Emissions Trading Scheme

Last updated: 7 February 2023

The New Zealand Emissions Trading Scheme (NZ ETS) is New Zealand’s key tool for reducing emissions and meeting its emission reduction targets. It assists New Zealand to meet its international obligations under the Paris Agreement and
helps New Zealand meet its 2050 target and emissions budgets.

The New Zealand Emissions Trading Scheme helps reduce emissions by doing three main things:

  • requiring businesses to measure and report on their greenhouse gas emissions
  • requiring businesses to surrender one ‘emissions unit’ (known as an NZU) to the Government for each one tonne of emissions they emit
  • limiting the number of NZUs available to emitters (i.e. that are supplied into the scheme).

Businesses who participate in the NZ ETS can buy and sell units from each other. The price for units reflects supply and demand in the scheme. This price signal allows businesses to make economically efficient choices about how to reduce emissions. 
The NZ ETS covers six greenhouse gases that contribute to global warming. These are:

  • carbon dioxide (CO2)
  • methane (CH4)
  • nitrous oxide (N2O)
  • sulfur hexafluoride (SF6)
  • hydrofluorocarbons (HFC's)
  • perfluorocarbons (PFCs).

All gases are treated and accounted for the same in the NZ ETS, using the carbon dioxide equivalent (CO2-e) standard unit.

The Government sets and reduces the number of units supplied into the scheme over time. This limits the quantity that emitters can emit, in line with New Zealand’s emission reduction targets. All sectors of New Zealand's economy, apart from agriculture, pay for their emissions through their NZ ETS surrender obligations. The agriculture sector reports its emissions through the NZ ETS but does not have surrender obligations. 
Schedule 3 of the Climate Change Response Act sets forth the activities that are included under the emissions trading scheme for the following sectors: forestry, liquid fossil fuels, stationary energy, industrial processes, agriculture, and waste. Owners of coal mines producing or stockpiling more than 2,000 tonnes of coal per year are required to participate in the scheme. 

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