The information below provides a forecast of the number of emissions units expected to be supplied into the New Zealand Emissions Trading Scheme and how much demand there is for units.

Forecast supply and demand breakdown for 2021 to 2025 (NZU millions)

Calendar year

2021

2022

2023

2024

2025

Unit supply issues within the cap

Proposed auction volume

19.0

19.3

18.6

17.2

15.5

Forecast industrial allocation

8.5

8.4

8.9

8.9

7.3

Unit supply earned from removals

Forecast forestry allocations

11.6

13.5

13.3

11.2

11.0

Forecast other removal activities

3.0

2.8

2.6

2.6

2.6

Total forecast NZU supply

42.2

44.0

43.3

39.8

36.4

Unit demand from gross emissions

Liquid fossil fuels + stationary energy and industrial

33.3

33.7

33.4

33.8

32.5

Waste and synthetic gases

2.4

2.4

2.3

2.4

2.2

Unit demand from forestry

Deforestation/harvesting

2.8

4.6

8.1

12.2

14.7

Total forecast NZU demand

38.5

40.8

43.9

48.3

49.5

Supply versus demand net difference

3.7

3.2

-0.5

-8.6

-13.1

Forecast NZU stockpile

138.7

141.9

141.4

132.8

119.7

Forecast overall NZU supply and demand and NZU stockpile

This graph compares the annual forecast of NZU supply and demand for the period 2021-2025. The graph shows an inverse relationship between demand for NZUs and the stockpile of NZUs held in private accounts

Breakdown of forecast NZU supply and demand

This graph shows the breakdown of annual NZU supply and demand, using the NZ ETS cap as a reference point.

What the forecasts show

The forecasts show the total NZ ETS unit supply will decrease over the period while forecast demand for units increases, leading to net demand by 2023.

The demand is predominantly driven by forecasts of increased surrenders due to forestry harvesting.

Over 2021–2022, more NZUs will be supplied into the market through auctioning and forestry removals than what is required to meet participant demand.

Over 2023-2025, the reverse is projected. Demand for NZUs is projected to increase above the volume supplied.

The impact on NZU stockpile figures are calculated on the assumption that the annual net difference between supply and demand will be met with units from the stockpile. The total stockpile volume forecast is based on the assumption that participants with surrender obligations will utilise the fixed price option (FPO) of $35 over the more expensive secondary market price for 2020 emissions returns. It has been assumed that 75% of obligations will be met with the FPO. This will result in less participants surrendering NZUs and instead banking them for future obligation periods when the FPO will no longer be available.

About the forecasts overall

The unit supply and demand forecasts are based on business as usual projections and are subject to change. The forecasts are based on 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. Unknown changes such as new Government emissions reduction policies, closure of large emissions intensive businesses or the development of a new cost-effective emissions reduction technology are not factored in.

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. As a result, the current projections have an increased level of uncertainty mainly due to COVID-19.

Stakeholders within the NZ ETS may also have their own sources of information or differing views on how external factors will impact emissions.

About the forestry forecasts

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

They include the following.

  • 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.
  • 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 closes 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 will apply to all new post-1989 forests entering the NZ ETS from 2023. (Averaging will be optional for forests registered from 1 January 2019 to 31 December 2022, and become 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 visit Forestry in the Emissions Trading Scheme [MPI website].