The Government has locked in the floor price for carbon units until 2031, a year longer than planned, even though not a single unit has sold at a government auction since late 2024.
Climate Change Minister Simon Watts announced the decision on Wednesday, saying the Government would maintain the existing unit settings in the Emissions Trading Scheme rather than change them. According to the announcement, the current auction floor price, the cost containment reserve price and the current reserve volume of New Zealand units will all be extended until 2031 instead of ending in 2030. A set of minor regulatory changes carried over from consultation will also proceed. The changes take effect on 1 January 2027.
“A stable ETS is key to delivering the emissions reductions required to meet our targets. These settings provide the certainty participants need to plan for the future,” Watts said.
He said the settings were “consistent with ensuring New Zealand remains on track to meet our emissions budgets and targets”, and that the approach “aligns with advice from the Climate Change Commission, supports our targets, and helps maintain confidence in the ETS”.
The Emissions Trading Scheme is the main tool the country uses to put a price on greenhouse gas emissions. Big emitters such as fuel importers, industrial manufacturers and waste operators have to surrender one New Zealand unit, known as an NZU, for each tonne of carbon dioxide equivalent they are responsible for. Foresters earn units for the carbon their trees absorb. Units change hands on a secondary market between buyers and sellers, and the Government also releases new ones through quarterly auctions.
Those auctions are where the picture gets awkward. The Government sets a hard floor, an auction reserve price below which it will not sell. The floor sits at $71 a unit this year and is scheduled to climb to $87 by 2030, according to the International Carbon Action Partnership. But the market price has been sitting well below that. The monthly spot index for NZUs was around $54.65 on 3 August, roughly $16 under the price the Government is asking.
No buyer will pay $71 at auction when the same unit can be bought for $55 from someone else. So nobody bids. Carbon News reported in June that the auction that month was the sixth in a row to fail, with no bidders at all for the 2.6 million units on offer. All four auctions in 2025 failed the same way. Of the twelve auctions held across 2023, 2024 and 2025, ten sold nothing and only two cleared even partially.
When units go unsold at the end of a calendar year they are not carried over. They are permanently cancelled. Six million units left unsold after the December 2025 auction were withdrawn from the market for good, along with 7.1 million units that had been held in the cost containment reserve for that year. That is a significant amount of future supply simply deleted, and it is the reason the scheme’s problem is now flipping from one end to the other.
The Climate Change Commission spelled this out in its annual advice, released on 24 April this year, covering the settings for 2027 to 2031. The Commission recommended exactly what the Government has now done, keeping the price controls as they are and extending them to 2031, with adjustments for inflation from 2029. But it attached a warning. Because the surplus of units in the market is being burned through faster than expected, largely because auctions keep failing and unsold units keep being cancelled, the scheme could swing from having too many units to having too few. The Commission said a shortfall could appear as early as 2028.
“We’ve identified a potential future unit shortfall, which is concerning but uncertain,” Commission chief executive Jo Hendy said in the Commission’s statement at the time.
Hendy also made a broader point about what the annual settings can and cannot achieve. “Annual auction settings can’t solve the bigger design challenges with the NZ ETS. The scheme covers around 40% of domestic emissions, and that share is declining,” she said. She added that “bigger reforms are needed for the NZ ETS to be an effective tool in the 2030s”, and that for the scheme to support an orderly transition, the emissions price should rise steadily over time.
There is also a straightforward fiscal consequence that tends to get lost in the technical language. An auction that attracts no bids raises no money. The Crown had budgeted for revenue from selling those units, and when the auctions fail that revenue does not arrive.
For foresters, the low unit price is the more immediate issue. Carbon income has become a meaningful part of the return on planting, particularly on marginal hill country, and a price in the mid fifties changes the arithmetic on whether a block is worth planting at all. For large emitters, a cheap unit price means a weaker signal to invest in cutting emissions, which is the entire point of having a price in the first place.
The decision lands three months out from the general election, and the design of the ETS is one of the clearer points of difference between the parties. If you want to see where each party sits on climate policy and the rest of the platform before you vote, our voting tool lets you compare them side by side.
The Commission is due to give its next round of advice in the usual annual cycle, and the Government has signalled it will look at the shortfall risk separately rather than through the yearly settings. Until then the floor stays at a level the market has not been willing to meet for nearly two years.
What do you make of the Government leaving the carbon price floor where it is? Have your say in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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