Forestry and the Emissions Trading Scheme - March 2014

Price Update

NZUs continue to trade in the low $3's. With ERUs valid in the New Zealand ETS until May 2015, there is currently not a lot of demand for NZUs to encourage higher prices. However there are buyers and sellers trading in small volumes.

ERUs have been trading in the range $0.34 - $0.39 over the last month. The price of these units is driven by the supply of ERUs that are ineligible in the European ETS. The eligibility of a significant number of ERUs is yet to be determined, which reduces available supplies and is the main factor driving the increased price level. It is worth noting that the majority of ERUs being used for surrender purposes in the New Zealand ETS are sourced from Russia and the Ukraine. The political uncertainty in this region is likely to affect the ERU carbon market.

The date of the New Zealand election has been set at the 20th of September and the ETS will likely become a topic of discussion between the parties. Policies in relation to the ETS have not yet been advised by the major political parties.

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

Urgent - Deforestation Emissions Return

As reported previously in Wood Matters, for deforestation completed in the 2013 calendar year, the deforestation emissions return is due by the 31st March 2014, with surrender of units due by the 31st May 2014. The surrender liability in 2014 can be met using ERUs, currently the cheapest unit available for least-cost surrender. It is important to note that deforestation is a change in land use OR not replanting within the 4 years following harvesting. Harvesting and replanting as part of a regular forest cycle is not deforestation.

2014 Voluntary Emissions Return – Post-1989 forest land participants

Also reported last month, post-1989 forest land participants have an option to complete a voluntary emissions returns (VER) annually by the 30th of June and, if completed, participants will receive the New Zealand Units (NZUs) they are entitled to for the carbon stock change for 2013. If a VER is not filed, then the units these participants are entitled to will be received either following the next completed VER or after the mandatory emissions return (MER) in 2018.

For any further information on managing your NZ ETS deforestation obligations and minimising your costs, or completing a voluntary emissions return for 2013 please contact erin.leahy@pfolsen.com.