NZIER’s third annual Budget spend analysis against New Zealand’s climate goals.
As part of its Public Good Programme, The New Zealand Institute of Economic Research (NZIER) has released its third climate budget assessment.
The New Zealand Government, under the Climate Change Response (Zero Carbon) Amendment Act, has committed to achieving net-zero emissions by 2050. Furthermore, under New Zealand’s second Nationally Determined Contribution to the Paris Agreement announced in January 2025, it committed to a 51 to 55 percent reduction in net emissions relative to 2005 gross levels by 2035. However, New Zealand is lagging in its review of the environmental impact of its policies and is falling short of its target. According to the
Climate Action Tracker, New Zealand’s overall rating was highly insufficient in 2023, and little has changed since then in budgetary spend to address this. Each additional Budget that fails to meet the trajectory needed to achieve our goals will mean that successive governments will have to do more, resulting in a more rapid and expensive transition.
“This is a particularly stripped-back Budget with the outlined operating allowance the lowest it has been in a decade. The lack of prioritisation of New Zealand’s domestic and international commitments poses an appreciable financial and environmental risk for future governments”, says NZIER Senior Economist Daniel Hamill. Unlike a number of other countries, New Zealand does not disclose the environmental impact of its Budget initiatives. NZIER believe that this is a deficiency in the Government’s budgeting process. Better data reporting would enable a more robust assessment to support informed decision-making. To enable future analyses, we require additional information to assess the environmental, economic, and social trade-offs of a policy, particularly new Budget initiatives and reprioritisations. “It is important to have a consistent framework and data for reporting environmental impacts to ensure trade-offs can be understood across all aspects of society”, says Hamill.
Two years ago, NZIER developed a framework to assess initiatives announced in Government budgets for their environmental impact. This framework is adapted from international assessment standards and has been applied to each of the last three budgets. Applying our framework to this year’s Budget, NZIER found there was little emphasis on environmental outcomes throughout Budget 2025 in terms of new initiatives and pre-commitments. The majority have a neutral, or we lack information on the impact on emissions to make an assessment. Seventeen initiatives have negative impacts, and only five have a favourable impact. Of the 178 new initiatives (including new initiatives and pre-budget commitments), 155 have neutral or unclear impacts on New Zealand’s emissions profile.
These neutral or unclear initiatives comprise 96 percent of the operational expenditure and 18 percent of the capital expenditure outlined in the Budget, noting that there are 20 initiatives for which operational or capital expenditure is not included due to commercial sensitivity. The major unfavourable initiatives are infrastructure investments, which involve significant amounts of embedded emissions during the construction process.
“Similar to the previous reports, we categorise any spend on infrastructure as a negative climate expenditure based on the embedded carbon unless it’s specified to be more sustainable or is for climate change event recovery. However, some infrastructure could be positive in the longer term from an emissions perspective, for example, if it involves refitting state housing with better insulation. This is difficult to determine because the Government doesn’t provide emissions information with the Budget, and that is why NZIER is calling for this information to be included in Budget disclosure.
Favourable initiatives in Budget 2025 make up only 6 percent of the total number of initiatives but account for 22 percent of the total capital expenditure. Initiatives supporting the upgrading and development of New Zealand’s rail network will have a positive impact on New Zealand’s emissions profile, diverting transport demand away from more emission-intensive road and air travel alternatives. Although the expenditure related to the Cook Strait ferry initiative is not listed due to commercial sensitivity, this is a favourable investment as it enables rail transport between the North and South Islands, and the new ferries are likely to have lower emissions than those they are replacing. The International Visitor Conservation and Tourism Levy is considered a favourable initiative in this framework, as the Department of Conservation’s biodiversity efforts are intertwined with New Zealand’s net-zero commitment.
The context surrounding this Budget release and our approach remains the same as the previous editions of the budget analysis. See
NZIER Insight 108 and
NZIER Insight 113 for previous budget analyses against New Zealand’s climate change goals.
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About NZIER Public Good Programme
NZIER is an independent economic consultancy. Our core values of independence and promoting better outcomes for all New Zealanders and our Public Good programme are the driving force behind why we exist and how we work today.
For more information, contact:
Daniel Hamill – Senior Economist
Mob 027 300 0662
