The technical choice that could inflate New Zealand's NDC-2 emissions by 27 million tonnes

A look at potential methods for setting New Zealand’s emissions budget for NDC-2 (2031-2035)

Photo by Yuheng Ouyang on Unsplash

Summary

Since my previous article examining the potential contribution of domestic mitigation towards New Zealand’s second Nationally Determined Contribution (NDC-2), the Government announced perhaps the shortest-ever consultation window for a key climate change policy decision - with submissions on the NDC-2 target due by Sunday 8 December.

NDCs represent more than just their headline target number. Technical decisions about how targets are framed and accounted for can significantly impact both their credibility in the eyes of other countries and engaged stakeholders, and actual climate outcomes.

With this article, I'll examine a key technical decision that could affect the credibility of New Zealand's NDC-2, namely the approach taken to set an emissions budget for 2031-2035 based on the headline target number.

Don’t expect a long narrative arc in this article. Given the short timeframes involved and the need for many of you to draft your own submissions, I’ll be keeping things punchy, and get straight to the issues at hand.

Key takeaways:

1. The Government's discussion documents highlight an approach of calculating NDC-2's emissions budget by drawing from projected 2030 domestic emissions (termed the 'jumps' approach) rather than from New Zealand's NDC-1 target (50% below 2005 emissions). While this approach was used for NDC-1, applying it between successive NDCs risks undermining the Agreement's core progression principle for countries making use of international carbon markets.

2. The Government's highlighted 'jumps' approach would allow 27 million tonnes more emissions during 2031-2035 compared to calculating the budget starting from New Zealand's NDC-1 target, regardless of the headline target chosen.

3. The ‘jumps’ approach creates perverse incentives - the less ambitious a country's domestic action, the larger their allowed emissions budget becomes for the next NDC period. Under current projections, this could inflate New Zealand's 2031-2035 budget by up to 25 million tonnes (12.5%) compared to more ambitious domestic action pathways set out by the Climate Change Commission (the Commission).

4. Relying on uncertain projections six years out to calculate NDC budgets introduces ambiguity in New Zealand's actual commitments, with variations in budget upwards of 16.5 million tonnes possible between different projection scenarios reflecting the Government’s current policies and measures.

Setting an emissions budget for 2031-2035

Setting an emissions budget for an NDC period can appear intimidating, but is a straightforward exercise in practice. Typically, it involves drawing a straight line from a starting point before the NDC period towards the target emissions at the end of the NDC period (2035), with the sum of emissions along that line taken as the budget.

The Government's discussion documents (MfE, 2024d, 2024a) outlines a primary approach that Hood (2024) describes as a ‘jumps’ approach - calculating NDC-2's budget by starting from projected domestic emissions in 2030, essentially resetting our starting point based on domestic emissions projections, rather than our NDC-1 target commitment (50% below 2005 emissions in 2030).

While this approach was used for New Zealand's revised first NDC in 2021 (perhaps defensible as our first Paris Agreement commitment), it serves as a poor method for representing between-NDC progress for three core reasons explored in the sections below.

The primary alternative approach, also noted in the Government’s discussion documents, involves drawing the line from New Zealand's NDC-1 target in 2030 (50% below 2005 gross emissions) to the 2035 target. This method, I’d argue, offers a more intuitive, clear and credible approach for establishing progression beyond NDC-1.

‘Jumps’ approach rewards lack of domestic action

Analysis of different emissions pathways reveals how the 'jumps' approach rewards taking less ambitious domestic action. This creates a perverse incentive - the less a country reduces emissions domestically, the larger their allowed emissions budget becomes for the next NDC period.

This effect is demonstrated when comparing emissions budgets calculated using the 'jumps' approach across different domestic action scenarios for a 61% below 2005 emissions NDC-2 target.¹ Using the Commission's pathways, which achieve stronger domestic reductions by 2030, leads to smaller emissions budgets compared to the Government's current projections reflecting its draft Emissions Reduction Plan (ERP2) (Figure 1).

As shown in Figure 1, lower domestic efforts under the Government's ERP2 result in a budget of 215 million tonnes over five years - approximately 13.5 million tonnes (6.5%) higher than the Commission's EB4 demonstration pathway (201.5 million tonnes) and 25 million tonnes (12.5%) higher than the Commission's most ambitious pathway (Commission: HTHS) reflecting high technology adoption and systems change (190 million tonnes).

