Guide to the New Zealand Emissions Trading Scheme - 2026 update

The New Zealand Emissions Trading Scheme (NZ ETS) is a central pillar of Aotearoa New Zealand’s strategy for climate change mitigation. Understanding how it works — and how it has changed — matters for future decision-making and action on how to reduce national greenhouse gas emissions.

Motu Research has updated its plain-English guide to the NZ ETS (last published in 2022). The 2026 edition explains how the scheme works, describes its core design features, and traces how and why those features have evolved. It draws on data trends and references government policy changes announced as of March 2026. It is a guide, not a policy prescription.

What has changed since 2022 

The NZ ETS has shifted considerably in four years. The guide covers:

• the rise and fall of renewed efforts to price agricultural emissions from livestock and fertilisers
• steps to reduce the overallocation of free New Zealand Units to emissions-intensive and trade-exposed industries
• new standard and permanent classifications for post-1989 forests
• restrictions on registering exotic post-1989 forests on productive agricultural land
• the decoupling of unit supply and price control settings from New Zealand's Paris Agreement commitments
• signalled plans to introduce new sources of emissions removals.

Why it matters

Emissions trading works when it sends clear, consistent price signals that steer investment toward low-emission options in line with targets. The guide shows that while the NZ ETS has established a functioning market, periods of policy uncertainty and unit oversupply have blunted those signals — particularly outside the forestry sector.

Looking ahead, the scheme faces real challenges. Managing unit supply and demand against tightening emissions budgets under the Climate Change Response Act will require careful navigation of: 

• a large stockpile of participant-held units
• the intended phase-out of auctioning and industrial free allocation
• a legislated change to the 2050 biogenic methane target
• uncertainty about the future supply of (and demand for) forestry and non-forestry removals, both inside and outside the NZ ETS. 

These are not abstract questions. How Aotearoa answers them will shape the effectiveness of its climate response for decades.

Who should read this

The guide is written for NZ ETS market participants, stakeholders, researchers, and policymakers — and for anyone who wants to understand one of the most consequential levers in Aotearoa New Zealand's climate toolkit.