Climate Change Commission recommends NZ ETS changes to stay on track for meeting emissions reductions targets

13 April 2023

The NZ ETS is one of the Government’s main tools to reduce emissions, but the current price settings mean it cannot function as effectively as it should, Climate Change Commission Chair Dr Rod Carr says. 

Minister of Climate Change James Shaw has today released the Commission’s second annual advice on NZ ETS unit limits and price control settings, covering the period 2024 – 2028. 

Getting the NZ ETS settings right is a technical process, but it is critical to achieving Aotearoa New Zealand’s climate goals. This advice will not impact ETS settings before 1 January 2026. If current settings for reserve prices are triggered, settings for 2024 and 2025 may be changed. 

“This year’s advice reflects new data and updates to our approach. Our advice has been informed by new information from the market that emerged after the Government’s decisions on the NZ ETS in 2022,” says Dr Carr.  

“If the Government chooses to accept the Commission’s recommendations for NZ ETS settings, then it will enable the ETS to do the job it was set up to do. It will also bring the ETS settings back into step with Aotearoa New Zealand’s emissions budgets and targets.” 

“If the Government declines the recommendations, then it will need a much stronger policy approach to achieve emissions budgets than the one outlined in the emissions reduction plan.” 

Updates to price and settings recommended 

Compared to current settings, the Commission recommends:    

  • Reducing the limit on the number of units available for auction    
  • Raising the trigger prices for the cost containment reserve and auction reserve price  
  • Changing to a two-tier cost containment reserve. 

“Our analysis is largely the same as last year, however this year there are further adjustments in unit limits to bring the scheme back in line with Aotearoa New Zealand’s emissions budgets and targets. We have also been more explicit that some of our recommendations are interconnected and should not be implemented in isolation,” says Dr Carr. 

The Commission’s advice was developed in line with the intent of the Government’s emissions budgets and its Emissions Reduction Plan, and takes into account evidence about the emissions prices needed to meet our targets. 

“The Government also has other social policy tools to empower households and businesses with limited choices, and to manage the risk of any short-term cost of living impacts from for those groups. If the Government uses all the tools in its policy toolbox, New Zealanders will be supported to collectively make better climate choices and be better off financially.”  

“The decisions the Government makes now on the NZ ETS will have consequences for the future,” says Dr Carr. “Allowing the NZ ETS to function ​properly will enable it to fully play its part to reduce emissions, which means NZ is more likely to meet our target for 2050 – and that New Zealanders will be better placed to take advantage of the opportunities that come with acting on climate change.” 

Read the full report:

NZ ETS unit limits and price control settings for 2024-2028