New Zealand sets the scene for climate change accountability

  • Legal update

    08 November 2019

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New Zealand’s Parliament has passed the Climate Change Response (Zero Carbon) Amendment Bill (Zero Carbon Bill) with an almost unanimous vote in favour of the legislation; Royal Assent to the law is expected next week.

The law provides a new regulatory framework for climate change in New Zealand. The approach taken is similar to that taken in the UK; but modernised in light of international approaches to climate-related disclosures and the Paris Agreement target to keep global warming to within 1.5C by 2050.

The Zero Carbon Bill precedes upcoming changes to New Zealand’s emissions trading scheme and fits alongside proposals to require investors and public entities to disclose their approach to climate change.

Zero Carbon Target

The Zero Carbon Bill sets a tough, new emissions reduction target. It is a split target which aims to reduce all greenhouse gas emissions, aside from biogenic methane, to net zero by 2050; and biogenic methane emissions to between 24-47 percent below 2017 levels, by 2050 (including a short-term requirement to reduce emissions to 10 percent below 2017 levels by 2030).

Emission reductions are expected to be primarily achieved through domestic actions, although there is provision for offshore mitigation in limited circumstances. The targets will be achieved with five yearly emission budgets (being interim targets along the way to 2050), recommended by an independent Climate Change Commission. There is no consequence in the Bill for not meeting emission budgets.

The Minister for Climate Change will be required to prepare a national adaptation plan that responds to an assessment of risk to New Zealand’s economy, society, environment, and ecology from the current and future effects of climate change, particularly in the next six years. The Bill does not require financial support from the Government to assist individuals or businesses to adapt to climate change.

An independent Climate Change Commission will be established. The Interim Climate Change Commission has put this new Commission in a good position to be helpful to the Government. The Commission will provide advice to the Government on adaptation and mitigation; advice to the Minister setting emission budgets and emission reduction plans; and will create a risk assessment for the country. The Commission will not have any decision-making or regulatory powers and may have to consider Government policy on unit supply settings for the emissions trading scheme (ETS). Our previous article on what TCFD may mean for corporate boards is here.

The method of reducing emissions to achieve targets is not prescribed in the new law. Detail will be contained in emissions reduction plans to be developed by the Minister. These may need to be ambitious to achieve the emission reductions desired.

Although the National Party has said that, if elected, it will make some changes – the biggest being a new approach to the biogenic methane target – broad political consensus on the approach to climate change means that New Zealand has long-term certainty that it will be progressively taking steps to meet its obligations arising from the Paris Agreement.

ETS changes are also under way

The ETS will be a key tool in meeting emission reductions and achieving the 2050 target. A range of detailed changes to the ETS are being progressed through the Climate Change Response (Emissions Trading Reform) Amendment Bill (ETS Bill).

The ETS Bill proposes putting a price on agricultural livestock emissions at farm level, and fertiliser emissions at processor level (fertiliser manufacturers and importers as opposed to users). It also requires the Minister for Climate Change and the Minister of Agriculture to report in 2022 on the development of an alternative farm-level pricing mechanism (other than the ETS), keeping agricultural emissions squarely in focus over time.

The Bill includes a wide range of proposals to increase accountability of participants in the ETS. Further changes to the ETS are expected through the Parliamentary process. To see our previous article on the ETS Bill see here.

Proposals for more transparency

The Zero Carbon Bill includes reporting requirements for government departments. The ETS Bill also intends to clearly identify those emitters who are caught by the ETS and the extent of those emissions. These are just the first two steps towards increased transparency on these issues.

The internationally recognised Task Force on Climate-related Disclosures (TCFD) created a framework for reporting on climate risk which has increasing traction in New Zealand as a benchmark for assessing entities’ strategic approach to climate change. Changes to the Zero Carbon Bill were made to align with it. The TCFD establishes recommendations for disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. It includes recommendations about disclosures about governance, strategy, risk management and metrics and targets.

In August the Government endorsed the findings of the TCFD in its response to the Productivity Commission’s recommendations on transitioning to a low-emissions economy. Following on from that, the Ministry for the Environment has released a discussion document about climate related financial disclosures. Amongst other questions, it is asking who should be required to make disclosures: listed issuers, registered banks, licensed insurers, asset owners and asset managers? Submissions close on 13 December 2019.

Taking that one step further, New Zealand’s current Minister for Climate Change and Leader of the Green Party, James Shaw, has said that the Green Party would like all companies listed on New Zealand’s stock exchange to report on climate change disclosures. This won’t be possible until after the election, so this proposal will depend on election results.

The Parliamentary Commissioner for the Environment has seized upon this momentum, criticising the lack of environmental information gathered and reported upon. To reduce data gaps he is recommending an overhaul of the way environmental information is monitored.

The concept of mandatory self-reporting of environmental offences is also being considered as part of substantive environmental reform: see here.

Next steps

These proposals will influence all parts of New Zealand’s society. If you would like any further information about the proposed changes, or you have any queries arising from the announcements, please contact a member of our team.