New Zealand’s 2024 Budget – A Missed Opportunity
As many anticipated, the 2024 New Zealand Budget sees the new coalition government slashing several major climate initiatives.
This isn’t surprising given the Government’s commitments to do just that. But it is troubling given the mounting evidence of Aoteaora’s exposure as climate change starts to really kick in. In years to come we may look back and see that Cyclone Gabrielle and the 2023 Auckland floods were just the first of their kind. The absence of any meaningful new initiatives to counteract this dismantling of clean transition efforts means New Zealand risks missing the enormous opportunity for value creation currently up for grabs.
The Government is thus far failing to realise the vast opportunities presented by the need to transition to a low emissions planet. A comparison to Australia and other countries and regions highlights that this shortsightedness could jeopardise both our environment and our economy.
New Zealand risks missing the enormous opportunity for value creation currently up for grabs.
Delaying the work of climate response risks higher impacts on the community and long-run costs for the Government.
Tepid Strategy for a Warming Planet
Climate Change Minister Simon Watts says “responsible and effective climate related initiatives that support New Zealand to reduce emissions, and adapt to the future effects of climate change are a priority”.
This makes it clear that the Government is increasingly focused on climate adaptation rather than emissions reduction.
The $1.2 billion Regional Infrastructure Fund, for example, will target measures to increase climate resilience, such as stopbanks.
On the emissions reduction side, programmes already funded by the Climate Emergency Response Fund (CERF), such as public EV charging, will continue. However, in future, funds from the Emissions Trading Scheme will go into general Government revenue rather than the CERF. There will no longer be a dedicated fund within Government for climate response.
New Zealand Green Investment Finance continues its pathway to invest $700 million as the Government’s “green bank”, but again, these are funds already allocated by the previous Government. NZ GIF had already invested or committed over 60% of its funds as at June 2023, and no further sum was allocated in the 2024 Budget.
Minister Watts also said “Budget 2024 provides the foundation for us to reduce our emissions and increase our resilience, while ensuring that our response is providing value to hardworking Kiwis.” While adaptation measures like sea walls and stopbanks are certain to be needed in future, they do not reduce emissions, and aren’t generating wealth for NZ. So there is an open question about what “providing value” means.
Budget 2024 delivered on its promise of tax breaks, and on the Government’s signalled intent to cut climate programmes.
Stark Contrast with Australia
Australia has recently unveiled the Future Made In Australia Act, a comprehensive plan that allocates A$23 billion to support the country’s transition to a low-emissions economy. This includes support for processing critical minerals onshore, more investment into green hydrogen and an additional A$3 billion for the Australian Renewable Energy Agency (ARENA) to commercialise new technologies.
Australia’s other recent initiatives include the National Reconstruction Fund (A$15 billion), additional capital for the Clean Energy Finance Corporation (A$20 billion) to drive electrification, State-level initiatives such as Breakthrough Victoria (A$2 billion), and a $300 per household payment to help with rising energy costs. Australia’s approach is ambitious, and aims to combat the cost-of-living crisis, grow its economy, and build resilience against climate impacts.
However, it’s not as if Australia is doing everything right on climate – far from it. Australia is also having a bet both ways, with its “Future Gas Strategy” to support ongoing fossil fuel exports. And the NSW Government is spending as much as A$450 million to keep the Eraring coal-fired power station (the largest remaining in Australia) open for another 2 years to 2027.
Australia currently looks unlikely to achieve its objective of having 82% of its electricity from renewable sources by 2030, a level already comfortably exceeded in New Zealand thanks to our extensive hydro assets.
So Australia has a more ambitious level of climate response than we are currently seeing in New Zealand. Looking elsewhere, we can see that most of the OECD does too, and so does China. Here are some examples.
Australia’s approach is ambitious, and aims to combat the cost-of-living crisis, grow its economy, and build resilience against climate impacts.
Comparing Global Efforts: Lessons for New Zealand
United States: The Inflation Reduction Act
In 2022 the United States enacted the Inflation Reduction Act (IRA), which includes extensive measures to slash emissions and promote clean energy. It provides tax incentives for renewable energy, funds EV infrastructure, and supports R&D for clean technologies. The IRA is expected to generate significant economic benefits, reduce household energy costs and create up to 9 million jobs over the next decade, at a cost to the American taxpayer of almost US$800 billion (NZ$1.3 trillion). Many have noted that the IRA is a form of industry policy leading to manufacturing being relocated back into the US from other countries including China.
European Union: The Green Deal
The European Union’s “Green Deal” aims to make Europe the first climate-neutral continent by 2050. The EU’s strategy includes the Just Transition Mechanism to support regions and workers affected by the green transition. The Green Deal aims to generate over 1 million jobs in sustainable industries by 2030, with public and private investment totalling ~1 trillion Euros (NZ$1.8 trillion).
China: Driving global decarbonisation but still emitting heavily
China is NZ’s largest export destination, not to mention the world’s most populous country, and the largest emitter of greenhouse gases. As the largest manufacturing base on the planet, China is now seeing increased emissions from making all the EVs and solar panels which are in turn supporting emissions reduction when they are exported to other countries. It has a net zero target date of 2060 (too late), and a continued dependence on fossil fuels (less than 20% of energy comes from non-fossil fuel sources). However, it continues to invest hugely in renewable energy capacity. In 2023, China added 300GW in renewable generation, accounting for 60% of the total global increase – the equivalent of 250 Huntly power stations. It is also important to note that China’s emissions per capita are a fraction of more developed countries.
In totality we can see a broad trend towards more “industrial policy”, being Governments investing in specific industries to support energy transition. This is quite a sharp contrast to the neoliberal economics which many Western countries have followed for the past few decades. New Zealand is currently taking a rather different approach, keeping to the neoliberal path.
We are seeing potential for leakage of innovation, early-stage companies, jobs, and major projects from New Zealand to other jurisdictions.
Offshore we go?
According to Callaghan Innovation, companies across New Zealand’s clean tech sector are looking to raise $440 million by March 2025. These firms have the potential to employ hundreds if not thousands of people, attract foreign investment and talent, and export New Zealand innovations globally.
Yet, without adequate government support, this potential may not be realised, and our best innovators may take advantage of the more sympathetic policies and funding available overseas.
A clean tech entrepreneur may ask herself why struggle to establish a company in NZ, already behind the eight ball due to our size and proximity to the rest of the world, when in Australia they could benefit from greater support, more developed capital markets, and Government co-funding, grants, and concessionary loans.
What Next?
Budget 2024 delivered on its promise of tax breaks, and on the Government’s signalled intent to cut climate programmes. Yet this is likely to be deferral – rather than cancellation – of climate-related expenditure, as sooner or later New Zealand is going to decarbonise, and to deal with climate adaptation challenges like rising sea levels.
Delaying the work of climate response, both adaptation and emissions reduction, risks higher impacts on the community (and therefore higher long-run costs for the Government).
New Zealand's approach looks increasingly at odds with major trading partners like the US, China, the EU, Australia, and others.
New Zealand’s approach looks increasingly at odds with major trading partners like the US, China, the EU, Australia and others. Whether you call it climate investment, geo-politics or industrial policy, each of these is pushing additional public funding to accelerate decarbonisation.
We are seeing potential for leakage of innovation, early stage companies, jobs and major projects from New Zealand to other jurisdictions for this reason.
The 2024 NZ Budget looks like a missed opportunity to push harder on climate response, and New Zealand is now out of step with the approach being taken by major trading partners.
