Introduction

The New Zealand Emissions Trading Scheme (NZ ETS) began operation in 2008 and has been a principal element of climate change policy across successive governments. As of August 2025, there were 37 emissions trading systems in force globally, 12 under development, and 12 under consideration (p.4). This guide describes the NZ ETS as of March 2026.

How emissions trading works

An ETS sets a regulatory limit on emissions by covered sectors and translates that limit into a market price, incentivising reductions. Emissions trading should never be the only element of an effective strategy — companion policies are needed alongside to address non-price barriers such as split incentives, risk aversion, and insufficient infrastructure (p.6).

A brief policy history of the NZ ETS

The NZ ETS was the first ETS in the world intended to cover all economic sectors and major greenhouse gases (GHGs) over time (p.8). As of March 2026, it applies unit obligations to about 47% of New Zealand’s gross domestic emissions (p.8). Key milestones include the Climate Change Response (Zero Carbon) Amendment Act 2019 and the Emissions Trading Reform Amendment Act 2020. More recently, biogenic agricultural emissions were removed from the NZ ETS in 2024, and the 2050 biogenic methane target was lowered to 14–24% below 2017 levels (p.10).

Core design features

The NZ ETS covers stationary energy, transport, industrial processes, waste, and forestry. As of December 2025, there were 147 mandatory participants in non-forestry sectors (p.17). The inclusion of forestry — with mandatory deforestation liabilities and optional units for removals — was a world first (p.18). As of December 2025, approximately 0.8 million hectares of post-1989 forest were registered in the NZ ETS, with about 81% exotic and 19% indigenous species (p.21).

New Zealand Units (NZUs) are the primary domestic unit of trade. From 2021 through 2025, NZ ETS auction revenue totalled $3.8 billion (p.27). The participant-held stockpile has exceeded annual surrender volumes by a factor ranging from 3.0 to 6.3 over 2016/17 to 2024/25 (p.27), with zero NZUs sold at 11 out of 21 quarterly auctions from March 2021 to March 2026 (p.28).

Price controls comprise an auction reserve price, a confidential reserve price, and a two-tier cost containment reserve. The NZU price reached a low of $1.45 in February 2013 (p.31) and a high of $88.50 in November 2022 (p.31), with prices declining overall through March 2026.

Output-based free allocation is provided to emissions-intensive and trade-exposed industrial producers. For 2026, the level of assistance is 84% for highly emissions-intensive and 54% for moderately emissions-intensive activities (p.37). In FY 2024/25, 4.7 million NZUs were allocated for free, equivalent to 14% of the surrender volume of 34.4 million units (p.38).

The NZ ETS currently operates as a domestic-only system with no external offset linkages. Monitoring, reporting, and verification follows a self-assessment model aligned with the tax system, with government audit powers and financial penalties for non-compliance (p.41–42).

Emissions trends in NZ ETS sectors

Gross emissions in non-forestry sectors remained relatively stable from 2010 to 2019, before declining 9% from 2019 to 2023 (p.45). The 2015/16 review concluded the NZ ETS had not had a significant impact on domestic emissions outside of the forestry sector, due to sustained low emissions prices and policy uncertainty (p.45). Landowner decisions on deforestation and afforestation have been strongly influenced by emissions prices as well as timber and agricultural commodity prices (p.46).