The NZ ETS Explained

The New Zealand Emissions Trading Scheme (NZ ETS) is the government’s primary tool for reducing greenhouse gas emissions. It puts a price on carbon, creating financial incentives for both reducing emissions and increasing carbon sequestration through forestry.

The Basic Concept

The ETS works on a simple principle: polluters pay, and foresters earn.

Emitters — businesses that release greenhouse gases (like power stations, fuel companies, and industrial manufacturers) must purchase New Zealand Units (NZUs) to cover their emissions. Each NZU represents one tonne of CO₂ equivalent.

Foresters — landowners with registered forests earn NZUs as their trees absorb carbon dioxide from the atmosphere. They can then sell these units to emitters.

This creates a market where the price of carbon is set by supply and demand.

Who Participates?

The ETS covers roughly half of New Zealand’s greenhouse gas emissions. Participants include:

Mandatory Participants

Voluntary Participants

Exempt (for now)

How the Market Works

Supply of Units

NZUs enter the market through two main channels:

  1. Government auctions — The government sells units quarterly at auction. There’s a reserve price below which units won’t be sold (currently $68).

  2. Forestry allocations — Registered forest owners receive units as their forests absorb carbon.

Demand for Units

Emitters need NZUs to meet their surrender obligations. They can:

Price Discovery

The NZU price is determined by market forces. Key influences include:

The Carbon Cycle

For forestry participants, the ETS creates a carbon cycle:

Plant trees → Trees absorb CO₂ → Receive NZUs → Sell NZUs
                                        ↓
                                  Hold as investment
                                        ↓
                        (If harvested) Surrender NZUs

The key insight is that carbon credits represent stored carbon. If that carbon is released (through harvest or deforestation), units must be surrendered to account for the emissions.

Registration Options

Since January 2023, post-1989 forest owners have two main pathways:

1. Standard Forestry (Averaging Accounting)

2. Permanent Forest Category

The right choice depends on your goals, species, and time horizon.

Key Government Bodies

Several agencies manage different aspects of the ETS:

Environmental Protection Authority (EPA)

Ministry for Primary Industries (MPI)

Ministry for the Environment (MfE)

Climate Change Commission

Price Controls

The ETS includes mechanisms to manage price volatility:

Auction Reserve Price

The minimum price at which the government will sell units at auction. Currently set at $68 for 2025. This creates a soft price floor.

Cost Containment Reserve

A reserve of additional units that can be released if prices spike too high. Creates a soft price ceiling.

Confidential Reserve Price

A higher trigger price that unlocks the cost containment reserve. Designed to prevent extreme price spikes.

Your Obligations

If you register in the ETS, you take on obligations:

Emissions Returns

You must file returns reporting changes in carbon stock. This determines whether you receive or surrender units. Returns can be filed annually or less frequently depending on your preference.

Record Keeping

Keep records of:

Compliance

Failing to meet obligations can result in:

Market Practicalities

Buying and Selling NZUs

Units are traded through:

Most small forest owners sell through brokers who aggregate units and handle transactions.

Timing Considerations

Current Market Context (2025)

As of early 2025:

The government is working to balance credible price signals with market stability.

Key Takeaways

  1. The ETS puts a price on carbon — creating incentives for forestry
  2. Foresters earn, emitters pay — it’s a market system
  3. Two pathways from 2023 — standard (averaging) or permanent
  4. Registration is voluntary — but comes with obligations
  5. Prices fluctuate — affected by policy, supply, and demand
  6. Multiple agencies involved — EPA, MPI, MfE each have roles

Next Steps

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