The Government has introduced the Climate Change Response Amendment Bill (Bill) that, amongst other matters, proposes a new market governance framework for the New Zealand Emissions Trading Scheme (NZ ETS) secondary market, aimed at strengthening transparency, market conduct, and the availability of trading information for participants and regulators.
If passed into law, NZ ETS participants and traders of units and unit products (Participants), and operators of unit product markets (Operators), will be subject to significant new compliance requirements.
What is proposed?
The NZ ETS is the Government's primary tool for reducing New Zealand's net greenhouse gas emissions and operates by requiring participants to surrender one New Zealand unit (NZU) for each tonne of greenhouse gases they emit. Central to the NZ ETS is the trading of NZUs on the secondary market.
The Bill seeks to promote additional fairness, transparency and accessibility of trading information in the NZU secondary market by introducing changes that will:
- Require Operators to report trading information for market monitoring and regulatory purposes as well as keep a seven-year trading history including trading counterparties
- Require Participants to record their trading activity in the NZ ETS Register, with aggregate trading information intended to be regularly released for market transparency purposes
- Empower the chief executive of the Ministry for the Environment to request trading information and to refer matters to the Financial Markets Authority for investigation and enforcement
- Prohibit price manipulation in relation to NZUs, and to prohibit false, unsubstantiated, or misleading conduct in connection with the buying, holding, or selling of NZUs, and apply fair dealing requirements and civil liability provisions from the Financial Markets Conduct Act 2013 (FMCA)
- Establish a penalty regime for breaches of these new provisions.
Our view
While the Bill does not go so far as to designate NZUs as financial products, if passed it will have significant compliance implications for Operators, in the form of new information collection and reporting requirements, and for Participants, by requiring additional rigour and liability considerations for trading arrangements. However, impacted parties will have time to prepare for these changes, as the legislation will not be passed before parliament rises for the election on 24 September.
We will continue to monitor the Bill's progress and keep clients informed of relevant developments, including when submissions can be made at the Select Committee stage.
If you would like to discuss these proposed changes, please get in touch with our financial services regulation team.
This article was prepared by Andrew Suggate (partner) and Lily Rose Hosseini (law clerk).
