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Forestry and the Emissions Trading Scheme - September 2013

Price Update

Price for NZUs has continued to rise. At the time of the last Wood Matters in mid August it was around $2.50. During August NZU price increased to over $5.00 and has since declined to currently trade at around $4.50 per NZU.

The prices of ERUs, which can be used for surrender purposes until 2015, have remained steady, and are currently trading at around $0.58 per ERU.

Historical Price Trends

Figure 1 shows the price trends of EUAs, CERs and NZUs since 2010 and ERUs since 2012. The decline in NZU price has been widely commentated on, but it is interesting to examine in closer detail the price trends of NZUs and ERUs, as they are the units that currently have the most relevance to the New Zealand ETS.

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

Figure 2 shows the recent price trends of NZUs and ERUs since January 2012. From this figure it can be seen that whilst the ERU price of $0.58 is high compared to the ERU price in previous months, the spread between NZU and ERU price is currently greater than it has been since early 2012. This is pertinent to any post-1989 forest owners who have been considering the arbitrage opportunity associated with possible deregistration from the ETS, but have been discouraged by recent ERU price increases.

 

Figure 2: Recent NZU/ ERU Price - NZ$/t CO2e – (inflation adjusted)

For those who have deregistered and used ERUs for surrender purposes, but chose to hold onto their NZUs without an associated liability, the recent NZU price rise is encouraging. Both post-1989 and pre-1990 forest land owners who have elected to hold on to their NZUs have seen a material increase in the value of their holdings.

On the International Scene

The recent election in Australia has resulted in a win for the Coalition. This means that it is now extremely unlikely that Australia will adopt an Emission Trading Scheme during the next three years. The current carbon tax is likely to be scrapped in favour of a "Direct Action" plan, but this change will require the approval of both houses of parliament. This means less political pressure in regards to Australia's position for the New Zealand Government to strengthen the NZ-ETS prior to the NZ general election in 2014.

If you require any advice relating to the status of your forest in relation to the ETS, then please contact erin.leahy@pfolsen.com