Market governance for the New Zealand Emissions Trading Scheme

The changes intend to improve:

• the availability of market information to government,
• provide market conduct standards for all,
• enable market monitoring,
• establish the Financial Markets Authority (FMA) as the agency that will enforce market conduct prohibitions.

The changes have been designed to make improvements that are effective and at low cost to government, while imposing minimal additional compliance burden on market participants.

Market governance in an international setting

The changes will help align us with our international peers. However they are designed for the specific context of New Zealand’s established NZU market practices.

The changes will be implemented over time, and government agencies will work with market participants to ensure a clear and transparent process.

All of the proposed changes will need to be passed into law before they take effect.

Changes will be included in the Climate Change Response (Market Governance and Other Integrity and Efficiency Changes) Amendment Bill, which is likely to be introduced in late 2025 or early 2026.  Some of the changes will take effect as soon as they pass into law.  Others will take effect later.

Platform reporting

ETS market trading platforms will be required to report regular price and volume information to the government, and maintain a broader history of NZU trading information.

Government will not  publish this information. This change will take effect as soon as it passes into law.

Market conduct  obligations

Two specific market conduct obligations will be added to the Climate Change Response Act 2002 to prohibit NZU price manipulation, and false, unsubstantiated, and/or misleading conduct in relation to buying, holding or selling NZUs. These obligations are similar to requirements in the Financial Markets Conduct Act 2013 (FMCA) that apply in other financial markets. These changes will take effect as soon as they pass into law.

Market monitoring and information sharing

On request, market participants will be required to provide information to the government for market monitoring.  The powers will be granted to the Ministry for the Environment (the Ministry), and the Environmental Protection Authority (EPA). This will allow the market monitor to gather information about the market and, where necessary, investigate and determine whether there is a matter to refer to the FMA.

The Ministry, EPA, FMA, Ministry for Primary Industries, and Ministry of Business, Innovation and Employment will be able to share information as necessary to give effect to their regulatory responsibilities. These changes will take effect as soon as they pass into law.

Register reporting

Under the market governance changes, market participants will be required to record additional NZU trading information in the Register. The obligation may include information such as price and the type of trade, and will capture all NZU transactions, such as:

• forwards
• futures
• spot trades,

These changes will not take effect as soon as they pass into law – they will be delayed until the Emissions Trading Register is able to receive the new information and this may take some time.

The government will engage with market stakeholders to determine final requirements closer to the time that they will be implemented. Once these changes have been implemented, the government will be able to periodically publish aspects of this NZU trading information in aggregate online.

Together, these changes will enhance government oversight of over-the-counter trading and enable improvements in market transparency.

As the proposed changes are implemented, there will be a phase-in over time of NZU trading information that becomes available on a market wide basis.

Together, these proposals will address key market governance risks with light-touch, low-cost regulation. They are expected to provide benefits to all market participants through improved confidence and integrity, and will support increased market activity.

A key benefit is a reduction in the risks of market misconduct, supporting participants and strengthening the Government’s ETS-led approach to emissions reductions.

The Ministry is also working on non-regulatory changes. These include an information initiative to support and inform active market participants. This will enhance knowledge by providing information relating to the NZU market, along with information about the financial risks that investors should be aware of when considering investment in this space.

As this work progresses, the Ministry will also test the opportunity for voluntary measures to support the NZU market with market participants, for example to manage any risk of conflicts of interest.

The Government also considered but discounted more rigorous regulatory measures such as treating NZUs as a financial product.  This Government is also not progressing with the previous Government’s intention to procure a government-funded central exchange for the NZU market.

For inquiries, requests for further information, or feedback about this work, please contact  ETSfeedback@mfe.govt.nz.