Managing Director & Partner
Auckland
Related Expertise: 気候変動・サステナビリティ, 再生可能エネルギー/低炭素ソリューション, コーポレートファイナンス&ストラテジー
By Phillip Benedetti, Rebecca Russell, Geoff Healy, Richard Hobbs, Emily Bolton, and Ben Fulton
Yesterday, the CO2 concentration at Baring Head near Wellington was 415 parts per million – the highest recorded ever in New Zealand. At a CO2 concentration of 430 parts per million, global warming of 1.5°C is forecast to occur.
Reflecting the gravity and speed of climate change, New Zealand has committed to meaningful action and is relatively well-placed to rapidly decarbonise its economy. We have analysed New Zealand’s emissions profile and ambitious transition plans to identify ten ways New Zealand can accelerate this transition.
This action is needed because New Zealand’s greenhouse gas emissions have increased by 14% since 1990, in contrast to its clean, green, and 100% pure image. By comparison, emissions have decreased by 22% across the European Union and 40% in the United Kingdom over the same period.
New Zealand has committed to reducing net emissions (gross emissions minus new carbon absorbing activity, such as trees planted) in half by 2030 from a 2005 gross emissions baseline, and achieving net zero emissions by 2050. Both targets exclude biogenic methane which has its own reduction targets of 10% by 2030, and 24-47% by 2050, both from a 2017 baseline.
To reach these targets, the Government recently set emissions budgets to 2035, as part of its Emissions Reduction Plan (ERP). The ERP also outlines a number of actions targeting emissions reductions over the next five years. Our analysis of the Climate Change Commission's Demonstration Path identifies that a cumulative 430 Mt CO2-e (megatonnes of carbon dioxide equivalent) of domestic emissions abatement is needed by 2050 to achieve our targets (see the blue area in Exhibit 2). A further cumulative 100 Mt CO2-e of international offsets likely need to be purchased through to 2037 (see the green area in Exhibit 2).
To determine our ten climate actions, we split New Zealand’s emissions profile into six categories [Exhibit 3]:
Between 2005 and 2019, transport emissions increased by 17% and industry emissions by 31%. Energy sector emissions reduced by 32%, driven largely by reduction efforts in the sector; emissions sequestered through forestry increased significantly [Exhibit 4].
We believe New Zealand should take ten actions to accelerate the transition to net zero. Five of these actions will deliver material emissions reductions from the 2020s onwards, while the other five actions, provided the foundations are laid in the 2020s, can significantly reduce emissions in the 2030s and 2040s [Exhibit 5].
New and improved feedstock additives can reduce methane emissions from ruminant animals (e.g., cows, sheep), while regenerative agriculture can reduce the emissions impact of fertiliser. Feedstock additives are still in early stages of development, and a significant increase in R&D funding is required for commercialisation at scale.
Advanced feedstock additives present further emissions reduction potential. For example, research suggests asparagopsis seaweed feed could reduce livestock methane emissions by up to 80% compared to grass. Another significant development would be a methane vaccine to suppress the methane-producing microbes in cows’ stomachs. Vaccine and feedstock R&D represents a large opportunity for New Zealand to be a global leader in combatting agricultural emissions.
Electrifying transport represents a sizeable opportunity that can be realised today. New Zealand has the fourth most cars per capita of any country, so transitioning to electric vehicles and rapidly expanding our charging network alongside our highways and trunk lines will play a large part in reducing both emissions and pollution. Electrifying New Zealand’s transport fleet could lead to annual net benefits of $3.7 billion to the economy by 2050 (Transpower, 2021).
34% of transport emissions are from heavy transport including medium trucks, heavy trucks, buses, rail, aviation, and marine vessels (Climate Change Commission, 2021). Electric trucks and buses are already in use in New Zealand, and hydrogen-powered heavy transport represents further potential. Sustainable aviation fuels and marine biofuels could also reduce our emissions, particularly where hydrogen and electricity are less feasible.
Highly efficient heat pumps can provide low-temperature heat, and electrode boilers can provide medium-temperature steam heat today. Biomass is currently the largest source of non-fossil industrial process heat and has plenty of potential to further grow as a renewable energy source.
The feasibility of converting high-temperature heat processes to electricity or hydrogen is likely to increase over time, although this technology is still nascent. In addition, while companies involved in industrial processes (such as the production of steel, aluminium, and cement manufacturing) are reducing emissions today, the use of alternative low-carbon fuels in manufacturing presents an additional abatement opportunity.
New Zealand has the fourth highest proportion of renewable electricity generation (~85%) and the third highest proportion of renewable energy (~40%) of all developed countries (IRENA, 2021). Scaling renewable electricity is becoming cheaper over time, and renewable energy technologies are evolving quickly. New Zealand can rapidly transition to an electricity system with over 95% renewables – which would also support the electrification of transport, industry, and buildings – provided ample electricity storage options are available in the future.
As new renewable energy enters the system, fossil fuel production will need to decline to meet emissions targets. During this transition, we will need to maintain affordable and reliable energy supplies. While direct electrification will decarbonise most energy emissions, there is a further opportunity to transition from fossil fuels to other renewable energy sources, such as hydrogen, biofuels, and biogas.
The Ministry for the Environment found that converting all marginal sheep and beef farmland to forestry could abate nearly all of New Zealand’s gross annual emissions. This would come at a huge cost to the agricultural sector – one of New Zealand’s most important in terms of supporting trade and exports, regional communities, and the economy. A more measured approach would see land that is less arable be used for planting.
In total, these actions can reduce New Zealand’s gross emissions by 75% in 2050, from a 2019 baseline [Exhibit 6]. The remaining 21 Mt CO2-e emitted annually could be offset through further afforestation, bringing New Zealand to net zero across all greenhouse gases by 2050 – including biogenic methane, which is an improvement on the Government’s target.
In Exhibit 7, we have evaluated the emissions abatement potential and marginal cost per tonne of CO2-e for our ten actions. In the near term, electrifying light road transport (#3), exotic afforestation (#9 and #10), scaling up renewable electricity (#7) and transitioning low and medium temperature processes (#5) are the quickest wins with the lowest marginal abatement costs. In the longer-term, next-gen feedstock additives and methane vaccines (#2) offer the greatest potential for reducing gross emissions. While the associated marginal abatement costs are forecast to be high in 2030 (~$400/tonne CO2-e), investment in R&D could reduce these costs significantly.
Achieving net zero inclusive of biogenic methane requires a concerted effort from the public sector, the private sector, and communities across the country. While there is a lot of work to do, there is also a lot of potential. Action on climate change could be a source of great competitive advantage for New Zealand, through world-leading agricultural emissions reduction technology exports, ultra-low carbon food production, sustainable tourism, renewable energy, and clean industry.
This analysis only scratches the surface of this dynamic and complex issue. We welcome the opportunity to discuss how your company can succeed while contributing to New Zealand’s emissions reduction efforts. If you are interested in BCG’s climate change and sustainability work in New Zealand, reach out to one of our authors.
The authors would like to thank the following colleagues for their support and assistance: Janelle Cook, Anna Leonedas, James Meland, Matthew Santos, Paul Sutherland, Chris Wheeler, and Liz Zhu.
Alumna
Alumnus