The ETS is a cap and trade mechanism that has the effect of putting a price on carbon (and other greenhouse gases) in an attempt to reduce the carbon emissions in New Zealand.
The primary unit of trade is the New Zealand Unit (NZU). NZUs are also called carbon credits.
- Certain entities within the ETS that emit greenhouse gases must pay units to the government.
- Entities that remove greenhouses gases, like those in forestry, can earn units from the government, which they can sell to companies that emit.
Forestry entered the ETS on 1 January 2008. It was the first sector to enter, because of the importance of forestry to New Zealand’s ability to meet its international obligations for greenhouse gas emissions. Forestry is New Zealand’s largest carbon ‘sink’. As trees grow, they absorb carbon dioxide from the atmosphere and store it in their trunks, branches, leaves and roots.
By putting a price on greenhouse gases, the ETS encourages landowners to establish and manage forests in a way that increases carbon storage. All of the forest land managed by Forest Enterprises has the potential to earn carbon credits through the ETS.
The Scheme creates two types of plantation forests: Pre-1990 forests (planted before 1 January 1990) and Post-1989 forests (planted after 31 December 1989). Pre-1990 forests are automatically in the ETS. Owners of Post-1989 forests can join the ETS if they wish, and will gain credits and incur liabilities if they do so.