Emissions Trading Scheme

New Zealand's Emissions Trading Scheme (ETS) is part of our response to climate change. The ETS puts a price on greenhouse gases to encourage environmentally sustainable behaviour.

How the ETS works

The ETS puts a price on greenhouse gas emissions. This provides an incentive for people to reduce emissions and plant forests to absorb carbon dioxide.

Environmental accounting

Certain businesses are required to acquire and surrender emission units to account for their direct greenhouse gas emissions or the emissions associated with their products.

An emission unit represents one metric tonne of carbon dioxide or the equivalent of any other greenhouse gas (carbon dioxide equivalent). There are lots of unit types and a variety of emission units are traded throughout the world.

It's about sustainability

The primary aim of the ETS is to encourage environmentally sustainable behaviour.

In New Zealand, sustainability is defined as:

  • good governance that supports and maintains profitable enterprises
  • encouraging and protecting the environmental integrity of both our ecosystems and the social wellbeing of our communities.

New Zealand ETS review 2015/2016

As a result of stage II of the New Zealand Emission Trading Scheme (NZ ETS) review, the Government has made in-principle decisions on a package of 4 proposals to improve the operation of the NZ ETS in the 2020s.

The decisions (announced on 26 July 2017 ) set the direction of how the NZ ETS will operate in the 2020s for all sectors, including forestry. They will need further work and consultation before they're implemented. There are no immediate changes to how the NZ ETS operates.

The in-principle decisions are to:

  • introduce sale of units by auction, to align the NZ ETS to our climate change targets
  • limit the number of international units that NZ ETS participants can use when the NZ ETS reopens to international carbon markets
  • develop an alternative price ceiling to replace the current $25 fixed price option
  • coordinate decisions on the supply settings in the NZ ETS over a rolling 5-year period.

Other changes under consideration

Options to solve other issue with the NZ ETS are also being considered. For forests and the NZ ETS, the Government has decided to consider:

  • options for potentially changing the post-1989 accounting approach
  • potential operational improvements in 2018 as part of a forestry package.

During the stage II review, 2 possible post-1989 accounting approaches were looked at:

  1. accounting for carbon stored in harvested wood products (HWPs).
  2. applying an averaging accounting approach

Linking potential NZ ETS operational improvements and accounting decisions will allow a full consideration of these interrelated issues. MPI and the Ministry for the Environment (MfE) will continue to develop advice on options for these forest-related issues. We intend to test these with stakeholders next year (2018).

Ministers will also receive advice on options to align the administration of the PFSI (Permanent Forest Sink Initiative) with the Climate Change Response Act. This was a strong recommendation of the ongoing PFSI review. It makes sense to align the legislative changes needed to do this, with work that is following the NZ ETS review.

The ETS and MPI

MPI's main role is to administer the ETS for the forestry sector. We do this in partnership with the Ministry for the Environment (MfE) and the Environmental Protection Authority. We also work with MfE on climate change policy for the agriculture and forestry sectors.

Farming and the ETS

Agricultural processors must report the on-farm biological emissions associated with the production of the milk and meat they process to the Environmental Protection Authority.

The term "agricultural processors" includes:

  • meat processors
  • dairy processors
  • nitrogen fertiliser manufacturers and importers
  • live animal exporters.

There are some exemptions to these categories, including:

  • wool and velvet processors
  • egg producers.

Farmers and producers are not currently required to surrender ETS units for the biological emissions produced by agricultural activities. This is consistent with global practice – no country in the world imposes a cost on biological emissions from agriculture.

The Government has indicated surrender obligations would not begin unless:

1. there are economically viable and practical technologies available to reduce emissions

2. our trading partners make more progress on tackling their emissions in general.

The Paris Agreement

The Government ratified the Paris Agreement in October 2016. The Agreement commits New Zealand to an ambitious target – to reduce emissions to 30% below 2005 levels by 2030. To meet our commitments under the Agreement, changes may need to be made to the ETS and our other climate change policies and programmes.

Reaching our goals

Two reference groups have been established by MPI with the sectors to help investigate and manage any potential changes. They are the Biological Emissions Reference Group and the Climate Change Forestry Reference Group.

The Biological Emissions Reference Group

The purpose of the Group is to build robust and agreed evidence on what the sector can do on-farm to reduce emissions and to assess the costs and opportunities of doing so.

  • The group will not write policy or make recommendations.
  • It is joint-chaired by Chris Kerr (MPI) and Kara Lok (DairyNZ).
  • Members have signed the Terms of reference and agreed on an initial list of priority projects.
  • MPI is leading a transparent process through the group to commission and contract this analysis from third parties.
  • The evidence from this research will be published in the form of an interim report in early 2017, followed by a final synthesis report in late 2017.
Three projects underway
1. AgFirst: Literature review and analysis of farmer decision making with regard to climate change and biological gas emissions.

This project focuses on the research and literature discussing farmers’ decision making when reducing, or thinking of reducing, their on-farm biological greenhouse gas emissions; or environmental good practice generally. The project will include an analysis of the potential social and behavioural barriers to on-farm change that produces biological emissions.

2. AgResearch: Review of the suitability of OVERSEER® nutrient budgets model for farm scale greenhouse gas reporting

This project provides an initial assessment of whether OVERSEER® is ‘fit-for-purpose’ as an on-farm greenhouse gas accounting tool. It will help Government understand the potential role OVERSEER® could have in meeting our national emissions commitments, by examining how well it is aligned to the national inventory and what is required to ensure ongoing confidence in its representation of farm-scale greenhouse gas losses.

3. NZAGRC: Mitigation potential for on-farm nitrous oxide and methane greenhouse gas emissions

This project seeks to qualitatively analyse current and future mitigation good management practices and technologies which have the potential to reduce on-farm biological emissions on an absolute basis. This includes collating mitigations from previous work which could be implemented on different timescales, now and in the future, and examining the adoption rates and feasibility, cost, and impact on other industry objectives.

Group meeting agendas

Download the group's Terms of reference [PDF, 1.2 MB]

The Climate Change Forestry Reference Group

  • The purpose of the Group is to explore and test evidence, analysis, and policy options with experts in order to inform and support officials.
  • The Group will not write policy or make recommendations.
  • It is chaired by Stuart Anderson (MPI).
  • Members have signed a Terms of Reference and have been supporting officials on a number of key issues as part of the current review of the New Zealand Emission Trading Scheme.
  • If you'd like the Climate Change Forestry Reference Group to consider an issue or topic, email climate.change@mpi.govt.nz
  • Agendas to date:

Download the Climate Change Forestry Reference Group Terms of Reference [PDF, 2.5 MB]

Find out more

Who to contact

If you have questions about MPI's role in the ETS or what you can do to reduce your emissions by planting forests, email climate.change@mpi.govt.nz

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