Carbon Market

On the 1st of July 2010 the energy, transport and industrial process sectors joined the NZ Emissions Trading Scheme (ETS). They need to account for 50% of their emissions from 1 July 2010 through to 31 March 2012, after which time they will have to account for 100 % of their emissions. Alternatively, these industries can pay $25/tonne CO2e to the government in lieu of procuring units themselves. This will put an effective cap on the price of carbon in New Zealand for the next two and a half years.

Industries identified as 'at risk' [Emission Intensive and Trade Exposed - EITE] are being allocated 'free' units by the government.

In addition, the fishing industry will be allocated 700,000 NZUs as assistance for increased indirect costs from the ETS - e.g. increased fuel costs. Since not directly in the ETS, fisheries will be able to sell their NZUs on the market, increasing the supply-side.

The significance of the entry of these industries into the ETS is that there are now NZ compliance purchasers in the market, providing opportunity for NZ forest owners to sell their units domestically.

Domestic trading activity of New Zealand Units (NZUs) has increased as a consequence although at current prices there are more purchasers than sellers and trade is relatively thin. However the supply of NZUs will increase substantially later this year with the free allocation of units to industry (see above) and the free allocation/partial compensation credits to pre-1990 forest owners.

Spot NZUs are currently trading for NZ$18-19/unit.

Spot secondary CERs (units that NZ emitters could purchase for compliance purposes) are currently trading for €12-13/tonne in Europe (NZ$21-23 at 0.57).

The price of AAUs (units that forest owners can convert their NZUs into) are much harder to monitor as they are negotiated sales to government entities. It is understood the price of these units has typically been about half way between the price of 'greened Hot Air' AAUs and secondary CERs.