Understanding the Emission Trading Scheme and Carbon Markets is not always clear cut. Let us take a moment to review.
The Emissions Trading Scheme (ETS) is the price-based mechanism established by the New Zealand Government to:
- Reduce net greenhouse gas emissions below business-as-usual levels
- Comply with our international obligations, including our Kyoto Protocol obligations.
The comprehensive scheme is a key part of overall climate change policy and involves all significant greenhouse gases and all sectors including forestry, agriculture, industry, energy, waste and liquid fossil fuels.
By introducing a price on greenhouse gases, it provides an incentive for people to reduce emissions and enhance forest sinks. Emissions trading provides flexibility in how participants comply with their obligations, enabling a least-cost response. Figure 1 show how the carbon emission unit trading system is designed to work.
Figure 1: Overview in trading carbon units within the ETS (Source: http://www.climatechange.govt.nz)
By 2015, once the emissions trading scheme has been fully phased in, it will cover greenhouse gas-emitting activities in all major sectors of the economy. Until then each sector is being introduced in stages. Figure 2 outlines the sector adoption timelines, showing forestry as being the first off the block in Jan 2008.
Figure 2: Industry Involvement and Adoption (Source: http://www.carbonfarming.org.nz)