Penalties & Enforcement
The ETS is a self-reporting system, but non-compliance has real consequences. Understanding penalties helps you ensure you meet your obligations — and appreciate the risks if you don’t.
Who Enforces ETS Rules?
Ministry for Primary Industries (MPI)
MPI (through Te Uru Rākau – New Zealand Forest Service) handles:
- Forestry registration and compliance
- Emissions returns for forestry
- Forestry-specific enforcement
- Field audits and verification
Environmental Protection Authority (EPA)
The EPA manages:
- The NZ Emissions Trading Register (NZETR)
- Unit transactions and accounts
- Overall scheme compliance
- Prosecution for serious offences
Types of Penalties
1. Infringement Notices
For minor breaches, you may receive an infringement notice — a fixed penalty like a traffic ticket.
From 2023, infringement offences include:
- Failing to collect required information
- Not keeping adequate records
- Not providing information when required
- Late emissions returns
- Inaccurate reporting
Typical fines:
| Offence | First | Second | Third+ |
|---|---|---|---|
| Minor breaches | $8,000 | $16,000 | $24,000 |
2. Late or Missing Emissions Returns
If you don’t file your emissions return on time:
- Infringement notice for late filing
- Additional penalties for ongoing failure
- May trigger investigation
Important: Filing late is better than not filing at all. The penalty for persistent non-filing is more severe.
3. Unit Surrender Penalties
If you fail to surrender units on time when you owe them:
For forestry activities from 1 January 2025:
The penalty is calculated as:
Units failed × Carbon price at due date × Factor (0.5 for post-1989, 0.25 for pre-1990)
This is a strict liability penalty — it applies unless you prove you were not at fault.
Example: If you owe 1,000 NZUs at $60/NZU and don’t surrender on time:
- Penalty = 1,000 × $60 × 0.5 = $30,000
- Plus you still owe the units
4. Criminal Penalties
Serious offences with intent can lead to criminal prosecution:
| Offence | Individual Fine | Company Fine |
|---|---|---|
| Failing to collect information | Up to $25,000 | Up to $50,000 |
| Submitting false information | Up to $25,000 | Up to $50,000 |
| Obstruction of enforcement | Up to $25,000 | Up to $50,000 |
| Fraud | Criminal sanctions | Criminal sanctions |
Serious criminal offences can result in imprisonment.
Enforcement Powers
Information Gathering
Enforcement officers can:
- Require you to provide information
- Ask questions under oath
- Inspect records
- Access your property (with appropriate notice)
Refusing to cooperate is itself an offence.
Investigations
The EPA can:
- Investigate suspected non-compliance
- Audit submitted information
- Cross-reference with other data sources
- Refer matters for prosecution
Prosecution
The EPA has extensive prosecution powers:
- Can prosecute in criminal courts
- Successful cases result in financial and criminal sanctions
- Director liability possible in some circumstances
Penalty Reductions
Penalties may be reduced by up to 100% if:
Voluntary Disclosure
- You disclose the failure before receiving a penalty notice
- You voluntarily correct incorrect information before investigation starts
- You proactively address compliance issues
Reasonable Basis
- The EPA is satisfied you formed an incorrect view that was reasonable
- You made genuine attempts to comply
- The non-compliance was inadvertent
Remediation
- You take steps to fix the issue
- You prevent recurrence
- You cooperate with enforcement
The message: If you discover a compliance problem, disclose it proactively. Penalties are typically lower for voluntary disclosure than for issues discovered through audit.
Common Compliance Failures
1. Missed Emissions Returns
The problem: Forgetting to file or filing late
Prevention:
- Set calendar reminders
- Use a compliance service
- Understand your mandatory filing dates
2. Incorrect Carbon Calculations
The problem: Errors in carbon stock calculations
Prevention:
- Use MPI’s tools correctly
- Get professional help for complex situations
- Check calculations before submitting
3. Failure to Notify Changes
The problem: Not telling MPI when things change (land transfers, harvesting, etc.)
Prevention:
- Understand notification requirements
- Report changes promptly
- Keep records of all changes
4. Deforestation Without Compliance
The problem: Clearing forest without meeting deforestation requirements
Prevention:
- Understand deforestation rules before clearing
- File required notices
- Consider alternatives (replanting, offsetting)
5. Not Surrendering Units
The problem: Owing units and not surrendering on time
Prevention:
- Monitor your unit balance
- Plan for surrender obligations
- Don’t over-sell units
The Self-Reporting System
How It Works
The ETS relies on participants to:
- Calculate their own carbon position
- File accurate emissions returns
- Surrender units when required
- Notify changes as they occur
The Risk
Because it’s self-reporting:
- MPI doesn’t verify every return
- Errors may not be caught immediately
- But eventually, discrepancies surface
- Penalties can be backdated
Compliance Checks
MPI conducts:
- Desktop reviews of returns
- Field audits (sample basis)
- Satellite imagery analysis
- Cross-referencing with other data
If selected for audit, you’ll need to provide evidence supporting your returns.
Recent Enforcement Developments
Industry Legal Challenge
In 2024-2025, forestry industry bodies sought judicial review of MPI’s fee regime:
- Climate Forestry Association, NZ Institute of Forestry, Ngā Pou a Tāne, and Forest Owners Association
- Challenged fees as “excessive, unreasonable and disproportionate”
- Resulted in 50% reduction in annual charge
This shows the system is contested and evolving.
Increased Scrutiny
The scheme is maturing, with:
- Better data integration
- Satellite monitoring capabilities
- More systematic compliance checking
- Higher stakes as carbon values increase
Avoiding Problems
Best Practices
- Understand your obligations — read MPI guidance, ask questions
- Keep good records — document everything
- File on time — late is better than never, but on-time is best
- Get professional help — for complex situations
- Monitor your account — know your unit balance
- Report changes promptly — don’t wait to notify MPI
- If in doubt, ask — MPI will help you comply
When to Seek Help
Consider professional assistance if:
- You have large areas or complex situations
- You’re unsure about calculations
- You’ve received an infringement notice
- You’re facing an audit
- You’ve discovered a compliance issue
Appeals and Disputes
Requesting a Review
If you disagree with an MPI decision:
- You can request a review under section 144 of the Climate Change Response Act
- Submit through MPI’s ETS online system (Tupu-ake)
- MPI will reconsider the decision
Note: You cannot request a review of an emissions ruling outcome.
Court Appeals
If the review doesn’t resolve the issue:
- Appeal to the District Court on the facts
- Appeal to the High Court on questions of law only
Important: You remain responsible for your ETS obligations while appealing. An appeal doesn’t suspend your requirements.
Key Takeaways
- Penalties are real and can be significant — up to $50,000 for companies, plus unit obligations
- Strict liability applies — intent isn’t required for many penalties
- Voluntary disclosure helps — penalties can be reduced if you come forward
- Self-reporting means self-responsibility — errors are your problem
- Professional help is worth it — for complex situations
- Enforcement is increasing — the scheme is maturing