About the Emissions Trading Scheme
Find out how the Emissions Trading Scheme (ETS) works and how we work with other government agencies to operate the Scheme and reduce our greenhouse gas emissions.
The New Zealand ETS was created through the Climate Change Response Act 2002 (the Act). The Act was passed in recognition of New Zealand's obligations under the Kyoto Protocol.
It is the primary method for the New Zealand Government to achieve its long-term commitment to reduce our greenhouse gas emissions.
'Emissions trading' is a market-based approach for reducing emissions of greenhouse gases. The ETS puts a price on emissions, by charging certain sectors of the economy for the greenhouse gases they emit. On an annual basis these sectors must calculate their emissions by submitting an emissions return to us.
They must then acquire and surrender New Zealand Units (NZUs) or other eligible emission units to account for their direct greenhouse gas emissions or the emissions associated with their products. With the post-1989 forestry sector, returns must be submitted at least every five years.
Emission units, sometimes called 'carbon credits', are traded between participants in the Scheme. An emission unit can either represent one metric tonne of carbon dioxide, or the equivalent of any other greenhouse gas. The primary unit of trade is the NZU, which are created by the New Zealand Government and allocated to organisations and individuals participating in the Scheme.
The ETS does not require households to surrender emission units. However, households feel some of the effects of the Scheme as the businesses that are involved pass ETS costs on to consumers. The point of obligation in the ETS (that is the participant in the scheme) is as far upstream in the supply chain as possible. This means most businesses in New Zealand are not required to be participants in the ETS.
We manage the administration of the Scheme. We ensure compliance with the Scheme and provide reports and market information. We also operate the New Zealand Emissions Trading Register, where transactions take place.
Activities in the ETS
The Act specifies the activities that are included in the Scheme for each of the following industry sectors: forestry, liquid fossil fuels, stationary energy, industrial processes, synthetic greenhouse gases, agriculture and waste. People carrying out the specified activities are required to participate in the Scheme.
The Act also specifies activities that are optional under the Scheme. People carrying out these activities can choose to participate or not.
People and organisations who participate in the scheme directly do so in different ways:
- Those that emit greenhouse gases into the atmosphere have to surrender NZUs or other eligible emission units to the Government.
- Those that remove greenhouse gases from the atmosphere, or from New Zealand, may earn NZUs from the Government. For example, owners of forests that absorb greenhouse gases, or a business that exports products containing hydrofluorocarbons.
- Some people and organisations can receive NZUs from the Government in the form of an Industrial Allocation.
Other people may also hold and trade emission units. These people are sometimes referred to as 'secondary market traders'.