New Zealand: Selected Issues

IMF Staff Country Reports, August 28, 2023

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New Zealand: Selected Issues

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Bibliographic details

• Published: August 28, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400252341.002

Climate policy developments and emissions trajectory

• 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.
  • 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.

Risks from cost‑of‑living measures and policy uncertainty

• 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.
• Heightened policy uncertainty has been reflected in carbon prices:
  • After peaking in November 2022, the price in the secondary market declined sharply.
  • The June 2023 average price was around 40 percent below the peak level.

Emissions Trading Scheme (ETS) developments and implications

• The March 2023 Emissions Trading Scheme (ETS) auction failed to clear, resulting in no new units being released.
• Concerns arising from the auction outcome:
  • If falling prices are not arrested, the envisaged emissions reductions may be out of reach.
  • Proceeds from the ETS auctions are intended to be used to support climate investments; shortfalls could put these investments at risk.

Key implications for policy and climate finance

• Continued implementation and clarity on the Emissions Reduction Plan, emissions budgets, and the agriculture emissions pricing framework are critical to meet the Nationally Determined Contribution for 2030.
• Restoring confidence in carbon pricing and ensuring functioning ETS auctions are important to secure both emissions outcomes and the funding pipeline for climate investments.

Source: New Zealand: Selected Issues — https://www.imf.org/en/publications/cr/issues/2023/08/24/new-zealand-selected-issues-538458.

Content in this bundle

• New Zealand: Selected Issues; IMF Country Report No. 23/310; July 17, 2023
  • New Zealand: Selected Issues; IMF Country Report No. 23/310; July 17, 2023 (Markdown version)
  • New Zealand: Selected Issues; IMF Country Report No. 23/310; July 17, 2023 (PDF)