The NZU market has no integrated comprehensive governance framework for trading.
NZ ETS participants must surrender one “emissions unit” — known as a New Zealand Unit (NZU) — to the Government for every tonne of carbon that they emit.
NZUs are able to be bought and sold on the secondary market, where participants buy and sell units either through trading platforms or directly with each other.
In late 2022 the Government consulted on proposals to improve governance of the market of New Zealand Units. Following this consultation, the Government has agreed to a staged approach to the development of a market governance framework.
- promote confidence in market trading
- assist in responding to risks of misconduct
- build the integrity of the NZ ETS market.
The Government has agreed to two proposals to improve market governance. These would likely come into force in 2025:
- Enabling the Financial Markets Authority, through ‘Fair Dealing’ provisions in the Financial Markets Conduct Act (2013), to respond to risks relating to advice, trading and misconduct in the marketplace for NZUs.
- Allowing the Environmental Protection Authority (EPA) to collect information about trades made by participants. This includes the price, the transactor’s primary reason for holding an account, and whether trades are happening between non-related accounts.
The Government has also directed officials to begin a Request for Proposal (RFP) process, to procure a centrally cleared, optional to-use exchange and associated market infrastructure for the secondary market.
No decisions on procurement have been made. A report back on the RFP is expected in March 2024. A further report back on a comprehensive market governance package is expected in June 2024.
This comprehensive package report back will consider regulatory solutions for a range of market governance risks.
They include but are not limited to:
- potential lack of transparency in the NZU market
- insider trading
- manipulation of NZU prices.