Significant further changes to New Zealand’s climate policy architecture

Cabinet has approved amendments that would reshape the CCRA’s institutional arrangements and its linkages between domestic and international climate policy. The proposed changes would see the Commission’s role refocused as a ‘system monitor’. It would no longer provide separate advice on the direction of policy for each Emissions Reduction Plan (ERP), and specific public consultation requirements on emissions budgets and ERPs would be removed in favour of expert engagement.

The Commission would continue to provide policy advice to the Government of the day through its five-yearly emissions budget advice and via its annual Emissions Reduction Monitoring report. The Minister could also request advice from the Commission (e.g., on ETS price and unit control settings). When providing advice to the Minister on unit supply and/or auction price control settings, the Commission would be directed to take current Government policy into account. 

The Government proposes to refocus the CCRA’s ERPs to only include policies and strategies for meeting the relevant domestic emissions budget set under the CCRA. Other current drivers for ERPs (e.g. mitigating the wider impacts of emissions reductions and removals, or strategies to improve the ability of sectors to adapt), could still be relevant but would be incorporated at the Minister’s discretion. The Government also proposes to remove the obligation to consult on proposed changes to an existing ERP.

The package additionally proposes changes to the timeframes for various CCRA processes to reduce the frequency of, or lead in time for, some decisions, including to:

• reduce the frequency of changes to ETS unit price and volume settings to occur every two years rather than annually;
• limit the lead in time for regulatory changes following amendment to ETS settings from three months to 28 days; and
• delay the next ERP to be due in 2030 (not 2029) and subsequently only require ERPs to be produced in the last year of an emissions budget. 

The Government suggests the changes may reduce market volatility, reduce the burden on the Government and provide for system efficiencies.

The Government has proposed to remove the requirement that ETS unit volumes and price controls “accord with” New Zealand’s NDCs¹ under the Paris Agreement.  The current requirement ensures ETS settings align with both New Zealand’s domestic and international climate targets, meaning the ETS has a role in achieving NDCs by driving domestic emissions reduction. However, to meet New Zealand’s first NDC, offshore mitigation/credits will be required, and the Government’s ability and appetite for such action is currently unclear.

The Regulatory Impact Statement suggests that removal of the link to international obligations is necessary to avoid potential sharp reductions in ETS auction volumes, causing higher New Zealand Unit (NZU) prices, increased volatility, potential short‑term sourcing constraints for compliance entities, and undermining market confidence.  

It also suggests the linkage to international commitments is misaligned with the ETS, which is a “domestically focused instrument”.  

If implemented, this change would mean that:

• NZU limits and price controls at quarterly Government auctions will be set to meet domestic emissions budgets, with no direct legal test considering New Zealand’s NDCs.
• Government will retain the flexibility to use international cooperation mechanisms under the Paris Agreement to count offshore mitigation toward NDCs, but domestic ETS settings would not be contingent on that progress.

The Government proposes to progress this change under urgency and intends to pass the amendment by the end of 2025.

The early‑2023 North Island severe weather events exposed issues with the ETS framework for forestry participants affected by major disruptions. Cabinet has agreed to a suite of amendments to ensure ETS obligations are able to be flexibly applied should similar circumstances arise in future. In particular the proposal includes:

• Extended deadlines after disruption: ETS participants would be able to apply for time extensions if the participant’s home, business or forest land is located in an area directly affected by a significant disruption. For example, the Environmental Protection Authority (EPA) would be able to approve up to 60 working day extensions for emissions return and surrender deadlines.
• Deforestation tests: A three‑year extension may be granted to the timing of certain deforestation tests to support orderly re‑establishment where disruption has occurred. Consequently, the current 4-year period to replant/regenerate temporarily cleared pre-1990 forest land without triggering deforestation would be able to be extended to 7 years.  

The policy materials provide limited guidance as to what will amount to a qualifying disruption event, noting it will include “significant disruptions such as severe weather events,” citing cyclones and associated damage to residences, farms, forests, production facilities and offices, as well as access limitations to necessary information. The framework is designed to be event‑agnostic but triggered where disruptions materially impede ETS compliance. The Government has not proposed a threshold for an event to qualify as a disruption but may pass regulations to specify thresholds in the future. 

Cabinet has agreed to add a new pathway for generating NZUs under the ETS or voluntary market credits for “carbon removal activities”, beyond forestry. The objective is to incentivise a wider set of activities that can generate carbon credits/NZUs for removing greenhouse gas emissions from the atmosphere, allowing the revenues from sales of the credit/NZU to support investment in such activities. Ultimately, the Government hopes to diversify the types of domestic emission removal activities to help meet budgets and the 2050 target.

Future candidates for such removal activities could include non‑forestry removals such as:

• Technological removals and storage (e.g., carbon capture and storage from industrial sources and/or direct air capture with storage).
• Biological and ecosystem‑based removals where science supports robust quantification and permanence, for example certain coastal blue carbon systems (salt marshes, mangroves, seagrass) if and when they can be measured and verified at national scale.
• Other land‑based sequestration methods that meet additionality, durability, leakage and measurement standards (e.g., wetland restoration).

However, the generation of carbon credits/NZUs from these activities is still some way off. No new activity will automatically be able to generate credits/NZUs as a result of the proposed amendment. Each candidate activity will still be subject to technical assessment and a full regulatory process. 

