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ETS Market Governance Project Updates & Upcoming Market
Forum
Purpose
1. This briefing:
i
seeks your approval for the details of the next Minister of Climate
Change (MCC) forum to discuss the New Zealand Emissions Trading
Scheme (NZ ETS) carbon unit (NZU) market;
ii seeks your approval for proposed timing and stakeholder engagement
for the Market Governance work; and
iii provides information about work underway to support the operation of
the NZU market and thereby enhance market credibility and
confidence.
MCC Forum with Market Stakeholders
2.
Timing: Your first forum with NZU market stakeholders took place on 23 April
2024 in Auckland. The next forum is planned for 2 October 2024 in Wellington.
3.
Stakeholders to invite: The forum is by invitation only. We suggest the following
invitees to the 2 October forum, comprising one delegate from each organisation
and six individuals in total:
i
9(2)(ba)(i)
iv one or two emitters
v one or two forestry market participants.
None of these stakeholders attended the first forum. We anticipate that future
forums will include the attendees from the first forum and this forum, potentially
with a few new stakeholders added periodically.
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4.
Purpose: As with the first forum, the purpose will be to enable you as the MCC to
hear directly from key NZU market stakeholders about the health and operation
of the NZU market. This will inform you about the market and keep you up-to-
date and enable you to hear what is important to NZU stakeholders. The
purpose will not be to discuss future policy formation, signal government
thinking, or make government announcements.
5.
Logistics: The event will be hosted by you, so invites will be sent by your office.
We will arrange a Wellington-based venue. We will communicate with invitees
prior to official invitations being sent. Government attendees will include you (as
host) and relevant staff from your office, together with up to two MfE staff.
6. Conduct: The event will be held adopting Chatham House rules, although it will
be subject to the Official Information Act (OIA). No official notes will be taken.
We will provide guidance to you and other government attendees to ensure that
market sensitive information is appropriately protected. We will provide you with
brief profiles of attendees ahead of the event.
7. Option of an extra ad hoc forum or bilateral meetings: We understand that
several international NZU market stakeholders may attend the Carbon Forestry
2024 conference in Rotorua on 20 and 21 August 2024, potentially 9(2)(ba)(i)
. You are a speaker at that conference. It may be possible to
convene an extra ad hoc NZU market forum or bilateral meetings to coincide
with the conference. This would enable you to have a face-to-face discussion
about the NZU market with these international NZU market stakeholders. We
invite your feedback on this idea.
8. Future forums: Our initial advice was to hold these forums six-monthly, but we
suggest that more frequent meetings may be useful in the near-term. We invite
your feedback on whether you would like them to occur six-monthly or more
regularly, potentially quarterly.
Proposed timing and stakeholder engagement for the Market
Governance work
9. You have directed the Ministry for the Environment (MfE) to prepare advice for
Cabinet on policy proposals for Market Governance. You indicated the end of
quarter three 2024 as timing to work towards.
10. Officials have identified two timeframe options for delivery of the Market
Governance Cabinet paper. We anticipate that this Cabinet paper will comprise
officials’ substantive advice on policy options to improve market governance
9(2)(f)(iv)
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i
Option 1: with targeted engagement – aiming for Cabinet on 25
November 2024
ii Option 2: without targeted engagement – aiming for Cabinet on 21
October 2024
11. We recommend Option 1. Under this option, MfE would undertake targeted
engagement with a discrete group of NZU market participants to support the
policy advice. This would build on two previous rounds of public consultation.
The targeted engagement will provide evidence to inform the advice, enable MfE
to test with participants what could be achieved through voluntary compliance
with agreed minimum standards, and provide participants the opportunity to
propose other ideas and insights. The engagement could be conducted during
September, meaning that relevant topics could potentially also be covered at
your 2 October NZU market forum.
12. Option 2 would progress policy advice without targeted engagement. This means
that the timing of the Cabinet paper would be expediated, but the policy advice
would not be informed by or tested with participants through targeted
engagement.
Work underway to support operation of the NZU market
13. You previously indicated that you would appreciate advice on the ideas
proposed by stakeholders to support operation of the NZU market and work
underway to respond.
14. The table in Appendix 1 sets out the categories of work underway to support
operation of the NZU market and thereby enhance market credibility and
confidence. This work has been informed by stakeholders’ feedback. We have
provided a rough indication of the timing to complete implementation of each
work category. We welcome your feedback on the work that you see as
particularly important.
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Recommendations
We recommend that you:
a.
agree that the timing of the second forum will be either:
i.
2 October 2024
Yes | No
OR
ii.
an alternative date to be proposed
Yes | No
b.
agree to the proposed stakeholder invitees for the first forum listed in paragraph
3 and indicate if there are any emitters and/or forestry participants that you would
like to invite.
Yes | No
c.
agree that the purpose, logistics, and conduct will remain the same as the first
forum as set out in paragraphs 4, 5 and 6, except that the forum will be held in
Wellington.
Yes | No
d.
note that we will engage with your office to organise the second forum, including
to adjust the timing, logistics and stakeholder invitees if required.
Yes | No
e.
indicate whether you would like us to attempt to arrange an ad hoc market forum
with international NZU market stakeholders to coincide with the Carbon Forestry
Conference in Rotorua on 20 or 21 August 2024.
Yes | No
f.
indicate if you would like us to arrange the next forum (which will be held in
Auckland), either:
i.
A quarter after the October forum, likely January/February 2025
Yes | No
OR
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ii.
6 months after the October forum, likely April 2025
Yes | No
g.
indicate which option you wish to follow for the timing of Market Governance
work:
i.
