Author: Roger Dickie

With the recent volatility in carbon prices, we thought it was a good time to pen an update on what has driven recent market movements in Carbon, how we are responding, and share our thoughts about the outlook for Carbon from here.

In November 2025, climate change minister Simon Watts announced a review of the Climate Change Response Act, to be implemented through an amendment bill in 2026.

The Government stated that the review sought to streamline climate change settings by adjusting requirements for emissions-reduction plans and the national adaptation plan, clarifying the Climate Change Commission’s input and role, broadening consultation, and introducing a range of other changes that partially affect New Zealand’s Emissions Trading Scheme. Unfortunately, the policy changes were negatively received by the carbon market and came as a surprise to many participants. This triggered increased selling in the spot market and created uncertainty around whether the Government might rely on, or fund, offshore emissions offsets to meet its 2030 target. Although the market traded a few units over the Christmas period, that uncertainty has contributed to downward pressure on NZU prices.

This is the second of two major policy announcements this year from a government that stated at the beginning of its term that it would bring certainty for ETS participants and minimise any further tinkering with settings.  The market impact after the announcement saw the NZU spot price drop from around $55/NZU in Early November to around $34/NZU on 28 January. The trading houses suggest the market has been set back over a quieter trading period and is likely to trade in the lower quartile of expected price points for now, before an expected NZU price recovery.

The essence of the Government’s changes was to weaken the linkage between national and international commitments. In our view, this is designed to create greater policy flexibility as it becomes increasingly apparent that the country is unlikely to meet its Paris Agreement targets by 2030. Key changes include:

1. Emission Reduction Plans (ERP) – change to the preparation of 5-yearly ERPs that set the national Emissions Reduction Budgets on a pathway to net zero by 2050.  The last ERP was set in 2024, and the next is due in 2029.  As part of the announced changes, the NZ ETS unit volumes and price control regulations will no longer need to ‘accord with’ international climate targets – the Nationally Determined Contributions (NDCs) under the Paris Agreement.  In addition, the government is removing the independent role of the Climate Change Commission in ERPs, in favour of targeted technical advice from experts.  Consultation is also being removed from the development of future ERPs in favour of these being technically focused documents, and recognising existing red tape in the preparation of key climate change documents.
2. Emission Trading Scheme (ETS) Operation – key changes will include moving the publication of ETS Settings from an annual to a 2-yearly basis, including unit auction volumes and floor prices.  In line with the above, these ETS settings will no longer need to ‘accord with’ New Zealand’s international commitments.  There will be a range of other adjustments, including:
   • Adjustments to capture the ‘import’ of emissions from overseas-sourced products that do not have domestic emissions;
   • Changes to provide flexibility for forest investors to re-establish forests after significant disruptions (e.g. severe weather events);
   • Administrative changes to penalty repayment provisions managed through the EPA; and
   • Minor adjustments to the compliance regime, including extending deadlines after major disruptions, amending the penalty for emissions returns that should have been zero, and allowing for discretion to waive ETS penalties in some instances.  

3. Other Changes of Note
   • Introduction of a Carbon Removals Assessment Framework that will reduce barriers for non-forestry removals to participate in the ETS (e.g. carbon capture and storage for anyone exploring carbon removals beyond planting forests and seeking recognition or reward for these removals).
   • The deadline for the Carbon Neutral Government Programme compelling Government departments to become carbon neutral has been changed from 2025 to 2050 to align with the net-zero target.
   • Introduction of a separate bill, aimed to lower biogenic methane targets by 2050 from 24-47% to 14-24%, which primarily affects New Zealand’s agricultural industry.

RDNZ View

Despite recent market sentiment, we are of the view that, while the announcement is unhelpful in the short term, it doesn’t materially affect the functioning or long-term outlook of the ETS, nor the long-term value of NZUs to forest investors. 

Investors can be assured that there have been no significant changes to the way that the ETS works, its objectives (to change carbon emitters’ behaviour) or the immediate supply/demand outlook, which has been backed by Climate Change Minister Watts, who suggests the market reaction is misguided and that the changes “do not lower our (New Zealand’s) ambition”.

Carbon is inherently a long-term investment. The structural settings of the New Zealand Emissions Trading Scheme remain supportive of investors receiving their expected credits. Marex, a key player in the carbon commodity market, recently stated that “Every failed auction reduces primary supply and shifts more of the burden onto the secondary market in future years. That is a forward-looking issue, and markets are not always good at pricing tomorrow when today feels uncomfortable. This increasing scarcity is expected to support higher NZU prices, which, in turn, benefits participants such as RDNZ Forests that generate carbon credits under the New Zealand Emissions Trading Scheme.

Instead, where RDNZ sees a negative change is the potential for greater political decision-making by the ‘government of the day’ in the future, which could more readily reflect pressure from a range of sources, including emitters and the public.  Ultimately, this might impact the trajectory of NZU volumes and pricing through the period to 2050, but not the long-term commitment to eventually get there.  In other words, the price pathway to 2050 would be less transparent, but it does not alter the journey’s destination. 

The change reinforces the importance of strong monitoring and detailed analysis by industry experts in close connection with the government and the market. RDNZ continues to actively represent investors’ interests, including direct engagement with government officials. In the past two months, we have met with two government ministers to reinforce the role of forestry and advocate for stable, long-term policy settings.

We remain of the view that there is still a strong opportunity provided by forestry and the value of carbon sequestration.

Forestry makes a measurable contribution to emissions reduction and plays a credible role in New Zealand’s path to net zero by 2050. This provides the asset class with structural resilience and underpins its long-term investment case.

We remain committed to keeping investors informed as these policy developments evolve and as their implications become clearer.

As always, our team is available to discuss the potential impact on your investments or to provide further details on any new opportunities.