The New Zealand Emissions Trading Scheme (ETS) was established in September 2008 as a mechanism to reduce the impact of harmful greenhouse gas emissions and protect our environment for future generations.
The ETS encourages carbon emitters to change industrial, process and manufacturing behaviours, reducing CO₂ emissions. Introducing a financial cost to these behaviours is intended to stimulate investigation and implementation of low emission alternatives.
New Zealand has agreed to emitting less CO₂ in 2030 than it did in 1990. To reach our national commitment targets for climate change, the ETS provides a market to move the cost of these emissions onto the businesses that cause them – effectively putting a price on the ability to emit carbon dioxide and other harmful emissions into the atmosphere.
The Carbon Market
One tonne of carbon dioxide (CO₂) or its equivalent in other greenhouse gasses, represents one New Zealand emission Unit (NZU) – Also known as a carbon credit.
Businesses that emit greenhouse gases buy carbon credits to ‘offset’ their emissions while they transition to low emission alternatives.
Each year, sectors of the economy report to the government on their annual greenhouse gas emissions. Those emitters then surrender back to the Crown the equivalent number of carbon credits to offset the measured volume of greenhouse gasses they produced.
NZUs are primarily created through forestry, because trees absorb carbon dioxide and emit clean oxygen back into the atmosphere.
Forest owners can claim the amount of CO₂ sequestered (removed from the environment) in NZUs which can then be sold to businesses that need to offset their emissions.
These carbon credits are bought and sold between carbon producers and carbon emitters, causing the value of NZU to rise and fall based on supply and demand.
Emitting businesses can decide whether to invest in other emission reducing methods and technologies such as recycling, waste management, solar power and electric vehicles. Alternatively, they may absorb or pass some of the cost of emissions onto customers.
Since the Emissions Trading Scheme began in New Zealand, the value of NZU has fluctuated however prices have increased overall since mid-2013. This means that demand for NZUs is increasing and other pollutant reducing approaches have not been sufficient to reduce the environmental impact.
Growing Incentive
The market NZU price has been volatile. The government has introduced several measures over the past ten years to help businesses adjust and prepare for having to offset their emissions. These included:
- Allowing some businesses to pay back 1NZU for 2 tonnes of CO₂ (phased out in 2019)
- Stopping the purchase of international units from overseas (which had created a unit surplus)
- Gifting free NZUs to businesses competing internationally with companies that have no carbon reducing responsibilities
Though these measures helped New Zealand meet previous climate change targets, more ambitious environmental goals for 2030 will require the generation of more NZUs and a revised strategy.
Low-Emissions Future
The Emissions Trading Scheme has proven its effectiveness and delivers an excellent marketplace for New Zealand owned carbon farmers to create an income while contributing to the climate solution.
With a long-term perspective and regular reviews of the global and national emissions reduction landscape, New Zealanders can be confident of a low-emission future.
New Zealand has the space, climate and capability within its forestry sector to justify its ambitious 2030 Paris Agreement carbon reduction targets.
Our forestry sector is vital to generating the required NZUs to offset the impact of industry on our environment. As the largest forestry participant in the Emissions Trading Scheme, NZ Carbon Farming is at the forefront.
NZ Carbon Farming’s forests currently sequester 4.5 tonnes of carbon from the atmosphere every minute of every day. At the same time, the company is delivering significant value back to Iwi, farmers, landowners, and forest owners. In 2019 it paid $9,717,963 in annual lease payments to its partners, creating work and opportunities for communities across New Zealand.
ETS Timeline
2008 – NZ Emissions Trading Scheme Delivered in Climate Change Response (Emissions Trading) Amendment Act 2008
2009 – First ETS amendment
2010 – The stationary energy, industrial processes and liquid fossil fuel sectors enter the NZ ETS
2010 – New Zealand Carbon Farming Group (NZCF) is founded with a shared vision “preserving the planet for future generations”. Its focus is generating carbon credits from forestry.
2010 – NZCF purchases its first established forest in Canterbury converting it to a permanent forest and registering the forest into the ETS.
2010 – NZCF creates its first partnering opportunities with forest owners – enabling them to derive carbon income from their forests.
2011 – NZCF plants its first trees with and initial programme of 500 ha.
2012 – Second ETS amendment
2013 – The waste sector (landfill operators) enter the NZ ETS
2014 – Over the prior three years NZCF becomes the largest new forest tree planter in New Zealand.
2016 – New Zealand is one of 197 countries throughout the world who agreed to adopt the Paris Agreement. The Agreement takes effect from 2020. This means New Zealand’s commitments to reduce greenhouse gas emissions, will apply from 2021. New Zealand’s commitment is to reduce greenhouse gas emissions by 30 per cent below 2005 levels by 2030.
2017 – 1NZU = 2t CO₂ transitional measure phase-out begins helping New Zealand adjust to a low emissions economy
2019 – Phase-out complete, 1NZU = 1t CO₂
2019 – NZCF plants 4.7m trees in one year
2019 – Climate Change Response (Zero Carbon) Amendment Act. Provides a framework for climate change policies under the Paris Agreement. Establishes the Climate Change Commission and sets a target to reduce net emissions to 0 by 2050
2020 – Climate Change Response (Emission Trading Reform) Amendment Act. Changes settings under the ETS with aim to reduce New Zealand’s overall emissions and bring international climate change targets within reach
2020 – From humble beginnings NZCF becomes the largest New Zealand owned forestry company
2020 – 10th anniversary of NZCF operations
2020 – Over the prior 10 years, NZCF have removed 20 m tonnes of emissions from the environment – the equivalent of the emissions from every car in New Zealand for one year
2020 – NZCF will complete its largest annual new planting programme to date with 6 million trees
If you are a landowner or forest owner and want to understand how you can benefit from Carbon Forestry – contact New Zealand Carbon Farming and learn how you can make a difference to your future and actively contribute to climate change mitigation.