‘Steady as we go’ on NZ ETS price controls for 2026–2030

23 April 2025

• Market confidence in the New Zealand Emissions Trading Scheme (NZ ETS) has improved but remains fragile. The Commission's latest advice aims to support a credible, predictable and stable market.
• The Commission recommends the price control settings should stay the same with minor adjustments for inflation. 
• Keeping the Auction Reserve Price at its current level will encourage market confidence, and support existing and future low-emissions investments. 
• The Commission also recommends that unit auction volume should stay the same for the next two years. However, 13.6m more units could be offered in the years 2028–2030. This reflects a change in circumstances, not a change in ambition – the Commission’s advice is based on the emissions budgets already set by the Government. 
• These recommendations are a package, as changes to the price control settings could have implications for unit limits and vice versa.

Minister of Climate Change Simon Watts has today released the Climate Change Commission’s latest annual advice on the NZ ETS unit limits and price control settings, for 2026–2030.

The NZ ETS is a market-based tool that drives private sector investment. Market confidence in the NZ ETS has improved but remains fragile. The Commission’s advice aims to support a credible, predictable and stable market. This year the Commission has not recommended any significant changes to the settings in the immediate future.

The full report and supporting technical documents are available on our website.

Price control settings are fit for purpose 

The Commission recommends that price control settings – the Cost Containment Reserve (CCR, or ‘ceiling’) and Auction Reserve Price (ARP, or ‘floor’) – remain as they are, only adjusting for inflation. This consistency will help support business confidence, planning and investment. 

“Last year, the Government released its emissions reduction plan, setting out the NZ ETS as their main tool for meeting climate change targets. Our annual NZ ETS settings advice is intended to support using that tool to its best effect,” says Jo Hendy, Chief Executive of the Commission. 

“We recommend holding the price settings stable, only adjusting them for inflation, to help ensure the investments needed to meet the second emissions budget go ahead and to retain market confidence. 

“The Auction Reserve Price is working well, doing what it’s supposed to – making sure units aren’t auctioned below the price likely needed to meet emissions targets. The Cost Containment Reserve is also currently fit-for-purpose. It is possible that both price control settings may need to be raised in the future. 

“It’s important to remember that price control settings are guardrails to help the scheme function as intended, they’re not a forecast or price predictor,” says Hendy.   

Retaining these settings will help Aotearoa New Zealand stay on track to meet emissions budgets. This means the NZ ETS needs to encourage the private sector to continue to:  

• Convert coal fired boilers to running on electricity or biomass
• Invest in renewable electricity generation 
• Reduce dependence on fossil gas as a fuel 
• Plant trees to deliver the carbon dioxide removals needed after 2030 to meet the country’s emissions reduction targets. 

Unit auction volumes 

The Commission’s advice shows the Government could increase NZ ETS unit auction volumes for the 2026–2030 period by 13.6m units more than estimated last year, while keeping in line with the emissions budgets also set by government.

This is largely because the excess units in the NZ ETS (‘the surplus’) are tracking down faster than expected; and because industrial allocation is forecast to be lower than expected due to plant closures, lower production, and updated baselines. 

The Commission recommends that these 13.6m units should be ‘backloaded’ over 2028, 2029 and 2030. This provides predictability for the next two years, while retaining flexibility to adjust to any future changes in the forecast surplus or in emissions. 

“It’s important to note that overall the surplus is still coming down, and also that there’s high uncertainty about the estimate of the surplus units,” says Hendy.  

“Backloading the increase in auction volumes means it’ll be easier to respond to any future changes in forecast surplus or emissions. If too few units are auctioned one year, more can be auctioned later – if too many are sold, they can’t be recovered.” 

Recommendations are a package 

These recommendations are a package, as changes to the price control settings could have implications for unit limits and vice versa. 
The recommendations are also contingent on the 84–89 MtCO2e gap between the emissions budgets and the first nationally determined contribution being bridged. 

What happens next 

The Government will consider the Commission’s advice and run a public consultation on proposals, led by the Ministry for the Environment on behalf of the Minister of Climate Change. The Commission expects this will be in the second quarter of 2025. 

The Government must make decisions on NZ ETS unit limits and price control settings in time for the regulations to be updated by 30 September 2025. The new settings will come into force on 1 January 2026. 

The Commission expects to provide its next advice on this topic, for the period 2027–2031, in the first quarter of 2026. 

The Commission also monitors the country’s progress towards meeting emissions budgets, emissions reduction plans and the 2050 target. The next annual progress report prepared by the Commission is due to the Minister of Climate Change this year, in July. 

About the NZ ETS & this advice

The NZ ETS is the main tool that the Government is using to reduce domestic emissions. To work effectively it must be credible and have the confidence of the market. 

Our analysis considered the implications of the Government’s second emissions reduction plan for these settings recommendations, as the NZ ETS needs to operate consistently with the Government’s overall climate policy package. 

Our advice is focused on one component of the NZ ETS: how the scheme’s settings for the next five years can help it work as well as possible, in line with the current emissions budgets and the Government’s climate strategy.  

Broader issues with the NZ ETS 

There are broader issues where improvements to the NZ ETS would strengthen the overall system and ensure the NZ ETS remains effective into the 2030s. These include the effects of policy uncertainty on market confidence in the scheme, adding to barriers to investing in planting new forests. We have also heard concerns around the impacts of afforestation on rural communities, and that the NZ ETS may not be effective at incentivising the uptake of low emissions technologies at pace and scale. 

The Government's second emissions reduction plan has reduced some uncertainty by signalling an approach to emissions reductions that is strongly centred on the NZ ETS and emphasising the Government’s commitment to restoring the credibility of, and confidence in, the scheme. 

At this stage, some uncertainty remains around the impacts of a proposed change to NZ ETS policy aimed at reducing conversion of farmland to forest, and about how the country will meet its 2021–2030 nationally determined contribution and its third (2031–2035) emissions budget.