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New Zealand Emissions Trading Scheme (NZ ETS)

New Zealand Emissions Trading Scheme (NZ ETS): NZ ETS Compliance Framework

Maílis Carrilho
Maílis Carrilho
Updated on October 14th, 2025
Maílis Carrilho
Edited by by Maílis Carrilho
3 min read

Summary

The New Zealand Emissions Trading Scheme (NZ ETS) is a mandatory cap-and-trade system covering key emitting sectors such as energy, industry, waste, and forestry. Participants must register, report verified emissions, and surrender New Zealand Units (NZUs) each year. Established under the Climate Change Response Act, the scheme supports New Zealand’s transition to a low-emissions economy. While participation is compulsory for covered sectors, agriculture and certain small emitters are currently exempt. Non-compliance can result in financial penalties and enforcement actions by the Environmental Protection Authority.
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Details

Jurisdictions
  • New Zealand
Exempted entities

The NZ ETS is mandatory for organizations and individuals engaged in activities covered by the legislation.
These include forestry, stationary energy, industrial processes, liquid fossil fuels, and waste sectors.
Once an entity meets the participation threshold, it is legally required to register, monitor, report, and surrender emissions units (NZUs).

However, there are specific exceptions and limited exemptions:

Agriculture: emissions from livestock and fertilizer use are currently excluded from surrender obligations (though reporting systems are being developed).

Small operators or minor emitters under defined thresholds may not be required to participate.

Some forestry activities (e.g., pre-1990 forest land with no deforestation) can be exempt from registration.

In summary: the NZ ETS is a mandatory scheme, with clearly defined exceptions for small emitters and sectors temporarily excluded by law.

Deep dive

What’s Required

The NZ ETS is a market-based mechanism requiring covered emitters to hold and surrender emissions units (NZUs) for their greenhouse gas emissions.

Participants must:

  • Monitor and report emissions annually under approved methods.

  • Surrender one NZU (or acceptable offset or international unit, where permitted) for each tonne of emissions (accounting rules depend on sector and time).

  • Participate in auctions of NZUs where applicable.

  • For certain emissions-intensive, trade-exposed (EITE) activities, seek industrial allocation (free NZUs) under eligibility rules.

  • Comply with sector-specific obligations, including forestry, waste, industrial processes, energy, and synthetic gases.

  • Follow the annual updates to NZ ETS unit supply and price control settings, as prescribed by regulation.

  • Abide by market governance rules and reporting of trades in the secondary market when such rules take effect.

Important Deadlines & Recurring Obligations

  • The Minister of Climate Change must update the unit limits and price control settings annually, ensuring a rolling five-year schedule of settings.

  • Operators generally must submit emissions returns and surrender obligations by dates set in regulation (these vary by sector).

  • Changes to the scheme (regulations, governance rules) take effect as soon as they are passed into law.

Current Status

  • The NZ ETS was first enacted under the Climate Change Response (Emissions Trading) Amendment Act 2008 as part of the Climate Change Response Act 2002.

  • It covers most sectors except agriculture (currently excluded) for many gases; forestry is included (carbon removals).

  • It has evolved: the scheme now features auctioning, free allocation for industrial sectors, price controls, and updates to emissions factors.

  • The unit supply (number of NZUs) and price controls are adjusted annually via regulation.

  • Proposed reforms include strengthening market governance (e.g., requiring trade reporting, market conduct rules, oversight by the Financial Markets Authority) under a pending Market Governance Amendment Bill.

  • The government regularly consults on NZ ETS regulation updates and settings.

  • The NZ ETS is currently not linked to other international trading schemes, though it allows limited international unit use (though that may be restricted or regulated).

Penalties for Non-Compliance

Penalties for failing to comply with NZ ETS obligations may include:

  • Financial penalties and fines for failing to surrender sufficient NZUs or missing regulatory obligations.

  • Administrative sanctions, such as prohibition from participating or revoking rights to submit returns.

  • Enforcement actions under the Climate Change Response Act and related regulations.

  • Potential reputational and regulatory consequences.

Examples of Known Violations

Publicly reported specific enforcement cases under the NZ ETS are relatively limited. In regulatory reviews, the scheme has faced criticism for under-enforcement, overly generous free allocations, and weak price signals. To date, no widely publicized high-profile fines or named entities have dominated media coverage.

Resources

Maílis Carrilho
Written by:
Maílis Carrilho
Sustainability Research Analyst
Maílis Carrilho is a Sustainability Research Analyst (Intern) at Net Zero Compare, contributing research and analysis on climate tech, carbon policies, and sustainable solutions. She supports the team in developing fact-based content and insights to help companies and readers navigate the evolving sustainability landscape.