The long-awaited "Zero Carbon Bill" was finally released on 9 May, but despite being greeted by considerable media interest there are a number of significant issues that have yet to come to the fore.
The Bill will now see the zero carbon provisions being included within the existing Climate Change Response Act 2002 (as an amendment to that Act), rather than as a stand-alone piece of legislation. It is expected to be passed by the end of the year, following a first reading to take place later this month, and referral to Select Committee in June this year.
Some of the key legal and commercial considerations that merit a closer look include:
1. Agriculture sector and the biogenic methane target
The impact on the agricultural sector of the biogenic methane target is still to be revealed.
While the Zero Carbon Bill imposes reduction targets for biogenic methane emissions on the Government (10% less than 2017 emissions by 2030 and between 24% to 47% less than 2017 emissions by 2050), how this will flow through and impact the agricultural section remains to be seen.
The Coalition Agreement between Labour and New Zealand First makes it clear that if agriculture is to be included in the New Zealand Emissions Trading Scheme (NZETS) the agriculture sector will be entitled to a free allocation of 95%. In addition, revenue that the Government receives from the 5% that the agriculture sector is liable for, is to be recycled back into agriculture in order to encourage agricultural innovation, mitigation and additional forestry planting.
Accordingly, while the future NZETS changes are expected be the primary tool that the Government will use to meet the biogenic methane targets, it seems that other sectors (and the New Zealand economy generally) will primarily have to bear the cost of this, at least during the term of the current government.
Further, if the agricultural sector is receiving a 95% free allocation, one expects that other policy measures (and Government funding) will be needed to enable the target to be reached, as the NZETS alone may not provide a meaningful incentive for the agricultural sector to change behaviour in a way that would cause biogenic methane emissions to reduce.
2. Legal risk for the Government remains
The risk of legal challenge for the Government (and the Climate Change Commission) has not been entirely eliminated.
While the Zero Carbon Bill provides that no remedy or relief is available for the Government's failure to meet the 2050 target or an emissions budget, which will not be enforceable in a court of law except to the extent that a court may make a declaration that a target or budget has not been met, the Zero Carbon Bill imposes a number of other legal obligations on the Government which could make it susceptible to a judicial review challenge.
In particular, the Bill includes a number of prescriptive requirements that must be met, including in relation to the setting of emissions budgets, amending emissions budgets and when preparing national adaptation plans. Failure to comply with any of these procedural requirements, including failing to take into account relevant considerations would expose the Government to challenge.
Further, if the Minister fails to adequately take into account all relevant factors in preparing an adaptation plan or fails to make progress in implementing this plan, this could provide grounds for a judicial review challenge. A failure by the Government to take steps to ensure that domestic emissions reductions and removals can be used to meet the targets (in place of overseas emissions reductions and removals) could also provide an avenue for future challenge.
We have already seen, in 2017, a judicial review case in New Zealand which saw the High Court find that the then Minister for Climate Change Issues was required to consider the most recent climate science in setting emissions reductions targets. While failing to achieve the overall targets and the interim emissions budgets is largely precluded from any meaningful challenge, there is certainly scope for judicial review challenges to be brought in respect of other Government (and Climate Change Commission) obligations in the Bill, which will put pressure on the Government to deliver.
3. Government constrained itself from easily changing emissions budgets
Short of amending the law, the Government has constrained its ability to change emissions budgets once these have been set.
While the Bill contemplates that the 5-year emissions budgets can be amended after they have been set, this will only be possible if the Climate Change Commission (an independent Crown entity) makes a recommendation that the budget be changed. In making such a recommendation, there is also a prescribed list of matters that the Commission must have regard to and which it must advise the Minister on.
Any change to the overall 2050 target (and the interim 2030 biogenic methane target) would require legislative change.
4. 2050 target and emissions budgets a relevant factor when making other decisions
The new targets could feature as relevant considerations in the exercise of statutory decision making authority more broadly.
The Bill provides that the 2050 target or an emissions budget may be taken into account by a person or body when exercising or performing a public function, power, or duty conferred on that person or body under law. This permissive (i.e. not mandatory) consideration is subject to other requirements that apply by or under law.
This could potentially have real implications for decisions being made by bodies such as the Overseas Investment Office and by local authorities in relation to resource consent decisions, to name a couple of examples.
5. International trading
The door remains open for international trading.
While the Zero Carbon Bill contemplates that the emissions targets (and by implication the 2050 target) will be met, as far as possible, through domestic emissions reductions and domestic removals, the Bill makes it possible for some overseas emissions reductions and removals to be used to meet emissions budgets and the 2050 target.
This signal in the Zero Carbon Bill supports the ability for some international trading to be allowed, a matter which will be addressed in the subsequent NZETS amendments which were separately consulted on. However, the position in the Zero Carbon Bill is consistent with the Government's previously expressed preferred position, that international trading will be limited, if it is permitted.
Nevertheless, the Government has, through the Zero Carbon Bill, expressed its clear policy intent that New Zealand must do its bit through onshore measures to limit global emissions.
6. Independent Climate Change Commission
The Climate Change Commission is being established as an independent Crown entity under the Crown Entities Act 2004.
The independent nature of the Commission (like that of the Commerce Commission, the Financial Markets Authority and the Electricity Authority which are also independent Crown entities) will naturally place constraints on the Government, and is in our view, the appropriate legal structure for the Commission.
7. Public sector adaptation reporting
Public sector agencies, including state-owned enterprises, local authorities and council-controlled organisations (amongst other public sector entities) should be aware that the Minister will be able to request that these reporting organisations provide information on climate change adaptation. This could include information on an assessment of the current and future effects of climate change, the organisation's proposals and policies for addressing the effects of climate change, and an assessment of progress made by the organisation towards implementing its proposals, policies and controls and achieving its targets.
These entities will need to be prepared to commit resources to preparing this reporting and undertaking the necessary policy and preparatory work, and should ensure that they are thinking about these issues so that they can put themselves in a position to respond to any request from the Minister.
Many local authorities and other public sector agencies will have already started thinking about these issues, but others that have not will need to have this on their radar.
8. Disclosure reporting not mandated
The Zero Carbon Bill has not introduced mandatory climate-related disclosure reporting.
The Explanatory Note to the Zero Carbon Bill notes that proposals for climate-related financial disclosures have been ruled out at this time. It is noted that those sorts of reporting requirements for the private sector are being progressed outside the Bill. We are already seeing this and expect that increasingly both insurers and financial institutions, in particular, will require their customers to undertake environmental disclosure risk reporting (including relating to the climate change risks and adaptation measures).
Further, although climate-related disclosure reporting for private sector organisations is absent from the Bill, that is not to say that such disclosure reporting could not be introduced through other more targeted legislation that is relevant to particular organisations in the future.
We will await with interest to see how the Zero Carbon Bill develops as it progresses through the legislative process. We expect that it will generate a significant number of submissions to the Select Committee in the coming months.
If you require any assistance in preparing a submission to the Select Committee or would like advice on any aspect of the Zero Carbon Bill, please contact our climate change team.