New Zealand may need to pay up to 5bn New Zealand dollars ($2.89bn) to purchase international carbon credits to meet its climate targets under the Paris Agreement. This is because domestic emissions reductions will likely fall short of its Nationally Determined Contributions (NDCs) commitments, a Treasury paper published on 11 June found.
The country's targets under economy-wide NDCs covering 2021–30 and 2031–35, which the Treasury referred to as NDC1 and NDC2, respectively, are not fully aligned with domestic emissions budgets for respective periods. New Zealand may, therefore, rely on offshore mitigation — through purchases of verified emissions reductions or removals from other countries — to bridge the shortfall.
New Zealand faces the highest potential cost exposure for NDC1, which targets a 50pc reduction in net emissions below 2005 gross levels. The target corresponds to an emissions limit of 575mn t CO2 equivalent (CO2e) in 2021–30. The Treasury's modelling suggests offshore mitigation towards meeting commitments for this first period may cost around NZ$4.4bn-5.0bn.
This suggests the Treasury estimates the average cost of international credits around NZ$7.65-8.70/t CO2e ($4.42-5.03/t CO2e).
By contrast, NDC2 "closely aligns" with the corresponding domestic emissions budget, implying a smaller potential gap. Estimated offshore mitigation costs for achieving the NDC2 target are NZ$0.2bn-1.6bn, depending on which side of the commitment range — 51pc-55pc — the country is going to achieve, the Treasury said.
The report highlights substantial uncertainty around these cost estimates and the Treasury said although the information was provided to "support transparency over possible future costs, it does not reflect government decisions or intentions regarding offshore mitigation".
Domestic policy decisions will directly affect emissions outcomes and, in turn, the volume of offshore mitigation required.
Limited liquidity in the international voluntary carbon markets, procurement strategies — including decisions on credit types, sourcing and price limits — will be key drivers for cost.
The government will not spend billions of dollars overseas to meet its climate commitments, prime minister Christopher Luxon said, according to Radio New Zealand.
