The Emissions Trading Scheme (ETS) aims to reduce New Zealand’s greenhouse gas emissions and transition to a low carbon economy.
The ETS puts a price on carbon emissions, providing an incentive for people to reduce emissions and plant forests to absorb carbon dioxide.
Certain sectors, including the oil and gas industry, are required to purchase 'New Zealand units' to offset their emissions.
An emission unit is one metric tonne of carbon dioxide, or the equivalent of any other greenhouse gas, therefore making businesses pay for their greenhouse gas emissions. This encourages them to reduce emissions through changing their practices or investing in new technology. This is why putting a price on emissions is widely recognised around the world as the best way to lower emissions at least cost.
Forestry owners can sell New Zealand units to emitters, because trees absorb carbon. The price of these New Zealand units is set by the market. This should result in increased incentives to plant forestry.
The ETS now has a 'cap' which is maximum total allowable amount of emissions allowed.