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Forestry and the Emissions Trading Scheme - July 2012

Carbon Price

NZU prices traded in the $6 to $7 range in June and are currently trading around $5.70. Trading of NZUs has been very light with owners of NZUs waiting (hoping) for better prices and emitters in no hurry to purchase. Emitters also prefer the cheaper international credits now there is no imminent restriction on their use for compliance in the NZ ETS. NZU price rallying up to $7 appears to be based on the European market anticipating the temporary set-aside of carbon to curb oversupply, but with the set-aside not yet announced prices have since weakened. The strength of the NZD has also contributed to weakening domestic carbon prices.

ETS Review

As mentioned in Clarky's Comment, the Government has announced its intended changes to the ETS to be implemented through legislation later this year. In summary the key changes are:

  • To extend transitional measures designed to reduce the initial cost impacts of the scheme beyond 2012. In particular, these will extend the ability of many of those with ETS obligations to surrender one emissions unit for every two tonnes of emissions (the 'one for two'). In addition, participants will also have the choice to meet their obligations by paying the Government $25 per tonne of emissions (the fixed price option).
  • To defer the start date for surrender obligations for biological emissions from agriculture, pending a review in 2015.
  • To introduce 'offsetting' as an option for pre-1990 forests, giving forest landowners the flexibility to convert their land to a better use, but avoid ETS deforestation costs by planting a carbon equivalent area of forest elsewhere.
  • Pre-1990 landowners will continue to receive their allocation of emissions units in full, unless they take up offsetting. In recognition of the benefits offered by offsetting, pre-1990 forest landowners who take up offsetting will need to return the second tranche of this allocation.
  • To introduce a power to allow the Government to increase the supply of New Zealand Units (NZUs, the primary emissions unit used within the ETS) through an auction, within an overall cap on the number of NZUs auctioned and allocated. This will help to ensure that ETS participants do not need to fund more emissions reductions in other countries than New Zealand needs to in order to meet its international obligations or domestic targets.
  • Not to introduce a new power that specifically allows for quantitative restrictions on the number of international emissions units that can be surrendered by those with ETS obligations. This will ensure that the carbon prices faced by ETS participants continue to reflect international prices.

(Source: www.climatechange.co.nz)

Fast Forest Fix Rule

The fast forest fix rule sees post-1989 liabilities capped at the level of credits earned. The rule has been in the news this week with two large forest owners, City Forests and Ernslaw One calling for the Government to announce its intention regarding this rule to provide certainty to post-1989 forest owners. Changes to the Kyoto Protocol agreed to last year in Durban excluded the fast forest fix rule. NZ has yet to sign the new protocol (and may not) but if it were, post-1989 forest owners (or the tax payer) will be liable for all carbon removed, not just for what has been received and could lead to much of the forest planted in the 1990s being withdrawn from the ETS.