INTERVIEW: NZ Climate Diplomacy Paves Way for Article 6 Agreement – Minister
New Zealand is continuing to advance its international climate cooperation efforts as a way to potential cooperation under Article 6 of the Paris Agreement to meet its climate targets, Climate Change Minister Simon Watts told OPIS in an interview on Aug. 20.
“We’re looking for opportunities to work with other countries, particularly in Southeast Asia, on how we can achieve a win-win… in decarbonization and emissions reduction,” said Watts on the sidelines of the Carbon Forestry 2024 Conference in Rotorua.
He noted that New Zealand has progressed green economy agreements or Memorandums of Understanding (MOUs) with jurisdictions including Singapore, the Philippines, Thailand, and California, and is working closely with Pacific neighbors. New Zealand is seeking to expand its international green economy deals, including potentially with India and China, Watts said.
“The MOUs we have in place provide a pathway to enter into Article 6 agreements,” Watts said. “New Zealand needs options to meet its 2030 NDC target, and that’s very much front of mind for us, and is very challenging and difficult.”
Under the Paris Agreement, New Zealand has committed to reducing net emissions by 50% below gross 2005 levels by 2030 as part of its Nationally Determined Contributions (NDCs). Meeting the NDC requires significantly deeper emissions reductions than the current domestic targets. New Zealand has previously estimated a shortfall of around 100 million metric tons (mt), necessitating offshore mitigation, with associated costs potentially scaling into the billions.
Panelists at the conference also earlier highlighted uncertainty around the government’s strategy to close the gap between the domestic emissions budget and the NDC target, especially concerning the emissions trading scheme’s (ETS) role. In a 2023 report, the government had said it was exploring options such as offshore mitigation activities, with a focus on the Asia-Pacific, and
linking the ETS to international markets that meet integrity standards.
While Watts did not provide a specific timeline or details on the government’s strategy, he noted the importance of adding more substance to the agreements “as soon as practical”. The government is first seeking to publish its second domestic emissions reduction plan by the end of 2024.
Domestically, Watts addressed recent adjustments to the ETS, where the government has significantly reduced the supply of New Zealand Units (NZUs) available for auction from 2025. This decision announced Aug. 20 aims to correct an oversupply that has led to depressed carbon prices and bring stability to the market, and saw units rally in price the days after.
“The key aspect is that we’ve got certainty in the market and that investors that are investing in asset classes such as forestry have a degree of certainty around what’s going to happen in the future,” Watts told OPIS. “It’s a positive thing… in a macroeconomic environment where there’s a lot of uncertainty.”
OPIS assessed the NZU at a five-month high of NZ$61.13/mt ($38.02/mt) on Aug. 26, up 10.7% week-to-week as market participants reacted to the announcement.
New Zealand stakeholders have largely welcomed the government’s decision to reduce auction supply, as OPIS reported, though some note outstanding concerns about the role of forestry NZU supply in the ETS. Clarity on land-use policies that could restrict the type of forestry that can enter the ETS stands as a
fundamental issue to be addressed, sources indicated.
The Carbon Forestry 2024 Conference was organized by Innovatek on Aug. 20-21.
($1 = NZ$1.61)
Reporting by Melissa Goh, mgoh@opisnet.com
Editing by Lujia Wang, lwang@opisnet.com
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