'Te Arotake Mahere Hokohoko Tukunga / Review of the New Zealand Emissions Trading Scheme' was released by the Government on 19 June 2023 and proposes four high-level policy options that could be adopted to drive the reduction of carbon emissions while supporting carbon removal activities. 

The New Zealand Emissions Trading Scheme (NZETS) is crucial for New Zealand to achieve climate goals.  Businesses must surrender one New Zealand Unit (NZU) per tonne of carbon emitted.  The Government auctions some NZUs while others are available in the secondary market. 

Participant behaviour in the NZETS depends on price expectations for NZUs.  Low prices and ample supply incentivise the acquisition of NZUs in favour of investing in energy-efficient or low-carbon business methods.  

The four options proposed in the discussion document to strengthen the NZETS are:

  • Option One: reduce the number of NZUs the Government sells directly to the market
  • Option Two: allow the Government and overseas buyers to purchase NZUs from carbon removal activities (such as forestry)
  • Option Three: apply restrictions or conditions to NZUs from carbon removals (ie restrict how many forestry generated NZUs emitters can use to offset emissions or reduce the number of NZUs issued for carbon removal)
  • Option Four: create two NZETS markets - one for emission reductions and another for emission removals, with different incentives applying to each market and emitters being restricted from using forestry NZUs to offset emissions.

Any change to the NZETS will require careful consideration of a range of factors which must all be delicately balanced.  Any prioritisation of reduction of carbon emissions over carbon removal activities may impact the cost of living for New Zealanders (through higher fuel and electricity prices) and the ability for New Zealand to meet its climate change targets. 

The Government is inviting public feedback on the proposals contained in the discussion document until 11 August 2023.  If you would like to make a submission, you can do that through Citizen Space.  Public webinars are also being run which you can register for here.

Buddle Findlay is a leading provider of climate change and sustainability legal services and is well-placed to advise businesses on how the policy options may impact them.  To learn more about our services, or to contact one of our team, visit our climate change and sustainability page.

This article was co-written by Julia Gabrielle (partner), Stephanie Snedden (senior associate), Lisa Bazalo (senior associate) and Shereen Lee (law clerk).