Introduction to the New Zealand Emissions Trading Scheme
Background and Operation of the New Zealand Emissions Trading Scheme
The New Zealand Emissions Trading Scheme (the “NZ ETS”) was introduced as a tool to combat climate change in Aotearoa New Zealand. It was created under a 2008 amendment to the Climate Change Response Act 2002 (the “Act”) with the purpose to help Aotearoa New Zealand meet its international greenhouse gas emissions obligations under the United Nations Framework Convention, the Kyoto Protocol and the Paris Agreement, and to meet its 2050 targets and emissions budgets.
The NZ ETS achieves its purpose by setting a requirement for businesses to measure their annual greenhouse gas emissions and report it to the Government. The NZ ETS broadly covers all of Aotearoa New Zealand’s emissions and includes the following sectors: forestry, agriculture, waste, synthetic gasses, industrial processes, liquid fossil fuels and stationary energy.
These sectors, excluding agriculture, also pay ‘the price for their emissions’ by having to acquire and then surrendering one New Zealand Unit (“NZUs”) to the Government for each one tonne of CO2 equivalent greenhouse gas they emit. The agriculture sector will be governed by a separate greenhouse gas levy system which will come into effect in 2025. Obligations under the NZ ETS are set high up the supply chain so consumers and smaller businesses are not directly caught by the NZ ETS obligations. Nevertheless, consumers do indirectly pay for emissions as the costs of NZUs are passed down the supply chain.
NZUs can enter the emission trading market in multiple ways. The Government controls two key methods by publicly auctioning NZUs and freely allocating NZUs to certain emissions-intensive and trade-exposed industries. The other main way that NZUs enter the emissions trading market is when participants in the NZ ETS ‘earn’ NZUs from the Government by growing forests and undertaking other activities that remove emissions. All NZUs can then be bought and sold between participants in the NZ ETS through the New Zealand Emissions Trading Register.
Non-Compliance with the NZ ETS
The Environment Protection Authority monitors compliance under the NZ ETS with strict liability offences resulting in fines for low-level non-compliance – please see here for a breakdown of fines. Prosecution is available where there is more serious non-compliance.
If you would like to know more about the statutory requirements for the New Zealand Emissions Trading Scheme, please do feel free to reach out to us.