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Forestry and the Emissions Trading Scheme - August 2014

Released this month from the NZ Environmental Protection Agency is the 2013 Facts and Figures report summarising actions of the Emissions Trading Scheme for the period 1 January 2013 to 31 December 2013, as well as the longer annual report under section 89 and section 178A of the Climate Change Response Act 2002 for the period 1 July 2012 to 30 June 2013. These reports are released each year allowing comparisons to be made.

Of interest to forest owners participating in the ETS are the following statistics:

  • The quantum of the surrender in 2013 was 45.5 million, compared to 26.9 million in 2012. This increase can be attributed largely to deregistrations from the ETS by post-1989 forest land participants taking advantage of the arbitrage opportunity, before this was effectively cancelled by legislation in May 2014 (the impact of this legislation is not reflected in the facts and figures for 2013).

  • The area of post-1989 land registered in the ETS in 2013 was 261,148 hectares, compared to 370,042 hectares reported as registered in 2012. This decrease of 42% reflects de-registrations resulting from the arbitrage. Until the end of the current commitment period on 31 December 2017, it will not be known what proportion of those deregistering post-1989 area may decide to re-register (and claim units for the entire commitment period 2013-2017). Of the PF Olsen clients who have taken the arbitrage opportunity, only 41% have immediately re-registered with many opting to watch market prices over the next few years and make a decision in 2017 as to whether they re-register their post-1989 land into the ETS or not.

  • In 2013 90.7% of all surrenders were made using ERUs, the cheap international unit that will only be valid for surrender until May 2015. This is an increase from 70% in 2012. A further 8.8% was surrendered in 2013 using CERs and RMUs, also international units. The surrender of NZUs was only 0.5% in 2013 compared to 4% in 2012.

  • Unsurprisingly, no surrender was made in 2013 using the $25/ tonne fixed price option! With ERUs trading at significantly less than $1 even at their peak in August 2013, why would any emitter choose to incur this fixed price alternative cost?

  • The annual net change in plantation forest cover was negative in 2013 (deforestation), reversing a trend of net afforestation from 2010-2012. This is a result that was expected (see Clarky's comment Wood Matters September 2013 click here). Pre-1990 land that has been harvested does not need to be planted for up to four4 years. It is likely that the actual deforestation exceeds the deforestation reported to date. Annual net deforestation is likely to continue in 2014, especially with the final deadline for the use of ERUs for surrender set at May 2015. We expect a 'last rush' of deforestation to make use of this least cost deforestation option.

Price Update

Prices remained flat over the last month, with NZUs trading in the range of $3.85 to $4.05 per unit. range. There is no impetus to move this new informal floor price away from the $4.00 per NZU mark whilst ETS participants wait for clarity of policy that may come after the general election in September.

ERUs continue to trade in the range $0.17 -0.18 per ERU. For forestry ERUs can now only be used for surrender purposes in relation to pre-1990 forest land deforestation or post-1989 forest land that has been harvested.

Carbon Dioxide Price Trend
Recent Carbon Prices - NZ$/t CO2e – Real (CPI adjusted)