Annual updates to emission unit limits and price control settings

The Minister of Climate Change is required to update the overall limit, sub-limits, and price control settings every year. This ensures there is always five-years of settings in place (see Figure 1 below).

The five-year process means: 

• announcing new unit limit volumes and price control settings for the fifth year 
• considering whether new limits and price control settings should be recommended for years 3 and 4 
• potentially prescribing new limits and price control settings for years 1 and 2, if the amendment is justified by special circumstances that require change. 

The special circumstances which could justify a change include: 

• a change that has significantly affected any matter that the Minister is required to consider under section 30GC of the Climate Change Response Act 2002 [New Zealand Legislation]. For example, projected trends, proper functioning of the scheme. 
• a change in the emissions budget, nationally determined contribution under the Paris Agreement or emission reduction targets that applies to the year in which the amendment is made 
• if the cost containment reserve is released or units are auctioned at their minimum price 
• a force majeure event (e.g., an unforeseeable circumstance) 

There is a one-off exception to this rule. Once the Government has set the first emissions budget, the Minister must amend regulations to ensure they prescribe new limits and price control settings for each of the next 5 calendar years. This includes prescribing new limits and price control settings for years 1 and or 2.

The Climate Change Commission makes recommendations on NZ ETS unit limits and price control settings to the Minister every year. The Minister must publicly consult on updates to settings and consider the Commission's recommendations. 

The unit limits that must be prescribed in regulations are: 

• a limit on the total number of NZUs available by auction.  This is comprised of annual auction volume plus the volume available within the cost containment reserve (CCR) and is shown in the table below 
• a limit on approved overseas units; which, as New Zealand currently has no access to offshore mitigation, is zero 
• an overall limit on units, often referred to as the NZ ETS cap. It consists of units available by auction, by other means (e.g. from industrial allocation) and approved overseas units. This excludes consideration of units transferred for removal activities 

If the Minister recommends unit limits and price control settings that differ from the Climate Change Commission’s recommendations, the Minister must publicly explain why. 

The Government has decided to maintain the current price control settings and the cost containment reserve volumes (CCR), with minor changes from existing settings as follows:  

• to reflect Treasury Budget 2024 inflation forecasts for 2027 and 2028 
• to extend settings to 2029 

The Government has decided to update unit limits as outlined in the table below. The approach to updating unit limits is the same as was consulted on. The unit limits are different from those included in the consultation document because they are based on more recent data.