NZ Tightens Emissions Trading Scheme Rules to Boost Market Integrity

In a major step toward ensuring the integrity and effectiveness of New Zealand’s carbon market, the Government is introducing long-awaited reforms to strengthen the market governance of the Emissions Trading Scheme (ETS). The announcement by Climate Change Minister Simon Watts signals a renewed commitment to leveraging the ETS as a central pillar in the country’s climate change strategy.

Enhancing Transparency and Credibility

Describing the ETS as New Zealand’s “most powerful and cost-effective tool” to reduce net emissions, Minister Watts emphasized that the scheme’s success hinges on credible and well-regulated market operations. The reforms come in response to years of discussion around improving oversight, transparency, and protections against market misconduct.

“Talk about changing market governance settings has been happening for years,” Watts said. “This Government is committed to a credible ETS-led approach to reducing emissions, so is now turning talk into actions.”

These changes aim to provide regulators and market participants with better visibility into the functioning of the carbon market, improve confidence among investors, and align New Zealand’s ETS oversight with global standards.

Key Governance Reforms

The proposed changes to the ETS’s governance include several significant measures:

• Mandatory Market Reporting: Trading platforms will now be required to report real-time price and volume data to the Ministry for the Environment. This step will enhance market transparency and allow for better monitoring of market trends.

• Transaction Recording Requirements: All ETS market participants will be obligated to record their trades in the ETS Register. This centralization of data will facilitate more accurate tracking of emissions units and identify unusual trading patterns.

• Market Conduct Rules: New provisions under the Climate Change Response Act will explicitly prohibit price manipulation and misleading conduct. These obligations are expected to deter bad actors and promote fair market behavior.

• Inter-Agency Information Sharing: The reforms also empower monitoring agencies to obtain relevant information from market participants and share this data among themselves, improving enforcement and policy responsiveness.

A Balanced Approach

Watts was clear that while the new rules are firm, they are also measured to avoid unnecessary burdens. “These changes have been carefully designed to address risks without adding unnecessary costs or red tape,” he explained.

Importantly, the Government has decided against creating a government-run exchange or clearing house—a costly measure previously considered by the former administration. Instead, the current approach focuses on enhancing oversight without disrupting the existing market infrastructure that businesses are already familiar with.

Closing the Oversight Gap

Minister Watts acknowledged that New Zealand has been behind other countries with similar carbon trading systems in terms of regulatory oversight. “Right now, there is limited visibility to much of our ETS trading. This makes our market vulnerable to market misconduct risks such as price manipulation,” he said.

The new governance framework will correct these gaps and help New Zealand’s ETS keep pace with global best practices, supporting the country’s broader transition to a low-emissions economy.

Legislative Timeline

The changes are expected to be introduced as amendments to the Climate Change Response Act and are likely to be tabled in Parliament before the end of 2025. These legislative updates will complement other climate policy reforms being considered by the Government.

As New Zealand sharpens its climate tools, this new focus on market integrity is poised to enhance the ETS’s role not just as an environmental mechanism, but as a robust financial market contributing to the country’s net-zero future.