There is an overall limit on the number of NZUs supplied to the NZ ETS trading market. This ensures the NZ ETS supports New Zealand to meet its emissions targets. The overall limit consists of:
- Free NZUs issued through industrial allocation and negotiated greenhouse gas agreements (NGA)
- The limit for approved overseas units is currently set at zero, and there are no types of overseas units which are eligible to use in the NZ ETS.
- NZUs sold by the Government at auction, which could include NZUs from the cost containment reserve
- Any approved overseas units
- A 'Negotiated Greenhouse Agreement' is a legacy policy (pre NZ ETS) that provides a competitive at risk firm an exemption from greenhouse gas emissions costs, in exchange for a commitment to reduce emissions to world's best practice standard.
The cost containment reserve makes a specified number of additional NZUs available, if a price trigger level (currently set at $50) is reached during an auction.
NZUs issued from the cost containment reserve are part of the overall limit, however, if these units cause the emissions budget to be exceeded, they need to be ‘backed’ by some form of equivalent emissions removal.
The limit for approved overseas units is currently set at zero, and there are no types of overseas units which are eligible to use in the NZ ETS.