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The Carbon Market

With the relative certainty of the NZ Emission's Trading Scheme (especially in comparison to the failed Kevin Rudd-backed Carbon Pollution Reduction Scheme (CPRS) legislation), there is growing activity in the market. Nigel Brunel of OM Financial gave a "conservative" estimate that about 1 million tonnes of New Zealand Carbon traded for between NZ$20-NZ$21 per tonne in January. Brunel states that trades have included both New Zealand Units (NZUs) and Assigned Amount Units (AAUs) and buyers have been both foreign governments and domestic compliance buyers.

With CERs (December 2010 delivery) currently trading in the European market at just below € 12 (NZ$ 24), the New Zealand based credits are relatively cheap. However, it won't be until 1 July 2010 that stationary energy and liquid fuels enter the ETS and have to start accounting for emissions, initially at 50%.

The market is still relatively ill-liquid. Supply of NZUs can only come from forestry and many of the claims for 2008/2009 sequestration will not be available until the second quarter of 2010. The larger volumes of NZUs that will come out of the free allocation to pre-1990 forests owners wont be available to trade until the second quarter of 2010 at the earliest (and maybe later).

A perusal of the NZ Emission Unit Register shows there are 708 account holders (only some of which may have units and/or trade). The following transactions occurred in 2009:

  • Units transferred out of New Zealand
    • 571,451 AAUs (most of these are the Ernslaw sale of NZUs converted to AAUs and sold to Norway)
    • 568,469 ERUs
    • 401,000 CERs
  • Units transferred into New Zealand
    • 1,000 AAUs
    • 401,000 CERs

EITG reported in the recent Carbon Monitor that suggestions that the former Soviet Union (or FSU) may loose its large holdings of AAUs (also known as "hot air") could result in a collapse in AAU prices. They note that January quoted prices for AAUs of €8 (around NZ$16) are well below the €12 CER price. This could affect the attractiveness of converting forestry NZUs to AAUs for export.

On a more positive note, EITG report good acceptance and demand in Europe (at a price) for New Zealand forest AAUs.