Climate Change

$2.9 billion to help transition Aotearoa to a low-carbon economy

Our planet faces unavoidable consequences if we do not keep global warming below 1.5 degrees. In New Zealand, sea levels are rising twice as fast as previously thought – in Wellington, this will cause once-in-a-century floods to happen every single year.  

At the same time the war in Ukraine has highlighted the more immediate economic fall out from unchecked dependency on fossil fuels.  

It is against this backdrop that Finance Minister Hon Grant Robertson has made climate change a central theme of Budget 2022 to help grow New Zealand sustainably.  

So what does Budget 2022 actually do to address our climate change challenges and what do these policy announcements have in store for your business? 

Budget overview – policy highlights

The Government’s first Emissions Reduction Plan has been announced, and aims to spend $2.9 billion from the $4.5 billion Climate Emergency Response Fund (CERF) to help transition Aotearoa to a high-wage, low-emissions economy.  

Transport, agriculture and energy are three main areas the Government has focussed its Budget expenditure on, although agriculture does not feature as prominently as might be expected because the Government is currently in talks with industry to create He Waka Eke Noa, an agri-specific version of the Emissions Trading Scheme (ETS). Key decisions from He Waka Eke Noa are not expected until later this year, and the full framework will not be implemented until 2025.   

Confirmed new policy areas for business

The CERF will be entirely funded from the ETS, with key expenditure items announced in the Budget including: 

Energy

$1 billion towards energy across seven years, including: 

• around $330 million towards assisting businesses, including small and medium businesses, to upgrade to more energy efficient equipment 

• $678 million to decarbonise industry over four years (a significant expansion of the government Investment in Decarbonising Industry Fund (GIDI)) 

• around $40 million for heating efficiency in commercial spaces and water 

• $5 million for electricity market and renewables work 

• $18 million for developing energy strategies and frameworks, including for hydrogen and offshore wind farms 

Agriculture  

$710 million over four years, including: 

• $256 million towards forestry to increase carbon sequestration and a further $91 million for forestry that will help increase woody biomass as an alternative to coal power 

• $35 million to support farmers, growers and whenua Māori in the transition to the low carbon economy 

• $339 million towards agritech that can accelerate the development of greenhouse gas mitigations 

Transport 

$1.2 billion towards decarbonising transport, including: 

• $569 million towards the Clean Car Upgrade to help lower-income households scrap high-emitting vehicles in exchange for electric and hybrid models  

• $350 million for improving access to public transport, walking and cycling 

• $40 million for decarbonising public transport buses by 2035 

• $20 million for decarbonising freight transport  

• Extension of fuel excise duty and road user charges discounts and half price public transport until August, and ongoing 50% public transport concession for Community services card holders 

Higher emitting vehicles will also be banned as part of the Emissions Reduction Plan – at this stage there have been no indications of how this will work where a business owns a high-emitting vehicle to fulfil its operations. That said, a move to electric will help to shield businesses that rely on transportation from the worst effects of fuel inflation.  

There has also been $103 million announced to invest in waste management infrastructure.  

More to come – Congestion tax impacts for Auckland businesses

The Government is also expected to announce a congestion charge in Auckland, scheduled to come into play in 2025. Detail will be worked through later in the year, but there have been signs so far that this may feature exclusions for those businesses delivering goods and services to the central Auckland area (similar to overseas examples). However, until further details of the proposed charge emerge, it is unknown what the impact will be on encouraging consumers to return to a struggling CBD business and retail precinct as the tail of COVID-19 lockdowns and new flexible work modes remain prevalent. 

Business impacts and considerations

Richard Croucher, BDO Sustainability Lead Partner says: 

“From weather events impacting business infrastructure, to the risks and opportunities presented by the transition to a low carbon economy, climate change is having a significant impact on the viability of New Zealand’s SME and mid-market. It’s therefore encouraging to see that this Government is taking the threat seriously and attempting to mitigate it through the Climate Emergency Response Fund (CERF) and Emissions Reduction Plan.  

However the question remains, is it enough? The aim is for New Zealand to transition to a low-emissions economy, but to do this the country’s infrastructure, energy and transport systems need to be completely overhauled – while the announcements made as part of the Emissions Reduction Plan will help, there is still a long way to go.  

In addition, the ETS is not able to provide stable levels of revenue, and the Government will need to find money from elsewhere to support its total $4.5 billion expenditure goal.  

There is a huge appetite among New Zealand’s SME and mid-market to engage on climate change and make their businesses as sustainable as possible. But the majority of organisations do not know where to start. While announcements such as the $330 million allocated for businesses to upgrade to more energy-efficient equipment is welcome, it is also on the Government to not only fund new projects through the CERF but also offer comprehensive training and support, on a similar scale to that which was offered to combat COVID-19, if it really wants to see wholesale change. While there has been some training announced, there is not a lot of detail at this stage, and I would like to have seen more support for SMEs in the climate Budget expenditure announced today.” 

Quick tips & questions 

Considerations for businesses in light of today’s Budget policy announcements: 

• Do you have a robust understanding of the risks climate change poses to your organisation (this includes physical risks such as rising sea levels damaging infrastructure, and transition risks such as changing customer demands as consumers seek more environmentally-sustainable products and services)?  

• Do you have a sustainability strategy in place? 

• Do you know your carbon footprint? 

• Have you explored what rebates and other Government help is available to you and your business to help use lower emissions? 

• Are there opportunities available to your business whether now or in the future as part of the emissions reduction plan? 

More information & help available

You can learn more about the Emissions Reduction Plan on the Ministry for the Environment website here.  

Climate change, like any business risk, requires challenging conversations, ongoing focus and robust planning. Keep the conversation alive with your BDO adviser regarding Budget 2022 policy impacts and how to best address sustainability challenges in your business. You can read more here about BDO’s ESG (Environmental Social Governance) advisory services and how we’re providing practical sustainability advice for businesses.