Treasury officials wanted to cut nearly $2 billion in climate spending from this year’s Budget over concerns that anything more wouldn’t be “efficient”.
A range of documents released by the Government on Thursday tells the story of a disagreement over the pace and scale of investment on reducing emissions.
On one side was the Treasury, consistently pushing to cut programmes which it said weren’t ready to be implemented. On the other, the chief executives of a number of government departments involved in the low-emissions transition, who said another $1.7b was needed above the Treasury’s recommended package in order to address just the most critical priorities.
Finance Minister Grant Robertson and Climate Change Minister James Shaw may have been stuck in the middle, though the views of ministers barely show up in the documents. In the end, the Government landed somewhere between the preferences of Treasury and climate officials.
The money was to be sourced from the Government’s new $4.5b Climate Emergency Response Fund (CERF). While $840 million had already been allocated to bolster New Zealand’s international climate aid commitments, the remainder was up for grabs for initiatives deployed over the next four years.
The Treasury’s preference was to use the bare minimum, supporting projects in four major emitting sectors with a few hundred million dollars each and holding the rest for future years. The CERF will be topped up each year with projected revenues from the Emissions Trading Scheme, but it was mostly emptied in Budget 2022, dropping from $4.5b to $1.5b – and that includes a new infusion of $800 million from the latest emissions revenues.
If the Treasury had had its way, just $1.7b in new climate spending would have been announced in the May Budget, leaving $2.76b in the fund.
“Even if the balance of the CERF is increased in line with reforecast Emissions Trading Scheme (ETS) revenues (approximately $750 million additional revenue), the package recommended by Climate CEs could be challenging to deliver in the near term and would leave very little remaining in the fund. Larger, higher-value initiatives are expected to seek funding in future years, and it would be prudent to leave a buffer for these by funding only high priority initiatives that are ready to implement now,” Treasury officials advised Robertson in early March.
For their part, the chief executives offered a “high priority” package of $3.5b with potential to grow to $3.81b if additional money was sourced for the CERF. This itself was a significant reduction from the original requests from ministers, who sought more than $10b in CERF funding collectively. Trimming down the package to only meet the “high priority” initiatives meant the Budget was expected to reduce emissions by 777,000 fewer tonnes of greenhouse gas emissions than if the full $10b in requests had been granted.
Just a handful of the cut initiatives were expected to reduce emissions by 567,000 tonnes. Exactly what those projects were has been redacted in the documents.
“The proposed Climate CEs package places a greater emphasis on using government investment as a lever to achieving the emissions budgets, while the Treasury’s proposed package assumes a greater role for other levers in meeting emissions budgets, and involves greater scaling factoring in delivery risk and implementation readiness,” Robertson wrote in a late February presentation to other ministers, summarising the competing views.
He recommended the climate chief executives’ package be used as a starting point.
Many of the specific differences between the proposed packages are redacted from the documents. But it’s clear the Treasury wanted to cut $400m from grants for industry to move away from fossil fuelled heating sources, while the chief executives wanted more money for reducing waste emissions and programmes to get people out of cars than they ultimately received.
As the negotiations went on, the Treasury conceded more could be spent from the CERF. By March 7, officials recommended a $2.4b package instead, based on cuts from the chief executives’ “high priority” proposal.
The final decision by the Government fell in the middle, with $2.9b in new climate spending announced at the Budget. The industry grants were retained, while the waste and transport projects were pruned down.
The documents also raise questions for how the Government will fund the transition to a zero-carbon economy and society in the coming years.
Many of the initiatives announced in Budget 2022 are long-term or ongoing projects. Collectively, they will require up to $439m annually to keep operating – likely more than half of the yearly top-up in the CERF from ETS revenues.
If new funding sources aren’t found, the Government will face increasing cost pressures from its existing climate commitments, let alone any new ones.
Robertson has publicly described the CERF as being merely a “downpayment” on climate spending and work is still underway to figure out where the rest of the cash will come from.
“Although we propose to establish the CERF with ETS proceeds, we acknowledge that the costs of the transition will be higher,” Shaw and Robertson wrote in a November 2021 Cabinet paper.
“Accordingly, we expect to increase the size of the CERF following an initial “down payment” level, and the Minister of Finance will include fiscal projections for climate spending in the period to 2030 in the final Budget 2022 documents.”
Those projections did not appear in the Budget documents in the end.