Forestry and the Emissions Trading Scheme - October 2013

Price Update

The market for NZUs has had a volatile month and current trading is fluctuating at around $4.00 per NZU.

The prices of ERUs, which are expected to be used for surrender purposes until 2015, have declined from $0.58 at the time of last month's Wood Matters. These ERUs are currently trading at around $0.35 per ERU.

Figure 1: Recent Carbon Prices - NZ$/t CO2e – Real (CPI adjusted)

Arbitrage Uptake

Given the difference in the prices between NZUs and ERUs many post-1989 forest land owners have elected to exit the ETS, surrender ERUs and either sell or hold onto their NZUs. This has allowed post-1989 forest land ETS participants to trade and profit from the ETS. They have settled their future harvest liability, pertaining to the units claimed for the period from 2008 to 2012, at a relatively low cost. Those who have sold the NZUs pertaining to this period have made a profit from the difference in price between the NZU and the ERU. Those who have held on to their NZUs received for this period can sell these NZUs in the future without liability at harvest time. Following their exit from the ETS some of these ETS participants have elected to re-register, which allows them to claim carbon credits from January 2013 onwards.

PF Olsen has had significant uptake of this arbitrage opportunity from our post-1989 forest land registered participants, as can be seen in the figures below. Forty-one per cent of our clients by client numbers (Figure 2) and sixty-five per cent of our clients by area (Figure 3) have taken advantage of the current arbitrage opportunity.

Figure 2: Percentage of PF Olsen Post-1989 Clients That Have Taken Arbitrage Opportunity

Figure 3: Percentage of Post-1989 Registered Area That Has Been De-Registered Due to Arbitrage Opportunity
Note: Area may be re-registered in the ETS

For those PF Olsen clients who have not yet committed to the arbitrage opportunity and require further explanation or have questions in regards to this arbitrage opportunity, or any other aspect of the ETS please contact erin.leahy@pfolsen.com