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.
Compliance is established by comparing actual emissions with permits surrendered including any permits traded within the cap.
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Forestry is important in helping New Zealand meet its international climate change obligations.
By putting a price on greenhouse gases, the Emissions Trading Scheme (ETS) encourages landowners to establish and manage forests in a way that increases carbon storage.
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). 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.
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. Some stakeholders have criticized the New Zealand Emissions Trading Scheme for its generous free allocations of emission units and the lack of a carbon price signal (the Parliamentary Commissioner for the Environment), The atmosphere is a global public good, and GHG emissions are an international externality (p. The emissions from all sources of GHGs contribute to the overall stock of GHGs in the atmosphere.