Our German Desk
Last month, He Pou a Rangi Climate Change Commission (the Commission) released its annual advice to the Government on the Emissions Trading Scheme (ETS) settings for the period 2026 to 2030 (Advice). A key purpose of the annual advice is to ensure no more credits become available than would be consistent with NZ’s climate targets. New Zealand Unit (NZU) price control settings and limits to auction volumes are levers the Government can tweak in balancing the supply of NZUs in the market.
Recommendations of the Commission in the recent Advice include:
- No changes to auction volumes are recommended for 2026 and 2027, consistent with the Commission’s 2024 advice to limit auction numbers. That 2024 advice came following a period of depressed NZU prices partly attributed to huge surplus in NZUs, so the Advice represents a continuation of that approach.
- That the Government increase the number of NZUs it sells in 2028 to 2030 by 13.6m units – representing a departure from the earlier approach to reduce auction volumes. This has come as a surprise to some market commentators, with the Commission explaining this increase being appropriate due to the NZU surplus declining ‘ahead of schedule’ – noting that the surplus in NZUs has fallen to 50m NZUs at present, from 68m in 2022/2023. This is partly attributable to lower numbers of NZUs being sold in auctions last year (with two auctions declined entirely with no bids submitted) as well as industrial allocations forecast to be lower than expected due to plant closures and lower production.
- With respect to price controls (including the Auction Reserve Price and Cost Containment Reserve) these should ‘remain at current levels, adjusted only for inflation’. The Commission notes that ‘stability is critical at a time where confidence in the emissions market remains fragile’. The Auction Reserve Price (ARC) is a floor below which units cannot be sold at auction. Conversely, a Cost Containment Reserve (CCR) is a price ceiling which triggers the release of additional units.
The Advice follows the Government’s release (in November 2024) of its second emissions reduction plan (also known as ERP2). ERP2 reiterates the Government’s desire to build a “robust, efficient and credible ETS’”.
The Government must make decisions on NZ ETS unit limits and price control settings in time for the regulations to be updated by 30 September, with new settings due to come into force on January 1, 2026. Our Forestry team will be following developments closely.
If you have any questions about the emissions trading scheme, please get in touch with our Forestry Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
