About the NZ Emissions Trading Scheme (ETS)
The New Zealand Emissions Trading Scheme (NZ ETS) is the Government’s main tool for meeting domestic and international climate change targets. The scheme aims to encourage people to reduce greenhouse gas emissions.
How the NZ Emissions Trading Scheme (ETS) works:
The NZ ETS puts a price on greenhouse gas emissions.
It creates a financial incentive for:
- businesses to reduce their emissions;
- landowners to earn money by planting forests that absorb carbon dioxide as the trees grow.
One emission unit, the New Zealand Unit, represents one metric tonne of carbon dioxide or carbon dioxide equivalent (ie, the amount of another greenhouse gas that does as much damage as one tonne of carbon dioxide).
The Government gives eligible foresters units for carbon dioxide that is absorbed by their trees. The foresters can sell these units on the NZ ETS market. Businesses with surrender obligations (legal obligations to hand over units) must purchase enough units to cover their emissions. These units are then surrendered to the Government.
For example, a business emitting 2,000 tonnes of greenhouse gases would need to purchase 2,000 emission units on the NZ ETS market. If the emitter reduced their emissions by 500 tonnes of greenhouse gases they would only need to purchase and surrender 1,500 units.
It is up to the emitter to decide whether they wish to reduce their emissions or purchase units. The price which the emitter pays for units, sometimes called the carbon price, is set by supply and demand. Where demand for units increases and supply remains constant, the price of units will generally increase. The price will decrease where there is an abundant supply of units.