How to actually achieve Emissions Budget Two (2026-2030): Power and Industry

New Zealand’s second emissions budget is a crucial step towards the country’s climate targets. However, achieving this goal requires clear policies and support from government.

The Draft Advice

With its purpose to guide Aotearoa New Zealand in ways that will help address the global problem of climate change, He Pou a Rangi – Climate Change Commission has over recent months sought feedback on their independent, draft advice to inform the strategic direction of the country’s second emissions reduction plan.

The Commission’s draft advice on the plan, covering New Zealand’s 2026–2030 emissions budget, focuses on critical areas where government must accelerate policy that will support us meeting New Zealand’s climate change targets. The sectors where the Commission sees the biggest opportunity for policy development and support include the built environment, energy and industry, forestry, transport, and waste.

In our company-wide response to the Commission’s consultation, we detailed our support for many of the themes. We have however noted that the specific actions and policies, to enable businesses to make the radical changes needed to meet the budget are not as clear. A lack of clarity on actions is likely to create ongoing policy uncertainty and impact decision-making in the public and private sectors. The time to act is now.

What should our key focus be on, as NZ-Inc?

Low-cost and prediction

Decarbonisation is driving increased load on the electricity network and the need for development of renewable energy. However, decarbonisation will only occur if our electricity network is able to meet this increased demand, while balancing the energy trilemma factors of security, sustainability and affordability.

Despite New Zealand being well positioned to develop further renewable generation, factors relating to slow consenting processes, investment uncertainty and labour shortages are preventing the speed of transition needed to meet emissions budget two.

Accelerating the transition to renewable electricity

For New Zealand’s transition to a low emission, climate-resilient future to be fast-paced and sustained, investment is needed to expand our transmission and distribution infrastructure, and increase system flexibility through demand response and energy storage. Preparing the electricity grid for increased renewable generation and demand will require investment from both government and private investors.

Distributed energy resource (DER) will play an essential role in creating renewable generation, complementing new transmission and distribution upgrades. DER refers to generation or storage units, such as roof-top solar and batteries, being built close to electricity demand. Alongside this, the incentivisation of an ancillary market to improve grid stability will enable more variable generation such as utility-scale solar or wind to be connected. Ancillary services may include frequency regulation, voltage control, generation reserves or any other network support offering. For example, case studies in the United States and United Kingdom have proven an equitable market for ancillary services – enabling private investors to deliver firming solutions to the intermittent nature of renewable generation and therefore providing greater energy security and market confidence.

Building our workforce

Renewable energy is a rapidly and constantly growing area of knowledge. Limited worker numbers and lack of skill will directly impede New Zealand’s ability to meet the targets of emissions budget two. Incentivisation of training and a focus on upskilling workers in this sector is critical for renewable energy growth – and is currently missing from the Commission’s Draft Advice. Other countries such as Australia, Germany, Canada, and Sweden have successfully implemented incentivisation and training mechanisms in relevant fields – where common themes include funding for education, work experience placements and clean energy equipment funds.

The challenge of decarbonising process heat

Significant action has been taken to decarbonise process heat and reduce our reliance on fossil fuels. The reduction of emissions and energy use is incentivised by the New Zealand Emissions Trading Scheme New Zealand ETS and the Government Investment in Decarbonising Industry (GIDI) fund, which is focused on supporting businesses with energy efficiency and fuel switching projects. Beca has been working with clients across the country on several GIDI projects.

A great example is government funding towards the recently announced New Zealand Steel decarbonisation project. We are partnering with New Zealand Steel on this project to help reduce New Zealand’s annual carbon footprint by 800,000 tonnes. Not only will this project help to transition one of New Zealand’s largest industrial operations towards low emissions production, but it also helps to secure a supply of low-carbon materials needed for the energy transition. Steel, copper and nickel are examples of critical materials which are needed at scale to continue the electrification of process heat and other fossil fuel applications. Policy needs to consider the supply of these materials to prevent them becoming a barrier to the scale of decarbonisation pursued in the next emissions budget. This also emphasizes the requirement to consider a wider variety of decarbonisation technologies, to minimise material requirements.

However, transition within the existing energy landscape is currently unfeasible for many fossil fuel users due to higher long-term operating costs, including the availability and cost of long-term biomass contracts, and the current cost of renewable electricity compared to coal or gas.

Further investment is required to support development of low-emissions fuels and address the operating costs associated with fuel-switching. While there are challenges to be addressed to make electricity and biomass economically viable and available throughout New Zealand, ongoing operational cost support, like that of the Renewable Heat Incentive scheme in the UK, is imperative, to make more projects financially viable and accelerate the transition.

Alongside this, other fuel alternatives such as biogas should be actively promoted through dedicated policy to resolve some of these gaps. Biogas presents a promising decarbonisation solution that could offset up to seven percent of current fossil fuel consumption. However, scaling up biogas production in New Zealand to necessary levels poses a challenge. More specifically, government should prioritise providing industry with clear policy signals, and targeted incentives that promote joining the dots between biological waste resources and decarbonisation strategies.

Creating specialised support

Great strides have been made in supporting low-to-medium temperature users with process heat decarbonisation through the Energy Transition Accelerator (ETA) programme and GIDI fund. However, barriers, including technical constraints are delaying the transition for the hard to abate sectors, and need to be addressed with policy support. As such, supporting innovation for decarbonising hard-to-abate sectors and the need for bespoke solutions, requiring research and development, is key to accelerating the reduction of process-heat related emissions.

Government funding in research and development should be factored into the second emissions budget action plan to ensure necessary technologies are developed in time support the decarbonisation of hard-to-abate industry sectors. If this work is not started now, due to the time required to both develop the technology and then implement projects, these sectors will not have the ability to contribute emissions reductions in the next or subsequent emissions budgets which puts our long-term national decarbonisation pathway at risk.

Implementation of specialised funding schemes in New Zealand catered to providing simple, accessible funding for small-scale users or projects will unlock further opportunities for process-heat decarbonisation. The creation of standardised $/tonne abatement incentives to remove administrative and funding barriers for small-scale projects will support a broader segment of the industry and contribute to the emissions reduction target required for budget two.

Where to from here

Clarity from government on policy support is imperative for businesses to map out their path to meeting emission budget two. We’re here to provide support and advice to clients on what this means for you, and what some of the next steps may look like.

We’ll also be at the Carbon Energy Professionals Conference on 27 and 28 June – and would love to talk to you if you’re attending. At the conference, you will also be able to hear from Debbie O’Byrne, Principal – Circular Economy on how a ‘1.5C world can only be a circular world’, from Cara Askew – BTune® Delivery Manager and Deployment Specialist, in a workshop on financing, and from Harshal Patel, Principal – Future Energy, who will be presenting on ‘Behind the meter solar PV for large energy users’; outlining the steps required to assess feasibility of behind the meter solar including procurement strategies.   

Find out more about our work to deliver a more sustainable, resilient future alongside our clients and communities, or get in touch.