Forestry and the Emissions Trading Scheme - November 2012

In the last month NZUs traded in the $2.30 to $3.00 range. Currently they sit at around $2.80. Despite the low NZU price, the past month has been relatively eventful with a number of significant developments or announcements.

On the 8th November the Climate Change Response Amendment Bill passed its 3rd reading in Parliament and is set to become law by the end of the year. The details on this Amendment Bill were summarised in last month's Wood Matters (click here) but the most significant aspect was its failure to address the unrestricted use of cheap UN offset units in the NZ ETS.

The Climate Change Minister, Tim Groser, announced on the 9th November that NZ will not be signing up to the second commitment period under the Kyoto Protocol. Instead NZ will commit to the UN Framework convention on climate change which means that it is not legally bound by any emissions targets (unlike CP1). This is the path being taken by countries which account for 85% of the world's greenhouse gas emissions. This does not mean that it is all over for the NZ ETS as our legislation is independent of the Kyoto Protocol. So the NZ ETS remains in tact, although as Peter Clark mentioned in his column last month, it is in an "induced coma".

On the 13th November Tim Groser announced the Government's intention to commence consultation on banning certain types of UN offset units from the NZ ETS. The two week consultation period began on Monday. The Government is specifically looking to ban ERUs generated from HFC-23 and N2O industrial gas destruction projects and CERs and ERUs generated from large scale hydro projects. This ban appears to be too little too late and is expected to have minimal impact on the carbon price in NZ as there are still huge volumes of green ERUs and CERs available. In recent months PF Olsen has purchased ERUs for clients wanting to exit the ETS and most of them would not have been banned under this new proposal.

The events of this month are unlikely to impact on the price of NZUs, at least in the short-term. So what are we seeing happening in the carbon forestry space? Two things – new planting for 2013 has all but dried up with many new planting projects on hold or cancelled, and deforesters are taking advantage of cheap carbon to convert forest land to farm land.