The government considered cancelling some carbon auctions altogether after its policy changes tanked the carbon price, documents show.

In the end, ministers opted to stick largely with the status quo, with officials warning that unexpected changes could cause even more uncertainty among carbon unit purchasers.

Climate Change Minister Simon Watts announced in November last year that the government would change climate laws to "uncouple" the emissions trading scheme (ETS) from New Zealand's international climate pledges.

The ETS puts a price on greenhouse gases and requires emitters to pay for carbon units to cover their pollution.

It covers about 43 percent of New Zealand's emissions but excludes agriculture.

After Watts' announcement, the New Zealand market price for carbon plunged overnight, from about $50 to as low as $33.

A few weeks later, the final quarterly government carbon auction for the year - one of several ways in which emitters can buy carbon units - failed to move a single unit.

A day after the auction failed, officials provided Watts advice on whether he should send an early signal or announcement about the number and price of carbon units that would be available in coming years, to "help improve ETS market confidence and reduce current price volatility".

In documents proactively released this week, they said that volatility had come about "in response to recent government climate announcements".

Watts could send a signal in several ways, from a low-key approach such as a speech, through to an early decision ahead of the usual annual consultation process, officials said.

However, they were not keen on anything that circumvented consultation, saying it "sends a signal or rushed and reactive policy".

By late February, with carbon prices still well below the auction reserve price, Watts appeared to be considering an even more drastic approach.

"We understand there may be interest in sending an immediate signal to the ETS market through pausing or cancelling 2026 auctions," officials wrote.

The logic behind cancelling auctions was to create a scarcity of units, forcing emitters to buy them elsewhere or spend from units they have stockpiled - therefore pushing the carbon price back up.

The minister could cancel auctions in 2026 by revoking auction regulations or even changing the law, but both approaches came with risks, officials said.

"[It] may send a sharp message of intent to the market but may also raise concerns around stable, predictable policy settings and [climate law] integrity."

It sent a signal "that the government is willing to override the legislation for short-term goals", they warned.

Later auction cancellations also considered

By March, there was no more mention of cancelling auctions in 2026, but later years were still on the table.

"We understand you may be interested in setting auction volumes to zero for 2027 and 2028," officials wrote to Watts.

That, too, "may be seen as a significant departure from established practice", officials cautioned.

Despite that, Watts took a paper to a meeting of a small group of ministers called the Climate Priorities Ministerial Group that suggested "effectively cancelling auctions for the next 1-2 years" as an option.

In April, officials said that "novel approach" was not supported by them or people buying carbon units.

"Any potential benefit, in our view, is far outweighed by the risk of signalling government appetite for market intervention that responds to shorter term price volatility rather than longer term fundamentals."

Market participants agreed, and had informed officials that "would likely be seen as unexpected and reactionary, potentially damaging market confidence".

In the end, the government's preferred option was to keep auction volumes and prices as they were for 2026 to 2030, and auction slightly fewer units in 2031 than planned.

However, the final consultation document still included an option to auction no units in 2027.

Just under half of submitters supported the government's preferred approach of keeping auction volumes largely as they were.

A minority of submitters supported having no units auctioned in 2027, but officials said in July they did not recommend going ahead with that option and confirmed their support for the government's preferred option.

Watts confirmed last month that auction settings would stay as they were for 2026 to 2030, with a decrease in units in 2031.

"A stable ETS is key to delivering the emissions reductions required to meet our targets. These settings provide the certainty participants need to plan for the future," Watts said.

The settings were consistent with the country's emissions budgets - how many tonnes of greenhouse gases the country can emit as a whole over a five-year period - and aligned with advice from the Climate Change Commission, he said.