New Zealand Updates Emissions Trading Scheme to Align with Climate Targets

Key decisions include retaining the current auction floor price, cost containment reserve price, and existing reserve volumes of New Zealand units within the ETS.

New Zealand's Emission Trading Scheme (ETS) settings have been updated to ensure a more credible market, according to Climate Change Minister Simon Watts. The Government has taken decisive steps to strengthen the ETS-led approach to reducing emissions, demonstrating its commitment to achieving New Zealand's climate goals.

Minister Watts emphasized that the updated settings aim to align the market with the country's climate targets, providing participants with the confidence that their investments in emissions reductions will be rewarded. The adjustments made by the Government go beyond the recommendations of the Climate Change Commission, reflecting the importance of maintaining a robust market.

Key decisions include retaining the current auction floor price, cost containment reserve price, and existing reserve volumes of New Zealand units within the ETS. These measures have proven effective and will remain unchanged.

A significant change, however, is the reduction in the number of units available between 2025 and 2029, from 45 million to 21 million. This move addresses the oversupply of units held by participants, which has contributed to a decline in carbon prices and the failure of recent auctions to clear, posing risks to achieving climate targets.

Minister Watts acknowledged that reducing the number of units will likely lead to a rise in carbon prices. However, he emphasized that this increase is necessary to incentivize businesses and individuals to reduce emissions and meet New Zealand's climate objectives. While there are concerns about the potential impact of price increases on everyday New Zealanders, government modeling suggests that the effect will be minimal.

These changes to unit numbers will come into effect from the first auction in 2025.