About the New Zealand Emissions Trading Scheme

The New Zealand Emissions Trading Scheme (NZ ETS) is a key tool for meeting our domestic and international climate change targets, including the 2050 target set by the Climate Change Response Act 2002. 

Purpose of the NZ ETS

The NZ ETS is a key tool in the governments climate change response toolbox.

The purpose of the NZ ETS is to:

  • assist New Zealand to meet its international obligations under the Paris Agreement
  • help New Zealand to meet its 2050 target and emissions budgets.

The Climate Change Response Act 2002 [New Zealand Legislation Website] sets the purpose of the NZ ETS.

How the NZ ETS works

The New Zealand Emissions Trading Scheme helps reduce emissions by doing three main things:

  • requiring businesses to measure and report on their greenhouse gas emissions
  • requiring businesses to surrender one ‘emissions unit’ (known as an NZU) to the Government for each one tonne of emissions they emit
  • limiting the number of NZUs available to emitters (i.e. that are supplied into the scheme).

The Government sets and reduces the number of units supplied into the scheme over time. This limits the quantity that emitters can emit, in line with New Zealand’s emission reduction targets.

Businesses who participate in the NZ ETS can buy and sell units from each other. The price for units reflects supply and demand in the scheme. This price signal allows businesses to make economically efficient choices about how to reduce emissions.

This video provides a short explanation of how the New Zealand Emissions Trading Scheme works.

Economy-wide coverage of the NZ ETS

All sectors of New Zealand's economy, apart from agriculture, pay for their emissions through their NZ ETS surrender obligations.

The agriculture sector reports its emissions through the NZ ETS but does not have surrender obligations. The Government has agreed to work with the primary sector to reduce emissions through He Waka Eke Noa: Primary Sector Climate Action Partnership.

Who else uses an Emissions Trading Scheme?

The NZ ETS is one of many emissions trading schemes in operation around the world. At the moment, New Zealand isn’t linked with any other schemes.

These schemes operate at a range of levels including Supra-national (1), Country (5), State & Province (16) and City level (7).

  • In 2020, all ETS's in operation covered around 9 % of global greenhouse gas emissions. This is projected to rise to around 14% of global greenhouse gas emissions in 2021
  • Jurisdictions making up 42% of global GDP are using emissions trading
  • Almost 1/6 of the global population lives under an operational ETS.

Global sectoral coverage - by scheme

Global sectoral coverage- by scheme
This image shows the greenhouse gas sectors covered by an ETS in force and which sectors have upstream coverage.

Image: ICAP. (2020). Emissions Trading Worldwide: Status Report 2020. Berlin: International Carbon Action Partnership.

Global sectoral coverage- by scheme
This image shows the greenhouse gas sectors covered by an ETS in force and which sectors have upstream coverage.

Image: ICAP. (2020). Emissions Trading Worldwide: Status Report 2020. Berlin: International Carbon Action Partnership.