What the regulations cover and how they will be updated annually. This information is important if you are a New Zealand Emissions Trading Scheme participant. The regulations will influence the availability and price of emission units as well as set the rules for auctions.
Link to the regulations
- Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 [New Zealand Legislation website]
The regulations are made under the Climate Change Response Act 2002 [New Zealand Legislation website].
Purpose of the regulations
The regulations help New Zealand meet its:
- 2050 emissions target
- emissions targets under the Paris Agreement.
The regulations also provide for auctions to sell New Zealand units by setting out the schedule and rules for auctions.
What the regulations do
- The Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 specify:
- the overall limit on New Zealand emission units (NZUs) supplied into the New Zealand Emissions Trading Scheme (NZ ETS) market, and the annual auction volumes.
- the schedule for auctions
- the price controls for NZUs sold at auction.
- how auctions are run, how auction results are determined and how auctions are settled.
- Auctions will commence on 17 March 2021 and will be held four times a year from that date. Auction schedules will be published annually for the following year by 30 September each year. The regulations also specify certain restrictions on auction dates and the conditions under which an auction may be postponed.
- The overall limit on the number of NZUs supplied into the NZ ETS consists of:
- free units issued through industrial allocation and negotiated greenhouse gas agreements
- any approved overseas units (currently set at zero)
- the number of units sold at auction
- a reserve number of units available only if a trigger price is reached at auction.
- The overall limit does not restrict NZUs provided for emissions removals, including from forestry.
- The regulations cover the period 2021-2025. They will be guided by a provisional emissions budget until the first emissions budget is set in late 2021.
- The regulations describe the registration requirements for bidders including that they must have an account in the New Zealand Emissions Trading Register.
- The regulations specify how units are allocated to bids and then how the clearing price is determined. The clearing price is the price of the lowest priced bid at the auction that is allocated units and all successful bidders pay the same clearing price.
- Price controls help to prevent unacceptably low or high NZU prices. An auction reserve price prevents the sale of NZUs at auction below this price. A cost containment reserve acts to constrain high prices by releasing more NZUs for sale at auction if the auction clearing price is higher than the trigger price.
- After an auction, successful bidders are required to pay for their units and units will be transferred to their Registry accounts only after payment has been received and cleared. Auction results will be published on the auction operator’s website.
- The regulations have not been affected by New Zealand Aluminium Smelter’s announcement on 9 July 2020 that it will close its operations at Tiwai Point by August 2021. Any impact this announcement may have on the NZ ETS will be considered through the annual regulation update in 2021.
How the limits and price control settings for New Zealand emission units will be updated annually
The Minister for Climate Change is required to update the regulations every year to ensure there is a five-year look ahead period (eg, next year the regulations will be updated to provide unit supply settings for 2022-2026).
The Climate Change Commission will recommend NZ ETS unit supply settings to the government every year, beginning in 2022. If the government adopts limits and price control settings that differ from the Commission’s recommendation it must publicly explain why.
Five-year look ahead period for limits and price control settings
This graph shows how the five year ‘look-ahead’ works. Every year the government is required to add an additional year (Y+5). Y0, the current year, is fixed and cannot be changed. The unit supply settings for the following two years are fixed but can be adjusted under certain circumstances set out in the Climate Change Response Act 2002. Year four and five are set in the regulations but can be adjusted when the regulations are updated. In the fifth year the unit supply settings are announced by the Government, but not fixed.
What the Minister must consider when determining the limits and price control settings
The Minister must consider the following along with other things.
- Projected emission trends
- How the NZ ETS is functioning
- International obligations and possible access to overseas mitigation
- Estimates of domestic abatement costs
- The impact of emission prices on households and the economy
- Recommendations of the Climate Change Commission.
See Section 30 GC of the Climate Change Response Act 2002 [New Zealand Legislation website].
The Minister can review the limits and price control settings for upcoming years
The Minister can do this with the following restrictions.
- The limits and price control settings for the current year cannot be changed (Y0).
- The limits and price control settings for the next 2 years (Y+1 and Y+2) can be changed only if certain conditions are met. These conditions include the cost control reserve being released, units being sold at the minimum price, a change to the emissions budget or our Paris Agreement target, or a significant change in one of the factors the settings were based on.
- We are working on further guidance on how it will determine if there has been a significant change in any of the factors that would require a change to the settings in Y+1 and Y+2.