Forestry and the Emissions Trading Scheme - December 2012

In the last month NZUs traded in the $2.30 to $2.80 range, currently at around $2.40. Overseas units continue to plummet. The cheapest UN offset price is the ERUs at around $0.30. With few owners prepared to sell NZUs due to the low price and the switching option attractive for emitters, the majority of the compliance market will be made up of these cheap units.

Ban on Units Announced

The New Zealand Government has announced new restrictions on the surrender of certain international emission units which came into effect on 18 December 2012.

The restrictions affect Certified Emission Reduction units (CERs) and Emission Reduction Units (ERUs) generated by large-scale hydropower projects and ERUs generated by industrial gas destruction projects.

Affected units brought into the NZEUR after 17 December 2012 will no longer be eligible for surrender or repayments to meet an obligation with the NZ ETS. Units brought into the NZEUR through a forward contract that has been registered with the Registrar by 11 February 2011 will be eligible for surrender until 1 June 2014.

This ban will have no impact on the NZ carbon price given the huge over-supply of UN offset credits that are still eligible in the NZ ETS.

UN Offsets Eligible Post 2014?

NZ will not be signing up to the second commitment period (2013 to 2020) under the Kyoto Protocol, instead committing to the UN Framework convention on climate change. As a result NZ has been told at the UN Climate Conference in Doha that we can't have access to the UN offset market after the "true up" period of the first commitment period which is expected sometime in 2015.

The NZ Government has come out and stated that we would continue to have access to existing Kyoto carbon markets at least until 2015. What happens after that will depend on international climate change negotiations. But it is possible the UN offset units won't be legal tender in the NZ ETS post 2014 and post-1989 forest participants should be cautious about purchasing these units if they intend to use them for compliance post 2014.