The New Zealand Climate Change Minister, Paula Bennett, has announced the results of the first stage of the New Zealand Emissions Trading Scheme (NZ ETS) 2016 review. The 1-for-2 surrender obligation measure, which allows participants to surrender one allowance for every two tons of emissions ensuring covered entities only face 50% of the compliance cost, will be phased out over the next three years. Starting in 2017, participants will face 67% of the compliance cost, rising to 83% in 2018, with participants facing the full cost per ton of emissions from January 2019. Changes will largely affect ETS participants in the industrial, power generation, waste, and transport sectors, accounting for around 50% of New Zealand’s emissions.

The phase-out will increase demand for New Zealand Units (NZU), reducing the surplus of NZUs that has built up in recent time. NZU prices have been rising steadily over the last six months, and in response to the Minister’s announcement, NZU prices this week passed NZD 15 per ton, the breakeven price needed to incentivize foresters to plant trees for carbon sequestration and generate credits under the NZ ETS.

The NZD 25 price ceiling, which was also subject to review, will remain in place and free allocation to emissions intensive, trade exposed sectors will also continue. The second and final part of the NZ ETS review is ongoing, with results expected to be announced later this year. The review is expected to consider accounting rule changes for the forestry sector and the option of auctioning allowances.