NZ ETS forecasts of emissions, removals and entitlements from the Crown’s financial forecasting

The data in the table and graphs below is taken from the Government’s fiscal forecasts.

These forecasts are based on when emissions or removals occur. They are not based on when NZUs are surrendered or allocated.

The forestry NZU forecasts assume foresters report their emissions every year, as per the Voluntary Emissions Reporting Period (VERP). However, foresters may report in accordance with the Mandatory Emissions Reporting Period (MERP) every 5 years.

Refer to the detail about the forestry forecasts for additional information

Note: The 2023 data shows the figures which were input into the Crown’s financial forecasting prior to the end of 2023. Actual auction total is zero for the 2023 data.

The forecasts show how NZU removals (plus industrial allocation and auction volumes) compare to NZU emissions and deforestation over time. This is also compared to the NZU cap, which is New Zealand’s overall limit on NZUs and is set by The Minister of Climate Change each year.

The cap consists of units available by auction, by other means (eg, from industrial allocation) and approved overseas units (which, as New Zealand currently has no access to offshore mitigation, is zero).

• The NZ ETS cap sits below the total removals, industrial allocation and auction volume. This is because there is a significant portion of forestry and other removal units which are allocated for the removal of emissions that offset emissions towards New Zealand’s net emissions budgets.
• The forecasts show a decrease over the period. Throughout the period, forecast emissions and deforestation are projected to be above the total removals, industrial allocation, and auction volume.
• This difference between these amounts is likely to be met with NZUs from units banked in private accounts, often referred to as the stockpile.

For information on the number and type of units in the stockpile see Privately held units [EPA website].

• The forecasts above are based on business-as-usual projections and are subject to change.
• The table provides forecasts of emissions and removals for a calendar year. The surrender or allocation of the units relating to those emissions or removals are not provided until the next calendar year or later for some forestry activities. This is different for units bought at auction or provided through free industrial allocation. Auctioned units are transferred soon after they have been purchased. Most industrial allocations are provided in advance of the emissions, on a provisional basis, and then ‘trued up’ the following year once the actual emissions are known.
• The forecasts feed into the Budget Economic and Fiscal Updates published by the Treasury and will be updated every six months in March and October or before an election. The indicators used to create the forecasts are the best that we have available at a point in time.
• The methodologies used vary depending on the data available and are underpinned by certain assumptions. New emissions reduction policies, closure of large emissions-intensive businesses or the development of a new cost-effective emissions reduction technology are not factored in. Potential changes to NZ ETS legislation or regulations are also not included.
• In times of normal activity, these assumptions provide us with reasonable projections of activity. In periods of disruption resulting in changes to activity and economic shifts, some of these relationships may weaken or no longer hold.
• Stakeholders within the NZ ETS may also have their own sources of information or differing views on how external factors will impact emissions.

Forecasts for forestry are challenging because there are many factors that influence forestry decision making in the NZ ETS.

They include the following factors.

• It is voluntary for post-1989 forester owners to register their forest in the scheme and they can choose to deregister at any time.
• Typically, post-1989 foresters harvest their pine plantation exotic trees around 28 years of age. However, considerations such as log price, carbon price and other external factors may influence when a forester chooses to harvest and when the NZUs are surrendered to the Crown. Recent higher NZU prices may encourage some forest owners to delay harvesting but there is limited information on how extensive this may be. 
• Foresters only need to submit a mandatory return every five years but they can choose to submit a voluntary report annually. The current mandatory emissions reporting period closed in 2022.
• Reforms to the NZ ETS will change the carbon accounting approach from stock change to a method known as ‘averaging’. The averaging method applies to all new post-1989 forests entering the NZ ETS from 2023. (Averaging was optional for forests registered from 1 January 2019 to 31 December 2022, and became compulsory for all forests registered from 1 January 2023.) Forest owners who use averaging will not be required to surrender NZUs when they harvest (if they replant). Participants would instead receive NZUs as their forest grows up-to an average level of long-term carbon storage and then stop earning units thereafter.

The deforestation surrender forecasts assume 100 per cent compliance and that 100 per cent of post-1989 forest owners submit an annual voluntary emissions return. 

For more information on forestry see About forestry in the Emissions Trading Scheme [MPI website].

We welcome your feedback on the data.

Email: ETSFeedback@mfe.govt.nz

The Ministry will keep these forecasts updated as new data becomes available.