The NZ ETS establishes a trading market of New Zealand emission units (NZUs). Businesses that carry out activities covered by the NZ ETS are required to buy and surrender to the Government, one NZU for every one tonne of carbon dioxide equivalent (CO2-e) emissions they produce.
NZUs can be traded among businesses participating in the NZ ETS. Supply and demand for NZUs is a key driver of the NZU price.
There are two main ways to buy NZUs:
The NZU price can change over time. It depends on how many units are available and how many people and businesses want to buy them.
ETS auctions are the main way the Government sells New Zealand Units (NZUs) into the market. They are important because they help limit emissions, help set the carbon price, and include safeguards to reduce sudden price shocks.
Sometimes there will be no bids at an auction, or not all units will be sold. This isn’t a failure of how auctions are run. It usually means bidders weren’t willing to pay the minimum auction price at that time for example, they may already have enough units, or they may choose to buy if a lower price is available on the secondary market. If units don’t sell at an auction, they can be carried over to a later auction in the same year under ETS auction rules.
Each year the Government decides how many NZUs can be sold, in line with New Zealand’s emissions budgets and climate targets. Only that number is made available through auctions, and over time fewer units are released.
At the auctions businesses bid for NZUs. When demand is high, prices rise both at the auctions and in the secondary market. When fewer units are needed, prices ease. This price signal encourages businesses to cut emissions where it is cheapest and invest in cleaner technology.
Auctions include safeguards such as a minimum price (so units are not sold too cheaply) and a cost containment reserve (extra units that may be released if prices require it).
Auctions are run for the Government by Xpansiv.
The NZ ETS secondary market is where most NZUs are traded. The secondary market includes both spot and forward trades.
NZUs can be traded through direct bilateral agreements with buyers, through a broker or through a trading platform. The Government is not responsible for trades on the secondary market, and the secondary market platforms are run independently.
*There are a number of ways that units can be bought on the secondary market. Many trades in the NZ ETS market happen in the spot market, where NZUs are traded for immediate delivery. There are some forward contracts where businesses agree to trade units at a specified price in the future. For more information, visit any of the secondary market trading platforms.