Part 6: Finance

6.1
In this Part, we summarise the results of our assessment of New Zealand's climate finance arrangements. The two categories in the finance axis of the ClimateScanner methodology are:

• public climate finance, which looks at whether plans and budgets are aligned with domestic climate goals, mechanisms for tracking and reporting on domestic climate finance, and the management of international climate finance commitments; and
• private climate finance, which looks at mechanisms for mobilising, tracking, and reporting on private climate finance.

6.2
We found that New Zealand is strong in managing its international climate finance commitments but less strong in budgeting and reporting on domestic climate finance and mobilising private sector climate finance.

6.3
Climate finance has several dimensions. According to the United Nations Framework Convention on Climate Change, climate finance refers to local, national, or transnational financing that is drawn from public, private, and alternative sources of financing that seeks to support mitigation and adaption actions to address climate change.

6.4
Climate actions to mitigate greenhouse gas emissions and to adapt to the impacts of climate change need large-scale investments. However, low- to middle-income countries are not able to implement the objectives of the United Nations Framework Convention on Climate Change with domestic resources alone.

6.5
Therefore, as set out in the Convention, developed countries have committed financial resources to assist developing countries. We refer to these commitments as international climate finance in this report.

Public climate finance

Domestic climate finance

Criteria we assessed

6.6
We looked at whether the Government has committed funds to meet its domestic climate goals, whether these funds align with its plans and strategies for achieving those goals, and whether it has mechanisms to track and report on that funding.

6.7
We gave the planning and budgeting criterion in this component a rating of "early implementation". We gave the other three criteria in this component ratings of "no implementation".

6.8
We were not able to find information that demonstrated clear alignment between committed funding and the Government's domestic climate goals.

6.9
The previous Government set up a Climate Emergency Response Fund in 2021. The fund's aim was to provide a dedicated funding source for public investment on climate change initiatives that was distinct from the main Budget allowances. The fund has now been disestablished, and funding for many of the projects it supported has been withdrawn.

6.10
The fund had an initial "down payment" of $4.5 billion for climate spending, which came from the proceeds of auctions of units under the Emissions Trading Scheme.

6.11
The Climate Emergency Response Fund was intended to be an enduring multi-year fund to address the long-term nature of climate change challenges. It provided one mechanism to align funding with the previous Government's domestic climate goals, as expressed in the first Emissions Reduction Plan and National Adaptation Plan.

6.12
The current Government's response to climate change focuses on using the Emissions Trading Scheme and "complementary policies" to reduce emissions rather than making significant investments.³⁵

6.13
In May 2024, the Government announced that future investment proposals for emissions reduction or climate adaptation would be considered through the annual Budget process. The Government also announced that its focus for Budget 2024 would be on practical climate initiatives.

6.14
Budget 2024 assigned funds for specific climate initiatives and programmes, such as increased funding for flood protection infrastructure. Funding in Budget 2024 also included about $2.6 billion for climate change initiatives previously funded from the Climate Emergency Response Fund.

6.15
New Zealand does not yet have definitions for climate finance. These would explain what it considers to be either direct climate finance (those funds assigned with the specific objective of mitigation or adaptation) or indirect climate finance (funds that contribute to the Government's climate objectives but are not assigned primarily to mitigation or adaptation).

6.16
Without clear definitions or a taxonomy, it is not possible to track and report on domestic climate finance.

6.17
New Zealand's public finance system requires each appropriation of funds (including those related to climate change) to have a scope statement setting out the purpose of the funding, with related accountability and reporting on financial and non-financial performance at year end. However, as we found in our 2020 report Analysing government expenditure related to natural hazards,³⁶ there are limitations in solely analysing appropriation scope statements because they are required to be short and are not always specific enough.

6.18
The Parliamentary Commissioner for the Environment used data that the Treasury released for Budget 2021 to map environmental spending to environmental outcomes in his report Environmental reporting, research, and investment – Do we know if we're making a difference?³⁷

6.19 In that report, the Commissioner recommended that public organisations tag all spending on environmental outcomes. He also recommended that the Government provide a whole-of-government report on spending allocated to its environmental outcomes and what progress has been made towards those outcomes.

6.20
In the absence of such reporting by the Government, the Commissioner has started reporting annually to Parliament on environmental spending, including spending on reducing emissions, using information derived from public organisations.

6.21
Challenges with tagging spending to outcomes is not limited to the environmental sector. It is something that needs to be improved more generally.

6.22
The Ministry for the Environment is currently seeking advice on a sustainable finance taxonomy that will allow domestic climate finance to be tracked and reported on. The plan is that this will be able to be used by both the public and private sectors.

6.23
There are also some other isolated examples of reporting on climate finance, such as reporting on the Emissions Trading Scheme, financing from Green Bonds, and the investments by the New Zealand Green Investment Fund. The Treasury also previously monitored and regularly reported on the Climate Emergency Response Fund.

International climate finance – provider countries

Criteria we assessed

6.24
We looked at whether New Zealand has established commitments for international climate finance that are increasing over time, whether it has mechanisms to allocate the resources earmarked to meet its commitments, whether it has demonstrated progress towards fulfilling its commitments, and whether it has mechanisms to report on that progress.

6.25
For the purposes of the ClimateScanner assessment, provider countries are the developed countries included in Annex II of the United Nations Framework Convention on Climate Change that provide financial resources to assist developing countries to achieve their climate objectives (as mentioned in Article 4(3) of the United Nations Framework Convention on Climate Change and in Article 9(1) of the Paris Agreement). This includes New Zealand.

