The regional council cannot prosecute companies for selling wet wood, but can impose penalties for air quality breaches.
Caulton says the sale of wood with a moisture content of more than 25 per cent should be made illegal by the Government.
He also says agencies such as Work and Income New Zealand should use only Good Wood merchants, IRD should be "more proactive" in identifying 'grey economy' sellers and environmental agencies should ensure wood being sold is not polluting the atmosphere.
Hawke's Bay Regional Council procurement manager Mark Heany said while the regional council doesn't offer dry wood incentives for ratepayers, it does impose penalties for air quality breaches.
"Regional council has a role to play in educating people on best practice for 'the greater good' and nationally work has been done on peer pressure behaviour change, led by Environment Canterbury."
The Good Wood scheme began in 2011 as part of the Heatsmart programme to encourage dry wood use as one way of reducing emissions during winter.
It allows wood merchants to voluntarily sign up and ongoing assurances such as random testing ensure wood is at less than a 25 per cent moisture content.
MBIE's national manager for consumer protection Mark Hollingsworth said while there are no firewood-specific regulations, people sold wet firewood may be covered by the CGA.
He also said the Fair Trading Act (FTA) makes it illegal for businesses to mislead or deceive customers, or withhold important information.
Knowingly advertising and selling wet firewood as dry firewood would be a breach of the act, Hollingsworth said.
"Customers should talk to the business about any concerns, and if the issue is not resolved, can take a dispute to the Disputes Tribunal, and report potential breaches of the FTA to the Commerce Commission," he said.
Speedy Firewood and Undercut were approached for comment.
Caulton says for wood to be fit for purpose it needs to be seasoned for two years then split and dried for another year.
"We encourage people to look outside at the smoke coming out of their chimney – if it is dark grey or black you are releasing hazardous polluting smoke into the atmosphere negatively affecting the health of your community.
"In addition, your money is going up in smoke – as the heat converts to smoke to dry the wood."