Carbon Forestry

Carbon Price

NZU prices were relatively stable through May trading in the $5.90 to $6.30 range and currently trading around $6.20. There was very little reported activity leading up to the 31 May, being the final date for emitters to surrender units for their 2011 emissions. This suggests that emitters had their 2011 compliance obligations well under control which is not a surprise given the price of carbon.

Global Carbon

The World Bank has recently reported that the global carbon market grew 11% in 2011 to US$176 billion with 10.3 billion tonne of C02 equivalent traded and this despite the decline in carbon prices. They also estimated that the NZ market grew threefold to be worth US$351m in 2011. This is due to existing ETS schemes worldwide becoming more active. Several new domestic and regional carbon market initiatives gained traction in both developed and developing economies in 2011. "It is heartening to see that, while leading economies continue to experience difficulties and the carbon market faces major challenges, we see increasing interest in, and support for, new market-based mechanisms to mitigate climate change in the long term," said Joëlle Chassard, Manager of the Carbon Finance Unit of the World Bank.

The EU ETS has been impacted by the oversupply of carbon credits – lower emissions due to less economic activity along with a flood of offset units (ERUs and CERS). This saw the price of carbon in the EU fall dramatically in 2011 which impacted on the NZ ETS. The European Commission continues to consider implementation of a temporary "set-aside" of carbon. The set-aside would likely involve the removal of a volume of EUAs from the EU ETS, to be placed back into the scheme at a later point in time. A plan to do this is expected to be published in July and would put upward price pressure on the EU and hence NZ carbon markets.

ETS Changes

The Ministry for Primary Industries has advised the Forest Owners Association of a number of changes that Cabinet is considering making to the Climate Change Response Act 2003. The Government is seeking forestry sector input prior to the policy and legislative process and there is likely to be a submissions process to provide further opportunity for feedback. The proposed changes are:

  1. For applications for the less than 50 hectare exemptions for pre-1990 forest land:
    • Unrelated landholdings of sole professional trustees, including the Māori Trustee, would not be counted towards the 50 hectare threshold;
    • Trustees appointed under the Te Ture Whenua Māori Act 1993 would be treated as professional trustees, and their landholdings will not be counted towards the 50 hectare threshold.
  2. Minor clearing on forest boundaries would not be counted as deforestation, such as setbacks at boundaries, and minor boundary changes due to harvesting and replanting.
  3. Pre-1990 tree weed exemptions would be extended beyond 2012.
  4. Naturally regenerated tree weeds would not be eligible for post-1989 registration unless the Environmental Protection Agency is satisfied that the risk of spread is low.
  5. Forest land that cannot be replanted due to natural disturbance would not be treated as deforested.
  6. Changes to restocking requirements for land that has been cleared and is naturally regenerating to indigenous forest, and for poplars and willows planted for erosion control.
  7. The time for submitting post-1989 emission returns will be extended from three moths to six months from the end of the period to which they relate.

These changes are aimed at improving the operational aspects of the ETS and overall we see the changes as being a positive step in doing so, particularly points 2, 5 and 7.