Govt updates ETS scheme settings

“Since coming into Government, we have been clear we want a credible ETS-led approach to reduce emissions, and we were willing to make tough decisions to achieve this,” Watts says.

“To ensure the market operates as intended, we need settings to align with New Zealand’s climate targets and give participants confidence that their investments to reduce emissions will be rewarded,” he adds.

“The feedback we received is consistent with our decisions, and we have made the necessary changes that extends further than the advice we received from the Climate Change Commission.”

Watts says the Government will retain the current auction floor price, the containment reserve price, and current reserve volumes of New Zealand units in the Emissions Trading Scheme.

“These settings are doing their job and should be left alone,” he says.

The Government will also reduce the number of units available between 2025 and 2029, from 45 million to 21 million.

“As it stands, there is an oversupply of units held by participants which has contributed to a depreciated price of carbon,” Watts says. “This has led, in part, to the failure of recent auctions to clear, and poses a risk to achieving our climate targets and emissions budgets.”

He says that reducing the number of units will likely see the carbon price rise.

“We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets.”

“We are mindful of the impact potential price rises will have on everyday New Zealanders, however, our modelling suggests the impact will be minimal,” Watts concludes.

Changes to unit numbers will take effect from the first auction of 2025.