New Report: NZ is likely breaching its free trade agreements over fossil fuel subsidies

A significant new legal report has found that the Government’s support for gas exploration, and its proposed funding of a liquefied natural gas facility, meet the definition of fossil fuel subsidies and are a clear breach of New Zealand’s international trade agreements.

We’ve released a report, “A Credibility Gap: Assessment of New Zealand’s Fossil Fuel Subsidies and International Commitments” with legal review from Nura Taefi KC, which shows that the Government’s $200 million co-investment fund for gas fields and its proposed funding for an LNG levy meet internationally recognised definitions of ‘fossil fuel subsidies’, including under New Zealand’s free trade agreements (FTAs) with the UK and EU. 

Both measures meet the definition of a “fossil fuel subsidy” because they provide direct financial support for fossil fuel development and are likely to lower the cost of fossil fuels. Fossil fuel subsidies can misdirect investment and give fossil fuels an artificial advantage over cheaper, renewable energy.

It concludes the measures breach Article 22.8 of the New Zealand-UK FTA, which is in force and subject to dispute resolution, and are inconsistent with the Agreement on Climate Change, Trade and Sustainability (ACCTS), which New Zealand helped lead negotiations on and ratified in 2025.  

The report should ring alarm bells for the government

This analysis makes clear that New Zealand is planning on introducing new fossil fuel subsidies that likely breach multiple international commitments. This creates risks for New Zealand’s exporters and our reputation with some of our most important trade partners. 

For years, New Zealand has been a leading advocate for the reduction and elimination of fossil fuel subsidies, including by convening the WTO Fossil Fuel Subsidy Reform Initiative, championing the ACCTS, and including novel provisions in our FTAs with the UK and EU on fossil fuel subsidies. 

“It is concerning that New Zealand is now doing precisely the opposite of what it has been preaching internationally. This poses serious risks to New Zealand’s international credibility, including as a reliable trading partner.”

Laura MacKay | Acting Executive Director

While we are not suggesting that our trade partners are poised to file a complaint against New Zealand tomorrow, there are legal consequences to breaches of some of these agreements. It would be naive for New Zealand to assume that our trade partners aren’t watching, especially while New Zealand still claims international leadership on this issue.

It doesn’t have to be this way. Final decisions still haven’t been taken on introducing these subsidies. The Government could decide instead to support other measures that would improve New Zealand’s energy security, without subsidising fossil fuels and placing New Zealand at risk of breaching these agreements. 

The report also finds that the LNG levy and co-investment fund for gas fields also undermine commitments under the NZ-EU FTA, the WTO Fossil Fuel Subsidy Reform Initiative (which New Zealand convenes), and the Coalition on Phasing Out Fossil Fuels Incentives Including Subsidies (COFFIS).

Alongside WWF-New Zealand (who sit on New Zealand’s Domestic Advisory Group for the NZ-UK FTA), we’ve written to the Ministry of Foreign Affairs and Trade seeking urgent clarification on how these policies align with New Zealand’s international obligations and its stated advocacy to eliminate fossil fuel subsidies internationally.