'Significant risk': Delaying climate deals could cost five times more, Simon Watts told

Officials have warned Climate Change Minister Simon Watts of a cost blowout if the government does not get moving on signing international climate deals.

The 2015 Paris Agreement allows governments and companies to offset some of their greenhouse gas emissions by paying for work to cut climate pollutants elsewhere.

To meet its international commitments, the government needs to secure almost 100 million tonnes of carbon dioxide savings from other countries before 2030, to top up savings inside the country by transport, industry and other emitters.

Advice released to RNZ under the Official Information Act said delaying buying these international offsets until closer to 2030 would be expected to see the price rise to five times the cost they could be bought for today.

Other countries, and companies, have started sealing deals under the Paris Agreement.

In January, a Thai electric bus operator sold 2000 tonnes of carbon offsets under the Paris Agreement to a Swiss fossil fuel importers group, for launching a fleet of up to 4000 electric buses in Bangkok.

Singapore has signed a deal with Ghana, and was moving towards deals with Bhutan, Paraguay, and Vietnam and others, according to the Singaporean government.

But although successive governments since 2015 under John Key have known New Zealand would need to buy a substantial portion of carbon savings from overseas in order to meet its 2030 target, no deals have yet been signed.

The government also has not indicated how it would cover the cost, which Treasury puts at least $3 billion and possibly up to $23b.

The offsets were needed because Cabinets of both National and Labour governments signed up to much steeper targets than they ever expected New Zealand would be able to meet inside this country.

Under the previous, Labour government, discussions with possible overseas partners were underway.

The previous government wanted to focus on doing deals in the Pacific or Asia, but nothing was sealed before the election and the change of government.

With offsets expected to cost anywhere from $41-227 a tonne, environment officials have told Watts the "cost of offshore purchasing represents a significant fiscal risk".

Cost of delay

Advice to Watts from the Ministry for the Environment released to RNZ this week said delaying further could be expensive.

"New Zealand is in a seller's market," said the February briefing.

"Options that may be available closer to 2030, such as purchasing from advanced economies, have been assessed to be five times more expensive than other opportunities available now," it said.

It said other countries were likely to miss their 2030 targets for cutting emissions domestically, raising demand for international offsets, and pushing up the price.

"Significant demand shocks are also expected, including from the private sector," said the briefing.

Advice from the Ministry of Foreign Affairs and Trade about the foreign policy implications of the choices facing the government was deemed so sensitive it was entirely blanked out.

What is the government looking at buying?

The idea behind allowing these deals was making climate action cheaper, and raising money for decarbonisation.

Some environmental groups have criticised the trading as a way for wealthy countries to outsource their problems and avoid taking action at home.

But it was often cheaper: New Zealand's Climate Change Commission said topping up with offsets would be cheaper than meeting the whole 2030 target inside New Zealand.

The current government has not announced what kind of projects it could look at - or even confirmed that it was looking.

But hypothetically, for example, closing a coal plant in Indonesia could work out cheaper for New Zealand than removing coal boilers in factories here.

Under the Paris Agreement, the New Zealand government could pay Indonesian organisations to replace coal plants, so long as it could prove to the international community that the carbon savings were lasting and real.

Any savings would count towards meeting New Zealand's 2030 target, not Indonesia's. Countries were not allowed to double count the same emissions savings.

But, as the briefing to Watts makes clear, New Zealand was not the only country wanting to buy offsets.

All countries had their own Paris Agreement targets to meet, so sellers could only sell so many offsets without risking missing their own targets.

Cheaper deals with developing countries were expected to dry up first, leaving only expensive deals with richer nations on the table.

Carbon trading experts expected a scramble nearer to 2030, as more countries realise they would not meet their targets using only domestic action.

Not a new problem

The rules around trading were only recently finalised during international climate negotiations.

However New Zealand has known it needed to buy a substantial number of offsets since 2015, when John Key's government set the country's first 2030 target under the Paris Agreement.

Key's Cabinet was advised the country could expect to pay around $3.7 billion for overseas offsets by 2030, based on a price of $50 a tonne. Cabinet originally envisioned meeting 70 percent of the 2030 target using offsets from overseas and just 30 percent domestically - not wildly different from what was expected today, although domestic climate action has improved.

Under Jacinda Ardern, in 2020, the Labour-led government came under pressure to increase Key's 2030 target - again, knowing that the new target would not be possible to meet domestically.

By then, new research on the consequences of topping 1.5C degrees heating as a planet was putting all countries under pressure to offer targets compatible with staying inside 1.5C. New Zealand's target was not in line with the new goal.

Briefings showed the UK - at the time preparing to host a major world climate conference - told New Zealand that simply re-stating its existing target at the conference would send an unhelpful message that world climate efforts lacked momentum.

Cabinet revised the target up. Advice at the time was that it could cost $7.9b to $13.8b in international offsets, on top of what New Zealand could be expected to do domestically.

Since then, the cost of offsets has been put at anywhere between $3b and $23b by Treasury, depending on the quality of projects, when they were purchased, and who from.

The coalition government said it remained committed to meeting New Zealand's 2030 target.

Simon Watts has said he would like to meet more of the carbon savings domestically.

However, the latest government projections showed the country was not on track to do that, and would still need almost 100 million tonnes of offsets from overseas.

NZ pushed for trading rules

Carbon markets expert Dr Christina Hood was involved in the development of the Paris Agreement trading arrangements.

She said the delay was reckless.

"New Zealand portrays itself as a champion of international markets... so it is ironic and disappointing that when it comes to actually following through we're sitting on the sidelines, ignoring our own best interests.

"It was a negotiating bottom line for New Zealand for these market arrangements to be in the Paris Agreement. This was in the face of scepticism from environmental groups and some other countries who viewed trading as just an excuse to set weak domestic targets," she said.

"If a country like New Zealand proves those critics right by not managing this well, that not only damages our own reputation but will also undermine support for use of markets in international climate response more broadly."