New Zealand is taking bold steps to restore confidence in its Emissions Trading Scheme (ETS) by drastically reducing the number of emission credits available between 2025 and 2029. The government announced that the issuance of units, each representing one metric tonne of carbon dioxide or its equivalent, will be cut from 45 million to 21 million.
An oversupply of these units has led to a decline in carbon prices and unsuccessful auctions, jeopardizing New Zealand’s ability to meet its climate goals. Climate Change Minister Simon Watts emphasized, “There is an oversupply of units held by participants which has contributed to a depreciated price of carbon. 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.”
Despite reducing the number of units, the government will maintain the current auction floor price, the cost containment reserve price, and the reserve volumes of New Zealand units. Watts noted, “These settings are doing their job and should be left alone.”
The reduction in available units is anticipated to increase the carbon price, encouraging businesses and individuals to cut emissions. Although this could lead to higher costs, government modeling predicts minimal impact on the average New Zealander. Watts reiterated the government’s commitment, saying, “We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets.”
The changes will begin with the first auction in 2025, representing a significant move in New Zealand’s climate strategy.