NZ ETS unit settings and annual regulatory updates 2025

Following a period of stability after the 2024 settings decisions were announced, secondary market spot prices have declined from around $65 in January 2025 to around $50 at the time of writing. This is more than 25 per cent below the 2025 auction reserve price of $68 (figure 2).

Forward and futures price curves are sitting below future auction price floor levels, although these instruments are not traded in large volumes. These prices are significantly below the expected price path generated from the modelling to develop the second emissions reduction plan and the 2024 New Zealand Emissions Trading Scheme settings.

Figure 2: New Zealand Unit secondary market spot price and auction price floors, January 2022–April 2025

^{Source: NZU secondary market spot prices from Jarden commtrade}

Market commentary has been mixed on the possible cause of the decline in prices. Some has focused on short-term factors that could reverse. Initially much of the focus was on the financial pressures on small-scale foresters, some of whom were thought to be selling New Zealand Units (NZUs or units) to meet cashflow needs. Larger compliance buyers are generally well supplied and have been able to buy opportunistically when certain price triggers are met.

More recently, global sentiment has deteriorated significantly, which is weighing on markets in general. This appears to be spilling over into carbon markets, most notably the Californian scheme, but also the European and Australian schemes. There is also some domestic policy uncertainty as the details on policies such as the proposed limits on whole-farm conversions of high-quality productive land to exotic forestry registering in the NZ ETS and afforestation on Crown-owned land are being confirmed.

Other commentators have noted that current price dynamics could represent a more fundamental re-pricing of the cost of reducing net emissions. This means that emissions budgets could be achievable at a lower market price than previously anticipated.

Afforestation has been considerably higher over the past few years than was anticipated when auctions were introduced. In addition, a growing share of forestry has switched into the permanent forest category, which frees up NZUs previously held against future harvest liabilities.

To the extent a repricing is taking place, current price levels would indicate that the market has enough supply that additional units from auction are not needed.

We are keen to hear your views on the possible causes and implications of current market pricing.

We also gratefully acknowledge those who responded to the recent survey of NZU holders. The results are still being analysed, but we expect to be able to draw on insights when making final policy decisions. This includes the extent to which the insights shed light on recent market dynamics.