The New South Wales Greenhouse Gas Reduction Scheme created to reduce greenhouse gas (GHG) emissions associated with the production and use of electricity has been supplanted by the Australian federal government’s implementation of a national carbon tax. The domestic compliance carbon markets now operating in Australia and New Zealand are considered candidates for future linkage, but are on seemingly divergent paths.




The New South Wales (NSW) Greenhouse Gas Reduction Scheme (GGAS) was an Australian mandatory state-level program launched in January 2003 – two years before the European Union Emissions Trading System – to reduce GHG emissions by electricity retailers and other parties in Australia’s most populous state through 2021. But in April 2012, the NSW Government announced the closing of the GGAS upon the start of the federal government’s carbon tax to reduce duplication between the federal and state schemes and to minimize costs for electricity consumers, as directed by the GGAS legislation that required the state system to be wound down if a national carbon pricing mechanism were implemented.

In July 2012, the Australia federal government introduced a carbon tax requiring businesses emitting more than 25,000 tonnes of carbon dioxide equivalent (tCO2e) emissions annually to purchase emissions permits. These entities account for about 60% of the country’s carbon pollution. The carbon price was initially set at A$23/tCO2e for the 2012–13 financial year, but rising by 2.5% a year until a transition to an emissions trading scheme in 2015–16. Australian Prime Minister Tony Abbott has been actively trying to scrap the carbon tax since his coalition prevailed in national elections in September 2013, but he has been rebuffed several times by opponents in the legislature.

New Zealand

The New Zealand Emissions Trading Scheme (NZ ETS) was implemented to allow the country to do its “fair share in tackling global climate change” and to help New Zealand meet its international obligations to reduce its GHG emissions under the United Nations Framework Convention on Climate Change and the Kyoto Protocol. The scheme covers emissions of the following six GHGs: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride, which are covered by the Kyoto Protocol to which New Zealand is a signatory.

Under the NZ ETS, the forestry, transport fuels, electricity production, industrial processes, synthetic gases, agriculture and waste industries have compliance obligations. Participants from the forestry sector are required to surrender one New Zealand unit (NZU) – the primary unit of trade in the NZ ETS –for each tonne of GHG emissions they produce, while participants from non-forestry sectors are required to surrender only one NZU for every two tonnes of GHG emissions. Participants can also surrender a range of ‘Kyoto units’ which they can buy overseas, as well as those generated through New Zealand’s domestic Permanent Forests Sink Initiative (PFSI).



New South Wales 


New Zealand 




Despite significant policy uncertainty, Australian offset suppliers managed an upswing in demand to transact 90% of Oceania’s volume in 2012 in anticipation of the implementation of the federal carbon pricing scheme, according to Forest Trends’ Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2013 report. The Oceania region supplied 7.3 million tonnes (MtCO2e) of transacted offsets in 2012 at an average price of $8.8 per tonne of carbon dioxide equivalent (tCO2e), which was lower than in 2011 as transactions were driven by buyers looking for pre-compliance offsets rather than for strictly voluntary purposes.

Possibilities for project development under Australia’s government-administered Carbon Farming Initiative (CFI) – focused on Kyoto-compliant abatement in domestic agriculture, forestry, land use – are broadening as methodologies are slowly approved for compliance use, according to the Ecosystem Marketplace report. While suppliers transacted CFI units to pre-compliance and voluntary buyers, the market generally remained cautious toward large, long-term commitments given the uncertainty created by the federal elections in September 2013. With the possible scrapping of Australia’s carbon price, the CFI, which enjoys bipartisan support, is anticipated to stay around but with demand and terms of project eligibility expected to undergo dramatic change under the government’s proposed Direct Action plan, which would provide a limited budget for government purchasing of offsets.

Offset suppliers in New Zealand’s forestry-heavy market have struggled to attract domestic demand within a difficult policy environment, with voluntary offset transaction volume falling by more than 50% in 2012, according to the Ecosystem Marketplace report. With just 19% of offsets sold to domestic voluntary buyers, both Kyoto units and verified emissions reductions (VERs) generated through the country’s government- administered Permanent Forest Sink Initiative (PFSI) tapped into a limited stock of offshore voluntary buyers in Canada, Germany, and Japan. Voluntary demand has diminished not just by domestic buyers due to restrictive guidelines on offsetting and carbon neutrality claims established by the country’s Fair Trading Act of 1996, but also by overseas buyers due to the influx of competing offsets from Reduced Emissions from Deforestation and Degradation (REDD) projects certified to the Verified Carbon Standard (VCS) alongside other projects.

While selling to the occasional voluntary buyer, New Zealand project developers still rely on business from the domestic compliance market via the New Zealand Emissions Trading Scheme (NZ ETS), which continues to tank the price of domestic offsets with its unrestricted import of low-priced international Kyoto units, according to the Ecosystem Marketplace report.

Because New Zealand’s government has opted not to participate in the Kyoto Protocol’s second commitment period, domestic emitters will no longer be able to access Kyoto units starting 2015. While it is unclear what emissions reduction target the government will pursue in place of its Kyoto target, suppliers anticipate that the scrapping of Kyoto units could help domestic prices recover. Price recovery will also depend on how heavily the government intends to influence pricing starting 2015 – whether through auctioning limits to influence supply or through price support measures like a floor price.

Forest Trends’ Ecosystem Marketplace’s Maneuvering the Mosaic: State of the Voluntary Carbon Markets 2013 report