Yesterday, the Government announced that it will maintain the current auction volumes in the Emissions Trading Scheme (ETS) until 2030. This decision has been welcomed by RDNZ and other participants in the carbon market. The announcement directly contradicts a recommendation from the Climate Change Commission (CCC), which earlier this year called for the release of an additional 14 million units between 2028 and 2030.
The ETS serves as New Zealand’s main tool for reducing greenhouse gas emissions, with auction volumes impacting the availability of New Zealand Units (NZUs) in the market. An increase in supply typically leads to lower prices, which diminishes the incentive to reduce emissions.
By maintaining these volumes, the Government aims to restore confidence in a market that has recently struggled with oversupply, low prices, and a series of unsuccessful auctions.
Climate Change Minister Simon Watts emphasised that this decision is about providing certainty:
“We have been clear that a credible ETS is our most effective tool for reducing emissions. This means we will maintain the current auction volumes, as well as the auction floor and the cost containment reserve price, which will only be adjusted for inflation.”
So far in 2025, ETS auctions have failed to clear, with prices trading over $10 below the $68 auction floor. Oversupply, particularly due to forestry activities, has left emitters well-stocked.
Analysts suggest that the Government’s recent decision increases the chances of future auctions successfully clearing, but they caution that if prices do not rise soon, auctions may continue to fail, delaying the entry of new NZUs into circulation.
The Government’s move away from CCC advice is not unprecedented. In 2022, the Labour Government similarly disregarded advice, only to reverse its decision following a High Court case initiated by Lawyers for Climate Action. However, in this instance, the decision tightens supply instead of loosening it, making a judicial review unlikely. Nevertheless, the Minister is legally obligated to explain why the CCC’s recommendation has been set aside.
Where does this leave the ETS?
At RDNZ we believe the recent announcement signals a vote of confidence in the ETS. By keeping supply limited, the Government aims to regain credibility, promote higher carbon prices, and gradually reduce the stockpile of New Zealand Units (NZUs).
At RDNZ, we continue to see drivers that should contribute to ongoing supply tension in the ETS and a strong likelihood of higher carbon prices in the near future.
For our flagship Carbon & Production forestry investment, the Awatea Forest Fund, we remain committed to our growth trajectory and these current settings support that. This week, we successfully secured another property for the Fund – it’s truly a case of “steady as she grows.”
