New Zealand Emissions Trading Scheme and NZ's carbon budget in the 2020s

The New Zealand Emissions Trading Scheme (NZ ETS) and New Zealand’s provisional carbon budget under the Paris Agreement (2021-2030) 

The chart below shows the relationship over the 2020s between New Zealand’s target under the Paris Agreement, forecast domestic emissions, and the NZ ETS. The forecasts are based on policies and NZ ETS rules that were current at the end of 2015 (see below for further information). 

New Zealand’s target under the Paris Agreement provides us with a forecast carbon budget and this is shown on the chart below, as the area under the red dotted line. New Zealand’s total emissions can be greater than the budget and we can still meet our target, as long as emissions above our target are offset by emission removals (from forests in New Zealand) and/or emission reductions purchased from overseas. 

Current forecasts for New Zealand show that gross emissions (the area under the blue dotted line) will be above the budget from 2021-2030. This means that to meet the 2030 target, New Zealand will need to ensure that the difference (ie, the grey bars between and red and blue dotted lines) is compensated for by emission removals or emissions reductions. We expect New Zealand will meet its 2030 target through a mix of domestic emission reductions, removals from domestic forestry, and purchase of international emission reductions. 

Uncertainties in the projections - Projections of emissions and removals are inherently uncertain. Variables such as economic and population growth, commodity prices, the assumed carbon price, the assumed rate of afforestation and deforestation, and the harvest age of forests, have significant effects on projected emissions and removals. Seasonal changes, especially variation in rainfall, can affect both energy and agricultural emissions. There is also uncertainty in the methodology to estimate emissions, particularly from biological sources such as agriculture and forestry.

The relationship between projections of New Zealand’s emissions and units in the NZ ETS and New Zealand’s provisional carbon budget under the Paris Agreement (2021-2030):

Explanation of key

Forecast gross emissions - these are from New Zealand’s Second Biennial Report under the UNFCCC. The gross emissions are forecast at current settings and assume a New Zealand emissions unit (NZU) price of $25 in 2030. At the time of forecasting, the one-for-two measure was in place and was assumed to remain throughout 2021-2030. As a result, the effective carbon price rises to $12.50 by 2030.

Provisional carbon budget - this is based on our Nationally Determined Contribution (NDC) under the Paris Agreement and our target to reduce emissions to 30 per cent below 2005 levels by 2030. This provisional carbon budget equates to 611 million tonnes of carbon dioxide equivalent (Mt CO2-e) over the 2021-2030 period, according to current estimates. See the United Nations Framework Convention on Climate Change (UNFCCC) technical note [UNFCC website, pdf] for details on how carbon budgets are calculated.

Forecast abatement volume required - this is the volume of emission reductions or removals that New Zealand will need to meet our target under the Paris Agreement. This is likely to come from a mixture of domestic emissions reductions, removals from domestic forestry, and purchasing international emissions reductions. 

Forecast biological emissions from agriculture - biological emissions from agriculture include methane and nitrous oxide emissions. These are from New Zealand’s Second Biennial Report under the UNFCCC.

Estimated emissions from other non-ETS sectors – this is an estimate of New Zealand’s emissions that are both not covered by the NZ ETS, nor included within biological emissions from agriculture. A large part of these emissions are from waste emissions not covered by the NZ ETS. 

Forecast free allocation volumes – this refers to NZUs allocated for emissions-intensive trade-exposed (EITE) activities. Free allocation volumes have grown at a rate of about 3-5 percent over recent years and it is assumed that this trend will continue during 2021-2030. As most free allocation volume goes to a small number of large industrial sites, there is the possibility that free allocation volumes could change abruptly in the future.

Remaining carbon budget volume - this has been calculated by assessing the volume of the carbon budget not used up by emissions outside the NZ ETS or by free allocation.

 The numbers: the relationship between the NZ ETS and our target under the Paris Agreement (2021-2030) (reflected in Mt CO2-e)

Calendar year Forecast gross NZ emissions Carbon budget Forecast abatement volume required Forecast biological emissions from agriculture Estimated emissions from other non-ETS sectors Forecast free allocation volumes Remaining carbon budget volume
2021 83.1 62.9 20.2 40.6 3.5 11.1 7.8
2022 83.7 62.5 21.2 40.8 3.5 11.4 6.8
2023 83.8 62.1 21.7 41.1 3.5 11.7 5.8
2024 84.4 61.7 22.7 41.2 3.5 12.1 4.9
2025 84.6 61.7 22.7 41.2 3.5 12.4 4.0
2026 84.6 60.9 23.7 41.5 3.5 12.8 3.1
2027 85.0 60.5 24.5 41.6 3.5 13.2 2.1
2028 85.2 60.1 25.1 41.8 3.5 13.6 1.2
2029 85.6 59.7 26.0 41.9 3.5 14.0 0.3
2030 86.0 59.2 26.8 42.0 3.5 14.4 0.0
Total 846.1 610.9 235.2 413.9 35.0 126.8 36.0