New Zealand is taking decisive action to restore confidence in its Emissions Trading Scheme (ETS) by significantly reducing the number of emission credits available between 2025 and 2029. The government announced that the availability of units, which represent one metric tonne of carbon dioxide or its equivalent, will be cut from 45 million to 21 million.

The oversupply of units has led to a depreciated carbon price and failed auctions, which threatens the achievement of New Zealand’s climate targets. Climate Change Minister Simon Watts emphasized, “There is an oversupply of units held by participants which has contributed to a depreciated price of carbon. This has led, in part, to the failure of recent auctions to clear, and poses a risk to achieving our climate targets and emissions budgets.”

Despite the cut in units, the government will retain the current auction floor price, the cost containment reserve price, and the reserve volumes of New Zealand units. Watts noted, “These settings are doing their job and should be left alone.”

The reduction in units is expected to drive up the carbon price, incentivizing businesses and individuals to reduce emissions. While this may lead to higher costs, the government’s modeling suggests the impact on everyday New Zealanders will be minimal. Watts reiterated the government’s commitment, saying, “We need the carbon price to encourage businesses and individuals to reduce their emissions to meet our climate targets.”

The changes will take effect starting with the first auction in 2025, marking a critical step in New Zealand’s climate strategy.