Learnings from developing carbon reduction technology in New Zealand's regulatory landscape
New Zealand's Emissions Trading Scheme (ETS) is facing a crisis that could see it collapse within the decade. The structural flaws built into the system from its inception make failure almost inevitable. The solution isn't more offsets – it's gross emissions reductions through technologies like those being developed by companies such as Alimentary Systems.
The Fatal Flaws in New Zealand's ETS
1. A Cap-and-Trade System Without Caps
The fundamental problem with New Zealand's ETS lies in its basic design contradiction. While the system was intended to function as a cap-and-trade mechanism, it fails to actually cap the most significant source of offsets: forestry units.
The ETS was set up to be a cap and trade system, but by not capping the number of offsets possible from forestry and allowing an unlimited supply of NZU forestry units, the system is not functioning to actually cap emissions.
This unlimited supply of forestry offsets has created a market oversupply that undermines the entire pricing mechanism – the very foundation of any effective carbon trading system.
2. Missing Harvest Corrections
Unlike established carbon markets globally, New Zealand's ETS lacks harvest correction mechanisms. In functional carbon markets, when forests planted for carbon credits are eventually harvested, there's an accounting correction that addresses the temporary nature of forest-based carbon storage. New Zealand has only recently begun implementing these corrections, but the damage from years without them has already been done.
3. The Land Use Change Catastrophe
The ETS incentivised large-scale conversion of productive farmland to monoculture forestry, creating a cascade of unintended consequences:
Loss of New Zealand's productive agricultural capacity
Collapse of the timber processing industry
Sacrifice of long-term economic productivity for short-term carbon credits
Creation of ecologically questionable monoculture plantations
"We basically shot ourselves in the foot repeatedly, where we've lost the productive farmland, we've lost the wood processing capacity, we have lost the ability to have long term offsets," becomes clear when examining the full scope of the problem.
4. The Coming Reckoning
Analysis suggests that these accumulated problems will create a "day of reckoning" after 2030, when the cost of meeting New Zealand's Nationally Determined Contributions (NDCs) may become untenable. The collapse of the ETS would leave New Zealand scrambling to meet its international climate commitments through other means.
Gross Emissions Reductions: The Real Solution
While the ETS focuses on offsetting emissions rather than reducing them, companies like Alimentary Systems are developing technologies that deliver actual gross emissions reductions – removing the source of emissions entirely rather than just balancing them elsewhere.
How Alimentary's Technology Works
Alimentary Systems has developed a biogas system that processes organic waste streams, including sewage sludge and other putrescible waste, preventing methane emissions that would otherwise occur in landfills or traditional treatment systems.
The technical approach involves:
Unique Emissions Factor (UEF) Methodology: Using NZ EPA certified calculations to determine precise emissions reductions based on the waste composition being processed. We calculated a UEF of 1.134 for mixed waste streams, representing actual emissions prevented rather than theoretical offsets.
Measured Impact: Our pilot plant is designed to process waste streams that would generate approximately 8,000 tonnes of CO2 equivalent emissions annually. Rather than allowing these emissions to occur and then offsetting them through forestry, the technology prevents them entirely.
Additionality Principle: Unlike forestry offsets that may have happened anyway, these emissions reductions meet the critical additionality test – they only occur because of the specific intervention and investment in the technology.
Classification and Market Access
Importantly, genuine emissions reductions should be eligible for purchase by major emitters, even if they operate outside the formal ETS structure. This creates a parallel market for real emissions reductions that doesn't depend on the increasingly unstable forestry offset market.
The Technical Advantage of Measured Reductions
Precise Quantification
Unlike forestry projects that rely on growth models and theoretical carbon sequestration rates, waste processing technologies offer precise measurement of emissions prevented. The process involves:
Baseline Emissions Calculation: Using default emissions factors for different waste types (sludge, putrescible organics) multiplied by their measured composition
Process Monitoring: Real-time monitoring of pH, temperature, and gas composition during treatment
Audited Verification: NZ EPA certified auditors can verify both the theoretical calculations and actual operational performance
Permanence and Additionality
Gross emissions reductions solve two critical problems that plague offset-based systems:
Permanence: Once organic waste is processed and methane emissions are prevented or captured, that reduction is permanent. There's no risk of "reversal" as exists with forest fires or early harvesting of offset forests.
Additionality: These reductions only occur because of the specific technology investment. Without the processing infrastructure, the emissions would definitely occur through conventional waste treatment or landfilling.
Market Implications
Corporate Procurement
Major emitters are increasingly sophisticated in their carbon procurement strategies with significant landfill and waste liabilities, recognise that purchasing genuine emissions reductions provides more robust climate risk management than relying on forestry offsets that may not deliver long-term value.
Investment Landscape
The venture capital community is beginning to recognise the superior investment characteristics of gross emissions reduction technologies:
Measurable outcomes: Unlike offsets, the environmental impact can be precisely quantified
Revenue durability: Based on waste processing contracts rather than volatile carbon credit prices
Regulatory resilience: Less dependent on ETS policy changes
Operational revenues: Generate income from waste processing fees in addition to carbon value
Current analysis suggests New Zealand may face a choice between continuing to prop up a fundamentally flawed offset system or transitioning toward genuine emissions reduction technologies. The collapse of the ETS, while potentially disruptive, could create space for more effective approaches to climate action.
For companies serious about their climate commitments, the message is clear: focus on technologies and partnerships that deliver measurable, permanent, additional emissions reductions rather than hoping that an oversupplied offset market will provide long-term climate value.
The technical infrastructure for gross emissions reductions exists today. What's needed now is the investment and policy support to scale these solutions before the ETS's structural contradictions force a more dramatic reckoning with New Zealand's climate strategy.
Contact us for your bioenergy development needs or to invest.