The primary unit of trade for the ETS is the NZ unit (NZU). One NZU is equivalent to one tonne of CO2 equivalent emissions. Several other types of Kyoto compliant emission units can also be used under the ETS, including Emission Reduction Units (ERUs), Removal Units (RMUs) and Certified Emission Reductions (CERs). To ensure only high-quality units will be traded in the scheme, the Govt has put restrictions on imported Assigned Amount Units (AAUs) from certain countries, including Russia and the Ukraine, where huge emissions reductions resulted from the collapse of the communist regimes there. PricewaterhouseCoopers believes AAUs from countries such as Hungary, Latvia and the Czech Republic will be cleared for NZ because these countries are putting the receipts from the sale of surplus credits into funds known as Green Investment Schemes, and using these funds to pay for renewable energy or similar projects.

PwC predicts prior to 2012 there will be a deficit of about 50m NZUs in the NZ market. This means many ETS participants are likely to find it cheaper to purchase emission units from offshore to meet their obligations. The most likely source of offshore emission units will be CERs, created under the Kyoto Protocol’s Clean Development Mechanism. These units are created from emission reductions projects in developing countries. CERs can be purchased directly from a project developer in their relevant country.

However, for many NZ businesses, it will be difficult to access CERs directly and it will be necessary to acquire these through the secondary market. This will generally involve either the use of a broker or through the TZ1 trading platform, which is expected to open in the first quarter of 2009. Govt-approved “greened” AAUs, while likely to be significantly cheaper then CERs, will be far more difficult to obtain. The legislation envisages a compliance regime similar to the tax system. Participants will face significant civil and criminal liabilities for failure to meet their obligations under the ETS.

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