Since 2009, the NZ ETS has had a de facto price ceiling known as the fixed price option (FPO).
The FPO allows NZ ETS participants to pay $35 to the Government instead of purchasing units from the secondary market. This provides participants with a guaranteed maximum compliance cost.
NZ ETS participants can only use the FPO when they have a surrender or repayment obligation. The FPO does not create NZUs that can be traded in the market, and there is no limit on the number that can be purchased. When FPO units are purchased, it indirectly adds to the supply of NZUs in the market because its use means that other NZUs will not be surrendered.
Replacing the fixed price option with the cost containment reserve provides the Government with more control over the number of NZUs available to the market, as there is a limit on NZUs available through the reserve. This limit is part of the overall limit on NZUs supplied into the scheme.
The fixed price option (FPO) can be used to meet surrender obligations up to the 2020 calendar year.