Funding for NZ ETS supply management

Date:  21 May 2015

The Government has provided $4.1 million funding over four years for development and operation of a supply management strategy for New Zealand’s Emission Trading Scheme (NZ ETS). This includes consideration and design of an auctioning function, although no decisions have been made about when or if such a system might be implemented. 

The NZ ETS is New Zealand’s primary tool to reduce greenhouse emissions and meet our international climate change obligations. Supply management could improve the efficiency and effectiveness of the NZ ETS so it reflects the Government’s desired level of abatement and that costs on the economy are managed. It will include monitoring and modelling market activity, as well as developing policy around sources of unit supply including allocation, forestry, international units, banked and auctioned NZUs. 

Under the Climate Change Response Act, any move to introduce auctioning would involve setting annual limits on New Zealand Units (NZUs), which would transparently act as a ceiling on the number of NZUs that could be auctioned. This would increase certainty and liquidity by ensuring a durable supply of NZUs.  

The new funding is to enable design of a supply management strategy, within which these NZU limits could be set, and which would inform decisions about whether and when to implement auctioning. The funding also provides for the ongoing operation of the strategy, and auctioning if a decision is made to implement it.

The development of any auctioning mechanism would take at least 18 months, so it is a medium-to-long-term prospect rather than a short-term option. Furthermore, using the mechanism to sell NZUs by auction may not occur immediately after a preferred auction design is determined and instituted. The Government envisions consulting on the NZU limit, auction design and any start date for selling NZUs by auction before implementation.