It is hard not to see the 'jumps' approach as self-serving too, with this approach seeing a higher emissions budget than the alternative of calculating the budget starting from NDC-1 in 2030 (50% below 2005 emissions), shown in Figure 2 below.

These differences between approaches are also apparent across headline target levels, with a consistent boost to the volume of New Zealand’s emissions budget of 27 million tonnes provided through the ‘jumps’ approach, irrespective of the headline target chosen. This is shown in Table 1 below, illustrating emissions budgets for the two possible approaches for NDC-2 targets ranging from 51% to 81% below 2005 levels - the latter matching the UK's headline number for its second NDC (Miliband and Department for Energy Security and Net Zero, 2024).

‘Jumps’ approach is sensitive to uncertain projections

Beyond these structural concerns with the 'jumps' approach, its reliance on projected emissions to calculate budgets adds another layer of complexity and uncertainty to New Zealand’s climate commitments. The challenge of accurately forecasting emissions several years into the future raises questions about the robustness of budgets calculated using this method.

Projecting emissions 5-10 years out remains an imprecise science, much akin to the challenges inherent in forecasting economic activity, or the Government’s fiscal books. While the Government's low, central and high projections for ERP2 undersell the uncertainty inherent in New Zealand's projections - not least given ongoing inventory recalculations for agriculture and forestry - these can be used to gather a high-level picture of how the 'jumps' approach leads to uncertainty in the emissions budget committed to over time (Figure 3).

As seen in Figure 3, calculation of the budget varies by 16.5 million tonnes from 2031-2035 (3.3 million tonnes per annum) between the low and high projections when using the ‘jumps’ approach.

Why does this matter? We can already see this problem playing out for the ‘jumps’ approach with NDC-1, where NDC-1 is set out both as an emissions budget (571 million tonnes of allowed emissions from 2021-2030) and through a primary target (50% below 2005 emissions in 2030).

When New Zealand's current NDC-1 budget was set in 2021, the Government used a projected figure for net emissions of 74.4 million tonnes for 2020 (using target accounting for forestry) to calculate its emissions budget.² However, the Government's most recent published figures now estimate net emissions in 2020 at 77.3 million tonnes (MfE, 2024b).

Given the 'jumps' approach enables higher emissions budgets when emissions at the starting point are revised higher, this raises an immediate question - will New Zealand stick to its original NDC-1 emissions budget, or use this updated 2020 figure to recalculate its budget upwards by what would be 16 million tonnes if recalculated today?³

This example of the ambiguity inherent in the 'jumps' approach is something to be avoided, particularly given New Zealand's use of it encourages broader adoption by other countries. The less transparent the link between headline targets and actual commitments becomes, the harder it will be to assess countries' climate ambition and discourage less altruistic actions taken out of self-interest.

Progression is multifaceted

A recent article by Hood (2024) emphasises that progression between NDCs needs to be evaluated across multiple dimensions - both where emissions land in the final target year (2035 for NDC-2 relative to 2030 for NDC-1) and how emissions compare between periods, such as average emissions over 2031-2035 relative to those over 2021-2030.

The 'jumps' approach, as highlighted in the previous subsections, falls short on these measures. By drawing its starting point from projected domestic emissions in 2030 rather than from New Zealand's NDC-1 target, it effectively disregards the significant international contribution that forms part of New Zealand’s NDC-1 commitment as part of its calculation. This approach would be out of step with New Zealand’s approach to setting emissions budgets during the Kyoto Protocol, where no such self-serving methods were used.

The ‘jumps’ approach thus risks encouraging a problematic precedent for other countries already committed to using international cooperation under Article 6 of the Paris Agreement. Given the Agreement's requirement that NDCs progressively increase in ambition, proper assessment of progression must consider effort exerted through both domestic and international contributions together.

Final parting comments

In an ideal world, I’d also be commenting here on New Zealand’s choices related to its accounting for NDC-2, such as whether it pursues a net-net target using inventory accounting for forestry and land use, or a gross-net target using averaging. Unfortunately, this is not possible to evaluate based on information released publicly at the time of the consultation window. A real shame to be frank.

