of supply. Long-standing energy supply and competition issues, including insufficient investment in new generation and steadily declining gas supply, have already contributed to recent industrial closures. 

The Commission found that the current New Zealand Unit price may not be enough to drive reductions in gross emissions, or to incentivise investment in emerging technologies such as carbon capture utilisation and storage. These issues contribute to the significant risk in EB3. 

“Government policy is focused on affordability and security of supply, which are essential for electrification,” the government responded. 

“A range of work is underway to support these focus areas. This includes reviewing electricity market performance, and the Electrify NZ programme (including Fast Track), which aims to unlock investment in renewable generation and infrastructure, supporting a resilient, low-emissions energy system. 

“We take a cost-effective approach to reducing emissions through the NZ ETS. This allows for both cutting emissions and increasing removals, in whichever way is most effective. 

“Although the Commission notes challenges for emerging technologies, such as CCUS, because gas reserves are declining, we expect overall emissions in this sector to reduce.”