NZ could breach European free trade deal if it doesn't meet Paris Agreement obligations

New Zealand could find itself in breach of its free trade deal with Europe if it walks back its commitments under the Paris Agreement.

The free trade deal is on track to come into force in 2024, and includes an enforceable promise by both parties to "effectively implement" their 2030 climate targets under the Paris Agreement.

New Zealand's target is a net cut of 50 percent off 2005's gross greenhouse gas emissions, which translates into roughly 150 million tonnes less emissions over a decade.

The plan is to meet this through a mix of decarbonising the economy and buying climate action from overseas.

Both National and, even more so, potential coalition partner NZ First have been reluctant to commit to spending large sums overseas on meeting the 2030 target, while ACT has expressed willingness not to meet the target at all, depending what trading partners including China do.

National has said it will meet the target, but hasn't clarified whether or how it would do so without large offshore purchases of carbon credits. These purchases were part of the government's working assumptions when New Zealand decided to increase its pledge by about 10 percentage points in 2021.

Lawyers, and international trade and climate commentators told RNZ it was unlikely the clause would be used to bring trade sanctions against New Zealand, because such actions were a last resort and would come only after extensive discussions.

However, they agreed signing up to a binding climate obligation at all in a trade deal was highly significant.

Germany's top climate diplomat, special envoy Jennifer Morgan, describes the deal as a 'breakthrough' which she hoped other countries would follow. She said it would give both parties confidence they were moving in the same direction.

Chapman Tripp lawyers Nicola Swan and Kate Wilson Butler, both climate specialists, said the requirement to "effectively implement" the Paris Agreement obligations was a significant commitment for New Zealand, because, to date, New Zealand had "tended to refrain" from signing up to commitments in treaties that enforce commitments made in other forums, such as climate pledges.

Under the agreed terms of the trade deal, which has been signed by the EU and NZ but not yet ratified by the two parliaments, both parties are required to "effectively implement" the Paris Agreement (including 2030 targets) and refrain from any action or omission which "materially defeats the object and purpose of the Paris Agreement".

The Chapman Tripp lawyers said what might equate to "effective implementation" of NZ's climate pledge remained to be seen, but they cited the passing of the Zero Carbon Act in 2019 (with its five-yearly budgets for shrinking emissions) as a good example.

"These commitments could come into sharp focus if - for example - New Zealand walked back from its Paris Agreement commitments, and the EU challenged this using the state-to-state dispute resolution provisions in the FTA.

"While highly unlikely in practice, in this scenario, the FTA allows the EU to ultimately press for compensation if New Zealand was found to have taken steps to "materially defeat" the object of the Paris Agreement," they said.

Economist John Ballingall said making the sustainability chapter of a trade deal binding was new, and significant.

A separate provision against backsliding prohibits the parties from weakening environmental laws in order to boost trade, however these kinds of terms were fairly common, Ballingall said.

John Ballingal said it was unlikely shifting the mix of how New Zealand met its targets - for example by cutting methane targets, and putting less of the burden on farmers and more on industry or transport users - would meet a high enough bar to result in sanctions.

He said such measures were a last resort, and only if diplomacy failed, however they were an important signal to "stakeholders in both countries".

The deal needs ratification by both the EU and New Zealand parliaments, although the text is agreed and signed. A few EU parliamentarians sought amendments highlighting the emissions profile of shipping New Zealand meat and milk to Europe, but these were not adopted.

The free trade deal is on track to come into force in 2024.