To shed some light on that process the Government has also published a new Assessment Framework for Carbon Removals as official policy. Key features include:

• Two‑stage assessment. A science assessment to test “readiness” and “sufficiency” (e.g., in considering factors such as additionality, measurement, permanence, leakage, risk and reversals management, etc), followed by an inclusion assessment addressing ETS design, accounting, system integrity and interactions with emissions budgets and the NDC.
• Decision and implementation. A positive assessment does not guarantee crediting. Ministers and Cabinet will decide whether to pursue inclusion. If approved, enabling regulations, registry changes, verification systems, and market infrastructure would then be developed, typically over 12–18 months depending on complexity.
• Applications and tools. MfE expects to launch application tools for submissions in the first half of 2026. A self‑assessment tool will support proponents to prepare robust evidence packages for activities to be officially recognised.

For carbon reduction project developers and investors, this is intended to create a clearer route to seek ETS and/or voluntary crediting for non‑forestry removals and, separately, for potential counting toward New Zealand’s NDC (where national‑scale inventory integration is feasible).

The Government intends to allow applications under the Framework to be received from March 2026.

The Government has also committed to updating the current guidance on voluntary climate change mitigation which relates to the use of offsets when making climate-related claims The current interim guidance was last updated in 2022, largely based on 2020 advice, and has been somewhat overtaken by international developments in voluntary carbon market integrity principles.

The update is proposed to be released in early 2026 and is intended to align the guidance with MfE’s newly published Assessment Framework for Carbon Removals (see comments above  in relation to ‘Expanding recognised carbon removal activities’) and clarify how voluntary activities interact with New Zealand’s domestic and international climate change commitments and the ETS.

Based on the Cabinet paper and the Assessment Framework, we anticipate the guidance update will include:

• Clearer claims integrity and hierarchy. Reinforced principles on what constitutes credible voluntary mitigation claims in a capped economy, including how the ETS cap and emissions budgets affect claim framing.
• Quality criteria for credits. More explicit treatment of additionality, permanence/durability, measurement and verification, leakage, double counting, and reversal risk management, aligned with the science assessment criteria used for potential ETS inclusion.
• Pathways and expectations for new removals. A description of the assessment and regulatory pathway for new removal activities (including timelines and evidentiary requirements) and how projects could choose between seeking ETS recognition or operating in voluntary markets.
• Interaction with the NDC. Clarification on when and how voluntary activities could be counted toward New Zealand’s NDC (noting this likely requires changes to climate accounting and Ministerial/Cabinet decisions), and the distinct status of voluntary credits for corporate claims versus compliance‑grade NZUs.
• Project developer tools. Links to a proposed self‑assessment tool (proposed to be published in 2026) and an application process to help carbon removal project proponents evaluate whether their activity would be better suited to the voluntary market or a future ETS crediting pathway.

The Government is proposing substantial changes to introduce greater certainty for “emissions intensive and trade exposed” businesses that receive free allocation of NZUs under the ETS (also known as “Industrial Allocation”). Key changes proposed include:

• Changes to allocative baseline reviews: The Government intends to remove a range of existing discretionary and mandatory review processes that can be used to reduce an allocation recipient’s overall allocation. The stated rationale for this change is to avoid penalising firms that invest in emissions‑intensity reductions. Reductions are still possible via more general allocation phase-out reviews, which can occur every five years and will be required to include recognition of a firm’s decarbonisation investments
• Changes to allocation related to electricity contracts: The Government also intends to introduce increased formality and certainty into the process by which industrial allocation recipients can receive less allocation as a result of favourable electricity contracts (by a process which results in the business having its own “Electricity Contract Allocation Factor” (ECAF)). More specifically, the Government proposes to publish guidance on when electricity contracts can be called in for consideration and how the ECAF would be set. The Government also proposes to create a process whereby allocation recipients can seek a binding “pre-clearance” of draft electricity contracts to have certainty regarding the impact (if any) that entering into the contract would have on their allocation levels.
• Changes to remove allocation related to information standards: Finally the Government proposes to make would-be allocation recipients ineligible for allocation where they fail to comply (without reasonable excuse) with notices to provide accurate emissions, production or revenue information. The proposal is a warning to allocation recipients and will underscore the need for transparent and accurate communications on allocation.

While not the focus of this briefing, other changes in the Cabinet package which may be relevant include:

·        Importation of CO₂ brought into the ETS. Importers above a threshold will be required to surrender NZUs for imported CO₂, aligning treatment with domestic CO₂ supply and levelling competitive impacts.

·        Penalty and administrative adjustments. Technical amendments include a revised penalty calculation where an amended outcome should have been zero, discretion to waive penalties in some instances and administrative changes to penalty interest and EPA penalty repayment processes.

·        Permanent post‑1989 forest removals (technical fixes). The list of circumstances permitting removal of land from permanent post‑1989 registration will be expanded to include cases where the registered activity was never actually undertaken in a carbon accounting area, and where small sub‑hectare slivers arise over title boundaries due to subdivision or mapping changes.

·        Improved processing times. CCRA provisions would be modified to shorten the timeframes for processing certain notices related to changes ownership of forestry land. The change is intended to accelerate orderly market participation (joining and exiting) after ownership changes and improve administrative efficiency while maintaining scheme integrity.