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. 

No decision has been made on whether the proceeds generated through NZ ETS auctions should be earmarked for a particular purpose.

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.

Developing the regulations for auctioning rules  

The Government has announced rules for selling units by auction in the NZ ETS to be published in regulations later this year. These rules are for scheduling of auctions and managing volume of NZUs, operating price controls, preparing for auctions, bidding rules, settlement and reporting. 

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 avaliable 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 resereve then the reserve volume will become immediately avaliable 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 

To be a successful auction the clearing price must meet or exceed the technical reserve price which will be calculated relative to the secondary market price. All bidders will pay the same clearing price once is it determined and any tied bids will be resolved using a pro-rata approach.

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. 

Next steps

Regulations setting the rules for auctioning are expected to be published later in 2020.

Further information on these decisions