The ETS puts a price on emissions, by charging certain sectors of the economy for the greenhouse gases they emit while carrying out particular activities, or for emissions that will be generated when the products they sell are used. Businesses from some sectors that are involved in activities that remove greenhouse gases from the atmosphere may earn emission units.
New Zealand Units (NZUs)
The 'currency' of the ETS is New Zealand Units (NZUs) – commonly referred to as a 'carbon credit'. An emission unit can represent one metric tonne of carbon dioxide itself, or the equivalent of any other greenhouse gas.
These units are created and allocated by the Government to organisations and individuals participating in the scheme, dependent upon the industry they represent. Most businesses and individuals will not be directly involved in the ETS.
Foresters earn NZUs from the Government because their trees absorb greenhouse gases.
Only a few businesses have an obligation to surrender NZUs to match their emissions. For example:
- Emitters of greenhouse gases have to surrender NZUs to the Government – for example, companies that mine or import natural gas or coal as this will result in the emission of greenhouse gases when it is used.
Some emitters will be given NZUs by the Government – for example companies that might face significant increases in energy costs that they are unable to pass on to their customers.
All these groups and others can then trade NZUs – those with spare NZUs can sell them to those who have to surrender units.