Part 1: Introduction

The Emissions Trading Scheme - summary information for public entities and auditors.

The purpose of this document is to inform public entities and their auditors about how the Emissions Trading Scheme (ETS) operates and how it is likely to affect them. It summarises information about the ETS that we have gathered from the Ministry for the Environment (MfE), the Ministry of Agriculture and Forestry (MAF), and the Ministry of Economic Development (MED).

We wrote it to inform ourselves about how the ETS might affect public entities’ accounting and auditing requirements. Other auditors and people working in public entities might also find this information useful. However, the information in this document is not a substitute for legal and accounting advice on how public entities should carry out their ETS obligations. For more detailed information, you need to check the extensive information provided by MfE, MAF, and MED on their websites. If you consider that you or your entity may be subject to the ETS, you may need to get professional advice.

The ETS is now operating in the forestry, energy, industrial processes, and liquid fossil fuels sectors. In future years, it is due to come into effect in the waste, synthetic gases, and agriculture sectors. This document gives an overview of how the ETS works in each of these sectors, together with any transition assistance in place (such as allocations of free New Zealand Units (NZUs)). It then covers the implications we see for public entities generally and for those that are, or will be, participants in each of the ETS sectors.

A significant number of public entities will be participants in the ETS. These are mainly public entities involved in forestry, and State-owned enterprises in areas such as electricity generation and coal production. When the waste sector enters the ETS in 2013, many local authorities will become participants in the ETS through their operation of waste disposal facilities.

In some cases, public entities need to make important decisions soon. For example, public entity landowners should consider whether they have trees that make them eligible to receive free NZUs before the cut-off date for applications.

Internationally and domestically, accounting standard setters have not provided any guidance on accounting for emissions trading schemes. Different accounting approaches can be supported under generally accepted accounting practice. This document sets out the accounting policy options available for ETS transactions. Public entities need to understand the options relevant to their circumstances and adopt appropriate accounting policies. They can discuss their options with their appointed auditors.

In 2012, we intend to provide more information about accounting and auditing requirements for public entity ETS participants. Our work will focus on case studies of public entities in the energy, waste, and forestry sectors that are participating in the ETS. Our work will be partly based on these entities’ 2010/11 annual reports.


In producing this document, we have drawn extensively on publicly available information published by the administering agencies, particularly the Ministry for the Environment, the Ministry of Agriculture and Forestry, and the Ministry of Economic Development. We gratefully acknowledge them for the information available on their websites (,,,, and and for their feedback on this document.

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