A new ‘Climate Emergency Response Fund’ will dish out $4.5 billion over the next four years from Emissions Trading Scheme proceeds, but is it enough? Marc Daalder reports

Next year’s Budget will be a climate change Budget, Finance Minister Grant Robertson says.

Alongside announcing the latest projections for the Government’s finances and New Zealand’s economic outlook, Robertson highlighted that climate change would be one of two priorities in Budget 2022 – the other being the reform of the health system.

The cornerstone of this new focus will be a Climate Emergency Response Fund (CERF), made up of $4.5 billion in proceeds from the Emissions Trading Scheme (ETS). Half of the fund will go to capital expenditure and half to ongoing spending.

Already, some $840 million to fund the Government’s increased international climate aid commitments has been allocated from the CERF. That leaves about half a billion dollars a year for capital spending over the next four years and about $300 million for the operating costs of new schemes.

The CERF will also bankroll efforts to adapt to the coming impacts of climate change in Budgets after 2022, in addition to reducing emissions.

“The Climate Emergency Response Fund is a game-changer that will provide billions of dollars over the next four years to help meet our Government’s climate goals,” Climate Change Minister James Shaw said.

The addition of new, climate-specific baseline funding that can be allocated for multi-year and cross-sector projects is an important step on the path to decarbonising. Robertson and Shaw had both previously said the current Public Finance System was not capable of handling these intergenerational issues.

Alongside the fund, Budget 2022 will pioneer a new “clusters” approach of agencies and ministers for two sectors: Natural Resources and Justice.

“Agencies in each cluster are working together to identify priorities and develop proposals that will inform their collective efforts over the next three years,” the 2022 Budget Policy Statement said.

But the new fund raises two critical questions: Will the ETS revenue be enough and will it be dependable enough?

Speaking to Newsroom after Budget 2021 was revealed in May, Shaw had previously said the answer to both of these questions was no.

“Treasury will say this to you, that actually the ETS revenue is not going to cover it, when you look at all the different costs,” he said.

Robertson acknowledged this as well, pointing to other existing funding mechanisms like the National Land Transport Fund.

“These proceeds are a down payment on our climate spending. We know that more funding will be required over many years to address this complex, multi-faceted issue,” he said on Wednesday.

“In the future, we expect to review the Climate Emergency Response Fund alongside the main Budget allowances and increase funding as necessary to invest in initiatives to help us achieve our climate objectives.”

He told Newsroom that any top-up for the CERF would come from general taxation and allowances.

Shaw had also previously indicated that “ETS revenue will be lumpy” and therefore it might not be the best source of stable baseline funding for climate efforts.

“There is a question of what is the best way to maximise the use of that particular stream of revenue,” he said in May.

Robertson said the ETS still served as a good start.

“I understand the point that he’s making, but equally I think it does provide us with a good anchor. But what I would say that the amount that we’ve provided is effectively a down payment or a minima,” he told Newsroom.

The other issue with ETS revenue is that while it will increase in the coming years alongside a higher carbon price, it will eventually decrease as the economy decarbonises. It remains unclear whether the costs of decarbonising will also fall with time, or whether they will rise as we turn attention to the sectors of the economy that are hardest to abate.

“If the price of carbon collapsed, what would we do? We would still – and you’ll know this from the Emission Reduction Plan and the Climate Commission’s report and their directions to us – we would need at least this [$4.5 billion],” Robertson said.

Alongside the announcement of the CERF on Wednesday, Robertson also celebrated improved projections for Government revenue (helped in part by higher ETS revenues) and the country’s economic outlook.

Budget 2022 will see a one-off injection of $6 billion of new operating spending to help set up the new health system that will begin to phase in from July. Operating allowances will fall to $4 billion in 2023 and then $3 billion for the two years thereafter.

Unemployment is expected to fall to 3.1 percent in the March quarter and will remain below 4 percent for coming years.

GDP is expected to fall around 6 percent in the September quarter – final results will be out on Thursday – and annual GDP growth for 2021/22 will be just 1 percent. But 2022/23 will see GDP surge by 4.9 percent.

Wage growth is also expected to average 4 percent a year over the next four years.

High inflation should come to an end by the end of 2023, falling below 3 percent at that stage, according to Treasury forecasts.

Marc Daalder is a senior political reporter based in Wellington who covers climate change, health, energy and violent extremism. Twitter/Bluesky: @marcdaalder

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