The ETS essentially puts a price on the emission of greenhouse gases and provides incentives that will encourage sectors to search for the most efficient paths to lower net emissions across the economy.
Participants in the ETS will have three core obligations:
- Monitor the emissions they are responsible for
- Report these each year to the Government
- Surrender emissions units to cover their reported emissions.
The Government will issue a number of emissions units for forest carbon sinks (that meet the required criteria) and these may be held, or bought and sold (that is, traded), within New Zealand. The primary unit of trade in the ETS will be the New Zealand Unit (NZU). One NZU represents one tonne of carbon dioxide (CO2) either released to the atmosphere (emissions) or removed from the atmosphere (removals).
The ETS will be linked to the international Kyoto Protocol market. NZUs will be generally interchangeable with New Zealand Assigned Amount Units (AAUs), held by New Zealand under the Kyoto Protocol. AAUs can be used by any country to meet any of their obligations under the Kyoto Protocol. They are not, however, automatically allowed into all countries’ domestic emissions trading schemes. For example, the European Union (EU) currently does not allow New Zealand AAUs to be used by companies with obligations under the EU Emissions Trading Scheme. However European countries have purchased NZ AAUs.
Ownership of NZUs will be recorded in a central registry (the New Zealand Emissions Unit Registry, NZEUR) NZUs are transferred between registry accounts when they are surrendered or sold. Participants wishing to sell NZUs can instruct the registry to transfer them from their account to another account.
Similarly, Participants who are required to surrender emissions units for compliance purposes will do so by instructing the NZEUR to transfer units from their account to a ‘surrender account’ in the registry. If a participant does not have sufficient units in their account, they will be required to buy sufficient units to cover the shortfall and then surrender them.
Forest owners will meet all costs of administration, monitoring, auditing and compliance and also carry the liability for maintaining the carbon stocks. If credits have been sold then at harvest they will have to be repaid.