Assessing the cost of emissions abatement
The Government Investment in Decarbonising Industry (GIDI) Fund is a co-funding programme administered by EECA that seeks to accelerate the reduction of New Zealand’s carbon emissions through energy efficiency and fuel switching.
The key measure of a GIDI project’s impact is the carbon dioxide emissions abatement it achieves. This is the amount of carbon the project prevents from being emitted – compared to the most likely scenario without EECA co-funding.
When making GIDI co-funding decisions, we compare the lifetime abatement of a project to its cost, to get a figure known as the abatement cost. The lower the abatement cost, the more tonnes of CO2e abated per dollar.
Abatement cost methodology is a key input into assessing potential GIDI recipients. EECA’s investments also consider broader investment principles, beyond direct abatement cost.
This paper presents a methodology used by EECA to assess potential GIDI projects in order to deliver the maximum benefit to New Zealanders.
The methodology is focused on the project’s abatement cost, and highlights GIDI’s role as a bridge between the public benefits of decarbonisation and the private costs of investment.
Other GIDI co-funding considerations
As stated above, abatement cost is one consideration in EECA’s co-funding process. EECA also considers a number of non-cost factors, and may choose to fund projects that meet broader criteria if we believe the benefits merit doing so.
The image below shows the information inputs (left) and EECA’s investment principles (right) leading to EECA co-funding recommendations.
Factors EECA considers beyond abatement cost:
- Flow-on market effects such as potential for wider adoption of specific decarbonisation technology (diffusion).
- Positive outcomes such as air quality improvement.
- Strategic factors, such as contribution to hard to abate sectors, contribution to the efficiency of the energy system, or providing an example for decarbonising a specific industry or sector.
- Fairness and contribution to wider government outcomes. When checking additionality we consider other barriers to project implementation – especially competition or constraint for capital within the business.
- For projects which claim they require a high return on investment, we assess whether the application seems risky based on its economic and technical details.
- For projects with relatively high abatement costs, we consider contribution to urgent emissions budget targets such as the Nationally Determined Contribution under the Paris Agreement. A project might look expensive over its lifetime compared to other options we expect to exist, but still provide a valuable short-term return that could help New Zealand reach its domestic or international targets.