The NZ ETS is the Government’s main tool for meeting domestic and international climate change targets. Under the legislated framework of The Climate Change Response Act 2002, the NZ ETS puts a price on greenhouse gas emissions, incentivising businesses to reduce
their carbon emissions and incentivising landowners to earn credits by growing trees.
Putting a price on emissions creates a type of currency that can be traded between
participants of the NZ ETS, creating the NZ ETS market. This currency is an emission
unit or a New Zealand Unit (NZU). It represents one tonne of carbon dioxide or carbon
dioxide equivalent.
The NZ ETS places obligations on its participant based on the type of activity carried out.
The Government gives eligible foresters units for carbon dioxide that is absorbed by their
trees. The foresters can sell these units on the NZ ETS market or invest them.
Businesses that
emit carbon dioxide have surrender obligations (legal obligations to hand over units) must
buy units to cover their emissions. These units are then surrendered to the Government.
The Government supplies units to the NZ ETS market each year, and sells them to emitters
for cash at auction.
The price is set by supply and demand.
The Climate Change Response (Emission Trading Reform) Amendment Act introduced
auctioning in the NZ ETS, to align the supply of units in the scheme with New Zealand’s
emission reduction targets.