Our German Desk
Yesterday the Minister for Climate Change, Hon Simon Watts announced changes to the current settings of the New Zealand Emissions Trading Scheme (ETS). Key changes include reduction of the number of emissions units (NZUs) available in auctions from 2025 to 2029.
This change in settings comes off the back of a volatile time for the NZ carbon market, which has seen the reduction in the price of NZUs over the previous two years from the high $80’s to stagnate in the mid-$50’s and the failure of several ETS auctions to clear.
The Minister has signalled the purpose behind these changes is to align the ETS with New Zealand’s climate targets and to restore confidence in the market-led approach to emissions reduction. The changes position the ETS settings more closely with recent recommendations of He Pou a Rangi Climate Change Commission whose earlier 2023 recommendations to change the settings to restore clarity and confidence in the ETS were not adopted by the Government at that time.
The changes signalled by the Government yesterday will come as a relief to many in the carbon forestry industry. Since yesterday’s announcement the market has responded and NZUs have jumped by 8%, signalling some early restoration of investor confidence in the NZ carbon market.
Summary
A summary of the announced settings is as follows:
- The Government will reduce the overall number of NZUs supplied to the market between 2025 and 2029, from 45 million to 21 million. This includes a reduction in the base auction volumes and NZUs available at Government NZU auctions.
- Changes to unit limits will take effect from the first Government NZU auction of 2025.
- The current auction floor price settings, being the bottom price NZUs may sell for at Government auction, will remain the same,
- The current cost containment reserve price, being the upper price limit at auction, and the current reserve volumes will remain unchanged from current settings.
- The Government has introduced new limits, price settings and reserve volumes for 2029 as it is required to have five years of settings in place.
If you would like to read the Minister’s announcement, you can view it here:
Updated settings to restore ETS market confidence | Beehive.govt.nz
If you have any questions about the matters discussed in this article, please get in touch with Ben Hickson 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.
