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Emissions Trading Scheme

The Emissions Trading Scheme (ETS) is a tool that puts a price on greenhouse gas (GHG) emissions. Businesses in the New Zealand ETS are required to buy units (NZUs - also known as carbon credits) to cover their emissions. 

It is established under the Climate Change Response Act 2002, which is the legal framework that enables New Zealand to meet international obligations with regard to climate change.

ETS updates

Over August/September 2021, the Ministry for the Environment (MfE) consulted on proposed changes to industrial allocation in the New Zealand ETS.

This consultation discussed the following changes to industrial allocation (IA):

  • Updating allocative baselines (and introducing a subsequent update process). These are currently based on baselines from pre-2010, and there is evidence to suggest that this is leading to ‘overallocation’.
  • Considering re-testing eligibility for all activities (including in respect of updating base years, trade exposure definition and emissions intensity threshold).
  • Other changes to address technical issues, such as clearer process to update allocation baselines, and for new activities (and whether long-term new activities should get IA), whether IA firms should be required to report emissions.
  • Starting a conversation on longer-term direction of the role of IA and alternative mechanisms

The review of industrial allocation, and changes to eligibility, has the potential to significantly impact greenhouse growers who are exposed to the ETS price through heating their greenhouses to achieve optimal production conditions.

In particular, producers of tomatoes, cucumbers and capsicums who are currently eligible for industrial allocation. It also has implications for the wider industry – who are currently not eligible for industrial allocation but may seek to be in the future

Click here to read HortNZ's joint submission with TomatoesNZ and VegetablesNZ

Key points from the submission are:

  • Highlighted that greenhouse growing is a resilient growing system important for domestic food supply. The submission was strongly of the view that industrial allocation (or an alternative) needs to include consideration of New Zealand’s ability to continue supplying its own fresh healthy food for New Zealanders.
  • Supported changes to industrial allocation where they make the system more effective at providing the support necessary for businesses to remain competitive until a transition is made to lower emissions fuels for heating.
  • Sought wider considerations be included in industrial allocation. This includes the need to support New Zealand’s progress towards meeting climate targets, while also safeguarding food security.
  • Proposed alternative approaches to better support greenhouse horticulture.

Price control settings:

The price floor (minimum price below which units must not be sold at auction);

  • increases to $30 in 2022 (from $20 currently)
  • followed by annual increases of 5% plus inflation per year

Note: The NZ ETS also includes an auction reserve price, based on the secondary market price, to determine a confidential reserve price (CRP) that units cannot be sold below.

The cost containment reserve (trigger price for sale of reserve amount);

  • increases to $70 in 2022 (from $50 currently)
  • followed by annual increases of 10% plus inflation per year
  • From 2025, the reserve amount of New Zealand Units (NZU) starts to decrease.

Unit settings - the NZU available by auction will steadily decrease from 26.3 in 2022 to 21.7 in 2026. The overall limit on units starts to decrease from 2024 onwards.

Click here for more information.

The Climate Change Response (Emissions Trading Reform) Amendment Act 2020 made some changes to how the ETS operates, including:

  • The Amendment Act introduces a cap on emissions under the ETS based on emissions budgets and establishes the volume of New Zealand Units (NZUs) that will be made available for auction each year. Regulations made under the Act provide detailed settings.
  • Phasing out of industrial allocations from 2021 (initially at a rate of 0.01 annually),
  • Introduced actioning and new price controls (cost containment reserve and price floor)

RMA and Process Heat

Changes to the RMA in 2020 mean that from 31 December 2021, Councils will be able to consider the effects of discharges of greenhouse gases on climate change (this was previously excluded) and when preparing plans must have regard to emissions reductions plans and national adaption plans.

Process heat policy updates

In May 2021, the Ministry for the Environment consulted on a proposal for new national direction relating to the use of fossil fuels in process heat.

This was in response to changes to the RMA meaning that as of 31 December 2021, local authorities will be to consider the effects of GHG emission on climate change in RMA decision-making (where this was previously specifically excluded).

The discussion document proposed, via consenting for process heat: 

  • No new coal fired assets
  • Avoiding, unless no feasible options other new fossil fuel assets
  • Phase out of existing coal assets (for low and medium temp process heat users) by 2037
  • Requirement for other fossil fuels to demonstrate no technically or economically viable alternative fuel options and a GHG emissions plan

HortNZ made a submission, along with TomatoesNZ, Vegetables NZ and New Zealand Plant Producers Inc.

Click here to read HortNZ's submission on 'Phasing out fossil fuels in process heat'