Climate change funding coming next week

Long-awaited details of how the Government expects to finance its climate change work look set to be announced next week, when the Government sets out its budget priorities for 2022.

The Government will not confirm what sort of announcement will be made, but when questions relating to funding and financing climate change were put to the Government on Friday, the Minister of Finance's office said more detail would be released on Wednesday, when Treasury releases its HYEFU forecast, and the Government publishes its Budget Policy Statement.

At the last budget, Finance Minister Grant Robertson said he was working on ways of updating New Zealand's public finance regime to tackle long-term challenges like climate change.

A paper on that work, released to the Herald under the Official Information Act, shows a range of options.

One option considered by Treasury is to establish climate change as its own "vote" in future Budgets, in line with a recommendation from the Climate Change Commission.

Government Budgets are organised into different areas, called "votes" - like vote health, vote education, and vote defence.

Climate does not, as yet, have its own vote.

Treasury said vote climate change would be a "multi-agency" appropriation, meaning it could bid for money that would be disbursed to multiple parts of government to tackle climate change.

The Commission said this would "support the scale of response required and make sure action [on climate change] is coordinated."

Treasury thinks the aims of such a vote would "increase transparency and monitoring" of climate funding, support "coordination" and support the "adequacy, scale and durability of funding for climate change".

Whether Treasury is full-throated in its support of the idea is unknown - the rest of the commentary on vote climate was heavily redacted.

Treasury was concerned that it's not yet clear just what qualifies as climate expenditure, saying direct mitigation subsidies, adaptation subsidies, research and development, and policy could all arguably qualify.

"It is often difficult to definitively label something as "climate aligned," officials said.

One option for funding the transition - which Robertson committed to in the last budget - is to recycle revenue from the Emissions Trading Scheme towards climate change initiatives.

Climate Change Minister James Shaw. Photo / Mark Mitchell

Treasury raised some concerns with the use of the ETS to fund climate change, noting the price of ETS units was "volatile" and the number of units auctioned off could reduce, meaning less money for the Government.

This could create difficulties if the Government "reduces the number of available units in order to accelerate domestic emissions reduction".

Revenue from the ETS would likely decrease, while the need for subsidies to aid transition increased.

This could be further complicated if the Government allowed companies to purchase ETS units offshore - something currently banned.

If this happened, the Government "would need to decrease the number of units auctioned by the same volume, decreasing the available proceeds from the ETS".

The paper said Treasury hoped to find some agreement on funding in October, but Climate Change Minister James Shaw wasn't reached then.

Shaw said Covid and the Government's Emissions Reduction Plan had delayed work.

The Emissions Reduction Plan is the Government's climate change bible and is currently out for consultation. A final plan will be published next year and will include policies the Government will implement to cut emissions in line with the country's targets.

"The decision you're talking about feeds into when we said we were going to link the Emissions Reduction Plan to the Budget - the decisions will feed into that," Shaw said.

He could not say whether a climate change vote had been established, citing budget confidentiality.