This phased approach was intended to allow businesses time to plan and adjust, and therefore to support a more stable market.
Individual sectors of the economy have different entry dates when their obligations to report emissions and surrender emission units took effect.
Forestry, which contributed net removals of 17.5 Mts of CO The NZ ETS is highly linked to international carbon markets as it allows the importing of most of the Kyoto Protocol emission units.
It also creates a specific domestic unit; the 'New Zealand Unit' (NZU), which will be issued by free allocation to emitters, with no auctions intended in the short term.
In the cap-and-trade variant of emissions trading, a limit on access to a resource (the cap) is defined and then allocated among users in the form of permits.
Under this method of allocation, government will set a benchmark level of emissions for each good deemed to be sufficiently trade exposed and allocate firms units based on their production of this good.The one-for-two transitional measure will be phased out evenly across relevant sectors over three years from 1 January 2017.The old 50 percent surrender obligation increased to 67 percent from 1 January 2017, and will increase to 83 percent from 1 January 2018, and a full surrender obligation from 1 January 2019 for all sectors in the NZ ETS.The NZ ETS covers forestry (a net sink), energy (42% of total 2012 emissions), industry (7% of total 2012 emissions) and waste (5% of total 2012 emissions) but not pastoral agriculture (46% of 2012 total emissions).Participants in the NZ ETS must surrender one emission unit (either an international 'Kyoto' unit or a New Zealand-issued unit) for every two tonnes of carbon dioxide equivalent emissions reported or they may choose to buy NZ units from the government at a fixed price of NZ.Auctioning permits can therefore be more efficient and equitable than allocating permits (Hepburn, 2006, pp. As well as reducing tax distortions, Kerr and Cramton (1998) note that auctions of units are more flexible in distributing costs, they provide more incentives for innovation, and they lessen the political arguments over the allocation of economic rents.