6.26
We gave all criteria in this component ratings of "advanced implementation".

6.27
In its Fifth Biennial Report under the United Nations Framework on Climate Change, which was submitted in December 2022, New Zealand set out its commitment of $1.3 billion in grant-based climate finance to support developing countries between 2022 and 2025. These commitments include $800 million of "new and additional" climate finance.

6.28
New Zealand's International Climate Finance Strategy provides a framework to guide the investment of the $1.3 billion of international climate finance. It also sets out its vision, goals, and outcomes for that funding.

6.29
New Zealand allocates its international climate funding to specific programmes in its International Development Co-operation programme. A Climate Portfolio Steering Group within the Ministry of Foreign Affairs and Trade makes recommendations to decision-makers about the distribution of this funding, guided by the International Climate Finance Strategy.

6.30
As part of its International Development Co-operation programme, New Zealand carries out dedicated capacity-building and technology-transfer activities related to climate change for developing countries.

6.31
New Zealand regularly reports on activities funded through its International Development Co-operation programme, including activities related to climate change. It also provides updates on its progress against its international finance commitments in its reporting to the United Nations Framework Convention on Climate Change. The next of these reports is due in December 2024.

6.32
It is expected that New Zealand will fully deliver its 2022-25 commitment.

Domestic and international private climate finance mechanisms

Criteria we assessed

6.33
We looked at whether the Government has mechanisms and structures to identify and mobilise private climate finance to fund mitigation and adaptation activities domestically and internationally. We also looked at whether it has mechanisms to track and report on the private climate finance that is mobilised.

6.34
Significant resources are needed to finance climate mitigation and adaptation activities. The ClimateScanner methodology says that it is widely recognised internationally that public finance will not be enough to provide all the resources needed. Finance from the private sector will need to be mobilised.

6.35
For the purposes of the ClimateScanner assessment, the methodology covers mechanisms where the public sector mobilises climate finance, either directly or through an intermediary. Examples of this include grants, loans, guarantees, credit-lines, and financial incentivisation, such as subsidies, tax breaks, and the Emissions Trading Scheme (or similar mechanisms).

6.36
We gave the mobilisation mechanisms criterion in this component a rating of "early implementation". We gave the other two criteria – private finance tracking and reporting – ratings of "no implementation".

6.37
The Government's main tool for encouraging the private sector to invest in emissions reductions domestically is the Emissions Trading Scheme. However, a recent Climate Change Commission report assessing progress towards reducing emissions highlighted uncertainties with the scheme's effectiveness in encouraging investments in reducing emissions because of its design.³⁸

6.38
A 2023 discussion document on a review of the Emissions Trading Scheme also acknowledged these uncertainties.³⁹

6.39
As mentioned in paragraphs 6.9-6.10, the previous Government set up long-term ring-fenced funding for actions related to climate change through its Climate Emergency Response Fund. The source of the funding was proceeds of government auctions of emissions units under the Emissions Trading Scheme.

6.40
This was a direct way of mobilising private climate finance to fund emissions reduction and climate adaptation projects. However, the current Government has decided not to continue using those funds for future investments for reducing emissions or adapting to climate change.

6.41
There are some other examples of the public sector mobilising private climate finance. The New Zealand Green Investment Finance Limited is a government-owned climate finance vehicle that aims to attract private sector investment in emissions reduction ventures and activities.

6.42
In the agriculture sector, the Government formed a public-private partnership with agribusiness companies in February 2023. The purpose of the partnership, which is called Agrizero, is to support and encourage investment in technologies to reduce agricultural emissions. The partnership has started to make investments in these areas.

6.43
New Zealand also has a new mandatory climate-related disclosures regime for large entities that operate in New Zealand's financial markets. This regime aims to support the allocation of capital towards activities that are consistent with a transition to a low-emission climate-resilient future.

6.44
For New Zealand's international climate finance commitments, the Ministry of Foreign Affairs and Trade is in the process of setting up a $60 million portfolio of international climate finance activities aimed at mobilising private climate finance for developing countries.

6.45
There are currently no mechanisms to track private climate finance, either domestically or internationally, and some of the mobilisation mechanisms are quite new. Therefore, reporting on this is not currently possible.

6.46
The Ministry has advised that it expects to start reporting on the mobilisation of international private climate finance in the Biennial Transparency Report 2026, once implementation of its private climate finance portfolio is further advanced.

35: In its discussion document for the second Emissions Reduction Plan, the Government describes complementary policies as those that support the Emissions Trading Scheme and make it easier and cheaper for businesses and households to reduce net emissions.

36: Controller and Auditor-General (2020), Analysing government expenditure related to natural hazards, at oag.parliament.nz.

37: Parliamentary Commissioner for the Environment (2022), Environmental reporting, research and investment – Do we know if we're making a difference?, at pce.parliament.nz and Parliamentary Commissioner for the Environment (2022), Estimate of environmental expenditure 2019/20: Method and results, at pce.parliament.nz.

38: Climate Change Commission (2024), Monitoring report: Emissions reduction – Assessing progress towards meeting Aotearoa New Zealand’s emissions budgets and the 2050 target, at climatecommission.govt.nz.

39: Ministry for the Environment, Ministry for Primary Industries, and Ministry of Business, Innovation and Employment (2023), Review of the New Zealand Emissions Trading Scheme: Discussion document, at environment.govt.nz.