Option 1: with targeted engagement – aiming for Cabinet on 25 November
2024
Yes | No
OR
ii.
Option 2: without targeted engagement – aiming for Cabinet on 21
October 2024
Yes | No
h.
note the work currently underway to support operation of the NZU market and
provide feedback on any of the work.
Signatures
Susan Baas
Manager Market Assurance and Operations
Climate Change Mitigation and Resource
Efficiency
08/08/2024
Hon Simon Watts
Minister of Climate Change
/08/2024
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Appendix 1: Work underway to support operation of the NZU market
Description of work
Why this work is important
Next steps
1
Improving the transparency of trading
There is weak transparency of market information
Decisions on this will be
information in the NZU market
in the NZU market. There is no information
sought through the Market
•
available to participants about over the counter
Governance Cabinet
The main option we are developing
(OTC) trades, and there is limited transparency
paper.
would capture information about all
about trading that occurs on trading platforms (i.e.
trades relating to NZUs. This
Implementation in 2026
CommTrade has recently stopped making their
involves requiring participants to
likely.
closing trading price publicly available).
provide key trading information,
such as trade price, trade settlement Better price and trade volume information will
date, and type of trade when
improve market confidence, allowing participants
recording a transfer of NZUs in the
to make informed trading decisions.
NZ ETS Register.
Enhanced trade information capture will allow the
• Aggregated summary trading
Government to develop monitoring capabilities and
information would then be
to detect market misconduct.
published, so it is available to both
the Government and all market
participants.
• Implementing this option would
require some additional funding,
which may take some time to
secure. Accordingly, we are also
developing interim options for
Ministers to consider, such as
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requiring platforms to publish limited
trading information.
2
Enhanced standards and oversight of
The regulatory framework for the NZU market is
Decisions on this will be
the NZU market
unclear and not well suited to address
sought through the Market
•
unacceptable market behaviour. Combined with
Governance Cabinet
The main option we are developing
the lack of market oversight, this makes it difficult
paper.
would ensure clear, adequate
to determine whether misconduct is taking place,
market integrity rules for the NZU
Implementation in 2026
and to respond if it were discovered.
market. The three areas we are
likely.
currently focused on are: prohibiting
The Climate Change Response Act (CCRA)
market manipulation, preventing the establishes the NZ ETS and provides its legal
provision of false or misleading
framework. However, the CCRA does not have
advice, and disclosure requirements provisions regulating NZU market conduct. There
for conflicts of interest.
is no monitoring that allows for government to
•
make a statement on whether there is market
This option will also involve bringing misconduct or not, and current settings make us
NZUs into the Financial Markets
vulnerable.
Conduct Act and enabling the
Financial Markets Authority to
Should misconduct, such as price manipulation,
enforce these rules.
occur, it could severely impact confidence in the
•
market and therefore significantly impact the
We are also exploring opportunities
effectiveness of the NZ ETS.
about what can be achieved
voluntarily and investigating options
for market monitoring utilising the
proposed transaction reporting data.
The market monitor could then refer
suspected misconduct to the
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responsible agency for
enforcement.
3
Information initiative
The NZ ETS and the NZU market are complex and The external calendar is in
•
unique. Some current and prospective participants
the final development
External calendar – we intend to
in the market may not fully comprehend how the
stages. It will be housed on
shortly publish a calendar that
market operates or the extent of risk they are
MfE’s website.
contains the reports, Government
exposed to when transacting. Stakeholders have
policy, and upcoming events from
also expressed that well-coordinated market-
Government departments and
related information would assist participants’
Information to support the
agencies relevant to the NZ ETS
decision making and help them gain insight into
understanding of the NZU
market. The objective of the
the market.
market will be published in
calendar is to provide clear and
the coming months across
consolidated information for NZU
MfE is the administrator of the CCRA, the lead
a number of channels,
market participants and the wider
government agency in the NZ ETS and absent a
including the MfE website,
public about the market and
formal market regulator, it has some
and EPA and Te Uru
Government decisions that could
responsibilities regarding integrity and orderly
Rākau website,
affect it.
operations of the NZU market. In this position, MfE newsletters and other
•
has an obligation to ensure all investors are aware
Understanding the NZU market –
stakeholder channels.
of the risks that are present and that there is a
we are developing information for
level playing field in terms of basic market
Implementation in 2024
participants and investors, for
information.
and 2025 likely.
publication during 2024 and 2025.
This will include how the NZU
market operates and what risks are
involved, for example, information
on market participants, market
products, execution risks, and
market volatility.
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• Future information initiatives will be
progressed as needs are identified.
4
Public facing information about the
Stakeholders have requested this information
MfE website.
NZU market: including a description of
Implementation in 2024
the current sources of NZU price
likely.
information and an overview of the ETS
and NZU market
5
Enhanced cross agency ETS data
Stakeholders have requested this information
MfE, EPA and Te Uru
analysis, forecasting and information:
Rākau websites.
with a focus on forestry and the stockpile
Implementation in 2025
likely.
6
A refreshed template for the quarterly
Stakeholders have requested some enhancements MfE website.
ETS auction monitor reports
to these reports
Implementation in 2024
likely.
7
Continuous improvement project relating
Stakeholders have emphasised that the primary
Internal MfE project.
to MfE’s controls to protect
ETS integrity risk associated with NZU market inside information Products will be shared
and conduct: including a process and
sits with government
with other government
controls to protect and announce market
agencies and with your
sensitive information and to manage
office. Potential to
conflicts of interest.
communicate aspects of
this work externally.
Implementation in 2024
likely.
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