International Carbon Markets

New Zealand’s ETS operates as a standalone domestic market, but it exists within a global context of carbon pricing. Understanding how NZ compares — and where markets might connect — helps you anticipate future developments.

Global Carbon Pricing Landscape

Active Emissions Trading Schemes

Major ETS systems worldwide:

Carbon Taxes

Some jurisdictions use taxes rather than trading:

• Canada — federal carbon price rising to C$170/tonne by 2030
• Sweden — among highest globally at ~€120/tonne
• Switzerland — CHF 120/tonne

NZ ETS: Unique Features

What Makes NZ Different

All-gases coverage: Unlike most ETS systems, NZ covers CO₂, methane, and nitrous oxide (though agriculture is currently exempt).

Forestry integration: NZ’s ETS has the most sophisticated forestry sector integration globally, allowing forests to both earn and surrender credits.

Partial coverage: Not all sectors are included — agriculture, the largest emissions source, is outside the scheme (until 2030).

No cap: Technically an “uncapped” scheme — forestry removals can expand supply without limit.

Domestic only: NZUs can only be used domestically, unlike systems with international linkages.

Price Comparison

Historical Context

NZ carbon prices have varied significantly:

International Comparison

At current prices (~NZ$60/tonne):

• Below EU prices — EU trading at €70-90 (NZ$130-165)
• Above many Asian markets — China, Korea significantly lower
• Comparable to California — similar price levels
• Below full social cost of carbon — estimated at $100-200+

Why NZ Isn’t Linked

Historical Linkage

From 2008-2015, NZ was indirectly linked to international carbon markets through the Kyoto Protocol mechanisms. Participants could use:

• CERs (Certified Emission Reductions)
• ERUs (Emission Reduction Units)
• Other Kyoto units

When international prices collapsed in 2012-2013, NZ prices followed — NZUs fell to around $2/tonne as cheap international credits flooded in.

Domestic-Only Decision

After this experience, NZ chose to:

• Restrict the scheme to domestic units only
• Prevent imported units from undermining prices
• Maintain control over supply and prices
• Accept reduced flexibility

Current Status

The NZ ETS has no active linkages with any other system. NZUs can only be used within NZ’s domestic compliance market.

Potential Future Linkages

Article 6 of Paris Agreement

The Paris Agreement’s Article 6 provides mechanisms for international carbon trading:

• Article 6.2: Bilateral/multilateral cooperation
• Article 6.4: New international crediting mechanism
• Corresponding adjustments: Rules to prevent double counting

NZ could potentially:

• Accept international units meeting quality standards
• Allow NZUs to be sold internationally
• Link with other ETS systems bilaterally

Government Position

The NZ government has indicated:

“Access to high-integrity international carbon markets may be part of New Zealand’s strategy to meet its 2030 target.”

But significant caution remains given past experience.

Potential Partners

If NZ were to link, candidates might include:

• Australia — similar economy, historical cooperation
• Switzerland — already linked with EU
• Singapore — developing carbon market
• Pacific nations — regional relationships

Australia Comparison

Australian Carbon Market

Australia’s carbon journey has been turbulent:

• 2011: Carbon pricing introduced
• 2014: Repealed by Abbott government
• 2023: Safeguard Mechanism reformed, effectively creating rate-based ETS
• Current: Australian Carbon Credit Units (ACCUs) ~A$30-35

Failed Australia-EU Link

In 2012, Australia announced plans to link with the EU ETS. This would have been the first substantive link between heterogeneous systems. The link was abandoned when Australia repealed its carbon price.

Australia-NZ Potential

A trans-Tasman link could offer:

• Larger, more liquid market
• Shared forestry approaches
• Regional integration

Challenges include:

• Different scheme designs
• Political uncertainty
• Price differentials

EU ETS: The Benchmark

World’s Largest Carbon Market

The EU ETS covers:

• 27 EU countries + EEA
• ~40% of EU emissions
• Power, industry, aviation

Key Features

• Hard cap — absolute limit on emissions
• Auctioning — most allowances auctioned (not free)
• High prices — €70-90 range in recent years
• International linkage — linked with Switzerland

NZ Comparison

Implications for Carbon Farmers

Price Uncertainty

If international linkages develop:

• Prices could converge with other markets
• Could go up (if linked to higher-priced markets)
• Could go down (if lower-priced units allowed in)
• Unpredictable timing and direction

Quality Standards

International markets increasingly require:

• High-integrity carbon credits
• Verified additionality
• Permanence guarantees
• Third-party certification

NZ forestry may need to adapt to meet international expectations.

Opportunity

If NZUs became internationally tradeable:

• Access to larger buyer pool
• Potentially higher prices
• More sophisticated market infrastructure
• Greater liquidity

What to Watch

Near-Term (1-3 years)

• Article 6 implementation details
• Government policy signals
• Climate Change Commission advice
• Regional cooperation discussions

Medium-Term (3-10 years)

• Potential bilateral agreements
• Agriculture pricing (by 2030)
• Market structure evolution
• Technology-enabled verification

Long-Term (10+ years)

• Possible global carbon market integration
• Price convergence across markets
• Standardised carbon accounting
• Full agriculture coverage

Practical Implications

For Existing Participants

• Current rules likely stable in near-term
• Monitor policy developments
• Focus on quality and verification
• Build relationships with international buyers

For New Entrants

• Domestic market remains primary focus
• International standards useful to understand
• Native forestry may have advantages
• Long-term thinking essential

For Investors

• Policy risk is real and ongoing
• Diversification across geographies helps
• Quality assets more resilient
• Local expertise valuable

Key Takeaways

1. NZ ETS is currently domestic-only — no international linkages
2. Historical linkage caused problems — price collapse from cheap imports
3. Future linkage possible — Article 6 creates pathways
4. Prices vary significantly globally — NZ mid-range currently
5. Quality standards rising — international expectations increasing
6. Policy uncertainty inherent — long-term direction unclear

Next Steps

• NZU Market Trends & Price History
• The Future of Carbon in NZ
• Voluntary Carbon Markets
• Discuss international opportunities