NZ Emissions Trading Scheme (ETS)

The NZ ETS is the government's primary tool for meeting its climate change targets, placing a price on greenhouse gas emissions across key sectors of the economy.

How it Works

The ETS requires certain businesses (like fuel companies, coal miners, and industrial manufacturers) to surrender one New Zealand Unit (NZU) to the government for every tonne of carbon dioxide equivalent (CO2e) they emit. Businesses can acquire NZUs by buying them at government auctions or on the secondary market.

Sector	Status in the ETS
Transport Fuels (Petrol/Diesel)	Fully priced in. Fuel companies pass the cost directly to consumers at the pump.
Electricity Generation	Fossil fuel generators (coal/gas) must surrender units, pushing up wholesale power prices during dry years.
Forestry	Can earn NZUs for carbon sequestered by newly planted forests. This has led to massive conversions of sheep/beef farms into pine plantations.
Agriculture (Methane/Nitrous Oxide)	Exempt. Despite making up roughly 48% of NZ's emissions, biological emissions from farming are currently not priced in the ETS due to intense political lobbying.

The Forestry Distortion

Because there is no cap on the number of NZUs that can be generated by planting trees, the ETS has created a powerful financial incentive to plant Pinus Radiata (a fast-growing exotic pine). The return on investment for "carbon farming" (planting trees and never harvesting them, just collecting NZUs) frequently outcompetes traditional sheep and beef farming, leading to widespread rural land-use change and political backlash.