By Liz Kivi
The Government has released plans to regulate carbon capture and storage in natural geological formations, which include Emissions Trading Scheme incentives, with the aim of introducing related legislation in 2026.
It has been hailed as a positive first step to include sequestration other than forestry in the NZ ETS. However the ETS carbon price is currently too weak to incentivise the investments required for CCS, and aspects of the proposed regulatory system have also raised concerns.
Carbon capture and storage (CCS) is listed as one of eight policies with the “greatest potential emissions savings” in the second emissions reduction plan (2026-2030), with officials estimating it could account for one million tonnes of abatement in each of emissions budgets 2 and 3.
The Government has said it wants to support industry to access the technology “on a level playing field with other emissions reduction and removal mechanisms to better enable a least cost transition towards net zero emissions.”
The plan is to reward carbon storage through the ETS, either through reduced surrender obligations, or by paying operators in NZUs.
Barry Barton, School of Law, Politics and Philosophy at University of Waikato, told Carbon News it was good to see the Government continuing its work on CCS, with the documents refining Cabinet decisions of October and November last year.
“It’s pleasing to see that the new regime will include carbon dioxide captured directly from the atmosphere, and not only gas emitted from fossil fuel treatment and use, because there is a suite of removal technologies that are quickly coming to the fore as part of our effort to reduce emissions.”
Concerns with monitoring
Barton says that two proposals for the CCS regulatory system were concerning. “The regulator – the EPA – should have power from time to time during the life of a carbon storage permit to take all measures necessary or desirable for the safe and effective operation of a facility, including changing conditions or even shutting it down. The present proposal to adjust monitoring requirements is not enough.”
He says it is important that the regulator has an active regulatory capability. “The RMA model puts a lot of effort into conditions in granting the permit but then leaves the regulator with few powers to require changes in the design or operation of the project, and for something like CCS that will be running for decades, that’s not enough.”
The Government is also proposing that territorial authorities should monitor compliance with a permit. But Barton says this should be the EPA’s role. “Territorial authorities are entirely unequipped to manage CCS operations and it should be the EPA who is in charge overall.”
It is positive that landowners’ rights to the subsurface are addressed, Barton says. “Let’s hope that the rules and the arbitration procedures align with those in other Acts, eg: the forthcoming Planning Act. Similarly we want financial securities rules that are strong and effective, learning from the Tui petroleum debacle.”
However, Government policies have undermined confidence in the Emissions Trading Scheme.
“The rules for earning units in the NZ Emissions Trading Scheme are taking shape, but when government policy measures have caused the price of units in the ETS to slump then the main economic incentive to engage in CCS is being weakened considerably,” Barton says.
NZ playing catch-up
David Dempsey, associate professor University of Canterbury Department of Civil and Environmental Engineering, welcomed the plan, noting that the IPCC assumes the entire world is going to be doing a lot of carbon storage if we are to stay within warming targets.
“NZ needs a regulatory regime if it is to participate in this enterprise. We are behind peer countries in having such a storage regime, so this represents us catching up.”
Dempsey notes that two kinds of carbon removal technology would be included under the proposed regulations, with both Bioenergy with Carbon Capture and Storage (BECCS) and Direct Air Carbon Capture and Storage (DACCS) eligible for ETS units under the proposed regime.
“The first technology, BECCS, is probably nearer to deployment as we already have a lot of bioenergy in NZ using forestry residues. All that would be required would be to capture the Green CO2 coming from these sources and inject it safely underground. This is a negative emissions technology – like a pine tree – but with more durable storage that is not vulnerable to wildfire or storm.”
However, carbon storage is just one part of a portfolio of emissions reductions technologies that will be needed as the economy decarbonises, Dempsey says.
“It can play a key role for certain hard-to-abate sectors but for other sectors there will be cheaper ways to reduce emissions.”
While the current sub-$40 carbon price is unlikely to incentivise CCS, Dempsey says that wider market sentiment about the future ETS price is more important than current prices: “Whether it will rise, whether it will remain volatile, whether it will be subject to political influence. All of these things will be factored into the expensive capital decisions that underpin any future carbon storage project.”
A previous study by Wood-BECA looked at how high the NZETS needed to go to incentivise CCS, concluding that it might start to make sense at around the $50 mark. “It very much depends on how close the CO2 emitter is to the storage site – to minimise transport costs – and how easy it is to capture the CO2 from their process – the more concentrated, the better,” Dempsey says.
ETS price too low
Andrew La Croix, senior lecturer at University of Waikato’s School of Science, told Carbon News that the Carbon Storage Regime was a positive and necessary step clarifying the regulatory and ETS framework, which has previously been a major barrier to CCS in New Zealand.
“The main surprise is the pathway for liability transfer to the Crown after 15 years, which aligns with international practice but carries fiscal and political risk. Nevertheless, I imagine that deployment of CCS in the near term will be slow and restricted to hard-to-abate industries rather than at scale.”
CCS is not viable with the current ETS price sitting at about $40/tonne, La Croix says. “It will require sustained prices about ~$100/tonne to incentivise investment.
“Over-reliance on CCS at the expense of faster, cheaper emissions reductions elsewhere is a key
risk.”
Govt needs to incentivise more forms of sequestration
John O’Brien, managing Director at Carbon Market Solutions, told Carbon News the plan was a positive step, but the Government should go further.
“It’s a significant development because it’s expanding the scope of the ETS to include carbon capture and storage. But then the question is, what about other types of projects like blue carbon or soil carbon? Why is it that some types of projects can earn NZUS and others earn nothing, or have to go into the voluntary carbon market?
“So I’m supportive of this but I just don’t think it’s a good idea to cherry pick which types of technologies or approaches are able to earn NZUs and which ones cannot.”
O’Brien says the ETS is currently over-reliant on forestry for sequestration.
“Expanding the scope of the ETS allows other types of projects to be implemented and there’s been an over-reliance in the past on one category of projects, which is exotic forestry. The more that the government can do to broaden the scope of the ETS and expand the categories of projects that can be eligible – it’s a good thing. But why stop here?”
However, low ETS pricing was a barrier for sequestration projects. “The NZU price is at $37 now a lot of forestry owners must be worried about that.”
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