Climate Change Commission Sounds Alarm: New Zealand Emissions Trading Scheme At Risk of Collapse

NZ’s Emissions Trading Scheme could collapse by the 2030s due to volatility and unit shortfalls. The Climate Change Commission urges government reform to protect the economy.

By: AXL Media

Published: Apr 27, 2026, 4:11 AM EDT

Source: RNZ Pacific

The Looming Threat of Unit Shortfalls and Price Spikes

The Climate Change Commission (CCC) has delivered a stark warning regarding the stability of New Zealand's primary tool for reducing greenhouse gas emissions. Chief executive Jo Hendy highlighted that the market faces a potential unit shortfall as early as 2028. Such a deficit would likely trigger aggressive price spikes, creating an environment where businesses may be forced to shut down operations entirely to reduce emissions costs rather than having the capital to invest in long-term decarbonization technologies. To mitigate immediate instability, the commission advised the government to maintain current auction unit pricing and volumes for the short term.

Loss of Market Confidence and Policy Volatility

The warning is echoed by environmental advocates who argue that the ETS is becoming "unfit for purpose." Scott Burnett, climate spokesperson for Forest and Bird, noted that market confidence has eroded significantly. This decline is attributed to high price volatility and recent government policy shifts specifically the decision to roll back actions on agricultural emissions. Proponents of reform argue that without a stable and predictable market, businesses cannot make the multi-decade investment decisions necessary to transition away from fossil fuels.

The Economic Risk of Inaction

The ETS operates as a market where the government caps total emissions by issuing units that polluters must purchase. By design, the decreasing supply of units should drive prices up, incentivizing a shift to green energy. However, the commission’s "annual advice" suggests the current settings are too fragile to handle future pressures. If the scheme fails to provide a clear price signal, the result could be significant economic harm, as industrial sectors face unmanageable costs without the infrastructure in place to transition.