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Emissions Trading Scheme Update - October 2012

In the last month NZUs continued their downward trend trading in the $2.80 to $4.00 range, currently at around $3.00. The continued slump in prices has been driven by forecasts of increased supply of UN offsets (CERs and ERUs) which exceed forecast demand levels.

The Government's position to date has not been to intervene so as to align the NZ carbon price with the international carbon price. This is hard to swallow given that the New Zealand ETS continues to be the only scheme that allows the unrestricted use of UN offsets and this was the subject of many submissions (including PF Olsen's) to the Parliamentary Select Committee which held hearings in September on the proposed ETS Amendment Bill.

The findings of the Select Committee were released yesterday and the Amendment Bill has passed through the Select Committee process unchanged. The main points to note are:

  • Agriculture remains out of the ETS and the legislation will need to be amended to have the sector included.
  • Emitters only have to account for 50% of their emissions (except for forestry), known as the 1 for 2 transitional measures, until at least 2015. Ironically legislation now needs to be amended to end these "transitional measures".
  • The $25 fixed price will be kept until at least 2015 (not relevant at present due to the state of the NZU price).
  • No mechanism included to restrict the use of international units including the cheap UN offsets.
  • Introduction of forest offsetting an option for pre-1990 forest landowners. This will enable them to deforest and plant elsewhere without incurring the deforestation liability.
  • The Government has the power to introduce auctioning of NZUs. But given the unrestricted use of other units, this would have to be at a price near the cheapest available international unit.
  • So what does all this mean for the NZU price over the short to medium term? With the next ETS review not scheduled until 2015, NZU price will continue in its weakened state until at least then.

 

Lizzie Chambers of Carbon Match, an excellent observer and commentator of things carbon, describes the state of the New Zealand ETS very well (along with evocative imagery) – click here to view - remember the movie Groundhog Day.