About the New Zealand Emissions Trading Scheme

The New Zealand Emissions Trading Scheme (NZ ETS) is the Government’s main tool for meeting international and domestic climate change targets. The scheme aims to encourage people to reduce greenhouse gas emissions.

How the NZ ETS works

The NZ ETS puts a price on greenhouse gas emissions. This price is intended to create a financial incentive for businesses who emit greenhouse gases to invest in technologies and practices that reduce emissions. It also encourages forest planting by allowing eligible foresters to earn New Zealand emission units as their trees grow and absorb carbon dioxide.

The NZ ETS requires all sectors of New Zealand’s economy to report on their emissions.

These sectors are:

  • forestry 
  • agriculture 
  • industrial processes 
  • synthetic gases 
  • waste 
  • liquid fossil fuels 
  • stationary energy.

All sectors apart from agriculture must also purchase and surrender emissions units to the Government for the emissions they are responsible for. Just over half of New Zealand’s greenhouse gas emissions are covered by surrender obligations.

An emission unit represents one metric tonne of carbon dioxide, or the carbon dioxide equivalent of any other greenhouse gas. Currently, the only eligible emissions unit in the NZ ETS is the New Zealand Unit (NZU).

Simplified illustration of how NZU trading can take place

For further information about how the New Zealand Emissions Trading Scheme (NZ ETS) is designed and how it operates see A guide to the New Zealand Emissions Trading Scheme

Impact on households and businesses

The NZ ETS does not require households to surrender emission units. However, households feel some of the effects of the scheme as the businesses that are involved pass NZ ETS costs on to consumers.

The point of obligation in the NZ ETS (ie, the participant in the scheme) has been set as far up the supply chain as possible. This means most businesses in New Zealand are not required to be participants in the NZ ETS.

For example, the obligation for transport fuels is placed on the companies importing the fuel, rather than on drivers. This makes it possible to cover the whole sector without trying to directly target the millions of private cars in New Zealand.

Improvements to the NZ ETS

The Government has made its decisions on two tranches of improvements to the NZ ETS. This will ensure that the NZ ETS is a credible and effective scheme that helps us meet our climate change targets. These decisions follow the outcomes of the 2015/16 review of the NZ ETS.

For more information on the changes to the NZ ETS see Proposed improvements to the NZ ETS.

Find out more

For how the NZ ETS fits within the wider climate change work programme see New Zealand’s climate change work programme.