New Zealand Emissions Trading Scheme (NZ ETS) Update - June 2024
New annual ETS charge cancelled for FY24 and under review for subsequent years
In September 2023, we informed you about the government’s plan to introduce an annual cost recovery charge of $30.25 per registered hectare for all forestry ETS participants. At the time, the government advised that the fee would be charged on a pro rata basis from October 2023 for the 2024 Financial Year (ending 30 June 2024) and that invoices would be issued in November 2023.
In October 2023, a group of forestry industry bodies, including the NZ Institute of Forestry and the NZ Forest Owners Association, launched a judicial review in the High Court – not just of the proposed annual fee but of MPI’s entire new forestry ETS fees regime.
While the outcome of the review is still pending, the government has now decided to scrap the pro rata annual charge for the 2024 Financial Year and is reviewing the amount of the fee for the 2025 Financial Year (ending 30 June 2025) and, presumably, subsequent financial years.
It is not yet clear exactly when this review will be complete and invoices for the 2025 Financial Year will be issued, however, in its press release on the subject the government indicated this will happen in a matter of months.
Second NZU auction of the year fails
The second NZU auction for 2024, held on 19 June, failed with zero units selling. This outcome was widely expected since the NZU spot price had been trading well below the $64 auction price floor for several months. The unsold units will now be added to the third auction on 4 September, increasing the likelihood that this auction will fail also. Should both of the two remaining auctions in 2024 fail, the cumulative unsold NZU volume will not be carried over to 2025.
Market commentators have offered a number of explanations for the sluggish NZU spot market since this year’s first quarterly auction on 20 March, including the following:
- the auction’s partial clearance, which was seen as indicative of low demand for NZUs
- suggestion by the EPA in its May 2024 consultation document to lower price corridor trigger prices
- uncertainty caused by a lack of concrete forestry ETS policies formulated by the new government since the election in October 2023