For those wishing to pick up points made here or in my prior article in submissions, including these technical considerations around budget-setting methodologies, you can submit your thoughts on New Zealand's NDC-2 ahead of this Sunday using the submission portal on the Ministry for the Environment’s (MfE’s) website: here.

Finally, a small cross-promotion. Last week I provided a report to Lawyers for Climate Action NZ (LCANZI) on New Zealand’s 2050 biogenic methane target, which scrutinised the Government’s logic in pursuing a ‘no additional warming’ target above 2017 warming levels. Those of you who enjoyed my Substack piece earlier this year on the same topic will find plenty of interesting insights in the report, so encourage you to head on over to the LCANZI website to give it a read.

References

Climate Change Commission (2024) Modelling and analysis to support the draft advice on Aotearoa New Zealand’s fourth emissions budget. Technical Annex. Wellington, New Zealand: Climate Change Commission, p. 53. Available at: https://www.climatecommission.govt.nz/public/Uploads/EB4/supporting-docs/Technical-Annex-Modelling-and-analysis-9-4.pdf (Accessed: 8 April 2024).

Gibson, E. (2024) ‘NZ’s next climate target needs to be more ambitious, says diplomat’, RNZ, 10 September. Available at: https://www.rnz.co.nz/news/national/527525/nz-s-next-climate-target-needs-to-be-more-ambitious-says-diplomat (Accessed: 12 November 2024).

Hood, C. (2024) ‘Explainer: Climate Change Commission’s NDC2 advice’, 7 November. Available at: https://www.linkedin.com/pulse/explainer-climate-change-commissions-ndc2-advice-christina-hood-yyxdc/ (Accessed: 11 November 2024).

Miliband, E. and Department for Energy Security and Net Zero (2024) ‘UK shows international leadership in tackling climate crisis’. Available at: https://www.gov.uk/government/news/uk-shows-international-leadership-in-tackling-climate-crisis (Accessed: 13 November 2024).

Ministry for the Environment (MfE) (2024a) Aotearoa New Zealand’s 2035 international climate change target: Opportunity for public feedback. ME 1862. Wellington, New Zealand: Ministry for the Environment, p. 11. Available at: https://environment.govt.nz/publications/opportunity-for-public-feedback/ (Accessed: 1 December 2024).

Ministry for the Environment (MfE) (2024b) ‘Emissions Reduction Plan 2: ENZ results for technical annex’. Available at: https://consult.environment.govt.nz/climate/second-emissions-reduction-plan/ (Accessed: 16 August 2024).

Ministry for the Environment (MfE) (2024c) New Zealand’s Second Emissions Reduction Plan (2026–30). Discussion Document. Wellington, New Zealand: New Zealand Government, p. 123. Available at: https://consult.environment.govt.nz/climate/second-emissions-reduction-plan/ (Accessed: 8 August 2024).

Ministry for the Environment (MfE) (2024d) Potential domestic contribution to New Zealand’s second Nationally Determined Contribution. Summary report INFO 1272. Wellington, New Zealand: Ministry for the Environment, p. 4. Available at: https://environment.govt.nz/publications/potential-domestic-contribution-to-aotearoa-new-zealands-second-nationally-determined-contribution/ (Accessed: 1 December 2024).

Technical notes

Projected emissions for the Commission’s (2024) scenarios are taken from its draft advice on New Zealand’s fourth emissions budget (EB4) and are adjusted to reflect New Zealand’s 2024 GHG inventory using methods consistent with my prior article on New Zealand’s domestic contribution towards NDC-2.

1. I’ve chosen 61% here as it reflects what I’d consider to be a minimum progression target in light of comments earlier this year from New Zealand’s former Climate Ambassador, Kay Harrison (Gibson, 2024).

2. For those unfamiliar, GHG inventories are first published two years after a given calendar year. Hence, in 2021, emissions in 2020 remained a provisional projection/forecast.

3. Author’s calculation of emissions budget for 50% below 2005 emissions NDC-1 using gross emissions in 2005 (86.6 million tonnes) and net emissions in 2020 (77.3 million tonnes) from Government’s draft ERP2 central projections (MfE, 2024b, 2024c).