Auctioning in the New Zealand Emissions Trading Scheme

The Climate Change Response (Emission Trading Reform) Amendment Act (the Act) has now been passed into law. It makes a number of changes to the New Zealand Emissions Trading Scheme (NZ ETS). Read about changes related to auctions. 

Auctioning of New Zealand Units will be introduced

Auctioning of New Zealand Units (NZUs) will be introduced into the NZ ETS to align the supply of units in the scheme with New Zealand’s emission reduction targets. Auctioning is expected to begin in 2021 and the auction schedule can be seen in the table below

Auction schedule

Date Volume available*
17 March 4.75 million NZUs
23 June 4.75 million NZUs
1 September 4.75 million NZUs
1 December 4.75 million NZUs

*The Government expects there to be 19 million NZUs auctioned in total in 2021, which will be spread evenly across the four scheduled auctions. If the auction clearing price is higher than $50, the cost containment reserve will be triggered allowing another 7 million NZUs to be available at auction. This means the maximum volume of 26 million NZUs could be available in 2021.

If NZUs remain unsold at the end of an auction they will roll-over to the next auction, provided it is in the same calendar year.

No decision has been made on whether the proceeds generated through NZ ETS auctions will be earmarked for a particular purpose. The Government is looking at options for how the proceeds could be used and is expected to report back to Cabinet before the end of 2020.

The Government has decided to enable the appointment of an independent auction monitor through regulations. The monitor will provide independent oversight of NZ ETS auctions and mitigate risks to the integrity of auctions (eg, anti-competitive behaviour). This will promote fair access to auctions and a competitive process of price formation. 

Rules for auctioning in the NZ ETS 

The auctioning platform will have a sealed bid, single-round, uniformly priced format. 

Bidders submit a single bid at their preferred price.  All bids are then ranked in order from highest to lowest price and the clearing price for the auction is set to be the lowest successful bid price. Uniform price means that all bidders then pay this clearing price regardless of what price was on their original bid. Bids are successful if they are awarded units from the auction.  

Auctions will be open for participation to all New Zealand Emissions Trading Register account holders.

Scheduling of auctions

Auctions will be scheduled quarterly.

The Ministry will publish an auction calendar for the upcoming year by September. The calendar will provide the volume of NZUs available to be sold at each auction.

Operating price controls 

Price controls will operate through auctions as follows.

  • The auction price floor is the minimum price at which units may be sold, therefore no bids will be accepted at auction below the value of the price floor.
  • During an auction, if the auction clearing price is at or above the price trigger value of the cost containment reserve then the reserve volume will become immediately available during that same auction. The price trigger value will then become the minimum price the reserve volume. will be sold.

Preparing for auctions 

An auction notice will be published at least 30 days ahead of each auction and all bidders will be required to register, confirm their registration details are accurate and provide collateral prior to bids being accepted. 

Bidding rules 

Bids will be accepted during the bidding window on the day of the auction in multiples of 100 units and the minimum bid that can be accepted is 500 units. All bidders will pay the same clearing price once is it determined and any tied bids will be resolved using a pro-rata approach. 

Due to an issue in the development of the Act, we are unable to progress with a technical reserve price at this time. The technical reserve price is designed to protect against the low risk that NZUs would be sold at auction at a price significantly below the prevailing secondary market price (note, a technical reserve price is separate to the price floor which is set at $20 in 2021). The Government will monitor the first auctions and consider whether to set a technical reserve price in future.

Settlement and reporting 

Payment by the successful bidder must be made and cleared before NZUs won in the auction are transferred to the bidder’s account. Once an auction is complete successful bidders will be informed and a report of relevant information will be published to the market.  

Previous engagement

Officials held an early engagement workshop with a targeted group of stakeholders on 28 May 2019.   

This workshop was followed by a public consultation during November and December 2019 on auctioning regulations - Reforming the New Zealand Emissions Trading Scheme: rules for auctioning. 

Role of the regulations

The Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 set out the rules for auctions along with the limits and price controls that apply to auctions under the Climate Change Response Act 2002. These regulations were set on 24 September 2020 and come into effect on 4 January 2021.  

Climate Change (Auctions, Limits, and Price Controls for Units) Regulations 2020 [New Zealand Legislation website]

Next steps

The Government is working to prepare for the first scheduled auction in March 2021.

Further information on these decisions

Cabinet papers and minutes

Impact statement

Briefing papers

Reviewed:
25/09/20