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Forestry and the Emissions Trading Scheme - September 2014

The New Zealand general election is due to be held on the 20th September. Here is a brief summary of the general climate change policies of each of the main political parties.

National

National is not proposing any changes to its current climate change policy. The National party view is that climate change requires a global response and until there is a binding international agreement that includes the world's largest emitters (China, USA, India, Russian Federation, Brazil), NZ will continue to do what National considers its "fair share".

Under a National-led government the ETS will continue in its current form. This includes reporting of emissions for agriculture but no surrender obligations until such time as there are economically viable and practical technologies available to reduce emissions, and our trading partners make more progress in tackling their emissions in general. Currently NZ emitters, other than forest owners, surrender 1 unit for every 2 tonne of carbon dioxide emitted and trade exposed businesses currently receive an allocation of NZUs of up to 90% of their total emissions.

The National government has set a binding target to cut carbon emissions by 50% of 1990 levels by 2050, with a short-term target of a reduction of 5% of 1990 levels by 2020. Emissions have been rising under a National-led government.

National has a goal that 90% of NZ's electricity will be generated by renewable sources by 2025.

National has committed to a review of the ETS in 2015.

Labour

The Labour party introduced the ETS in 2008 as an "all sectors, all gases" scheme. If forming a government in 2014 the Labour party wants to restore the ETS so it puts an effective price on carbon to drive consumer behaviour away from carbon polluting goods and towards low carbon options.

Labour will introduce agriculture into the scheme in 2016 with an allocation of NZUs based on 90% of 2005 emissions whilst continuing to back research into reducing agricultural emissions. Labour will continue the allocation of free credits to trade-exposed heavy industrial emitters. There is no mention in the policy document of what happens to the current 2 for 1 concession for emitters, however some commentators are reporting that this concession would be phased out.

Labour will move to restrict the use of international units by requiring that at least 50% of all units surrendered are NZUs. The policy document is not clear whether this signals an intention to seek an immediate return to Kyoto, OR an immediate restriction on international units for surrender in 2015. This represents a potential risk for those forest owners intending to surrender ERUs for deforestation in 2014.

Labour will establish an independent Climate Commission to set a national climate budget independent of the government of the day.

Labour also has a goal that 90% of NZs electricity will be generated by renewable sources by 2025.

Greens

The Greens would also seek to establish a Climate Commission to provide independent advice to the government on carbon matters. The Green party intends to scrap the ETS and introduce a carbon tax which charges emitters $25 per tonne of carbon, and agriculture half price. Foresters would be credited $12.50 per tonne of CO2 sequestered. Revenues from the carbon tax would be put towards tax cuts.

As the Greens would need Labour support to implement this policy and Labour have made it very clear they are committed to strengthening the ETS, the Greens policy is unlikely to form the basis of any coalition agreement between the two parties.

NZ First

NZ First wants to abolish the ETS. They intend to develop strategies, plans, research programmes and targets to achieve fossil carbon reductions relevant to NZ.

Maori Party

The Maori party climate change solutions are focused on establishing alternative sources of energy to fossil fuels. This includes development of alternative fuels from raw materials, championing solar panels for use by government agencies, hospitals and schools, and subsiding solar heating and energy hubs for communities.

The Maori party will support a proposal that will see the planting of 100,000 hectares of new forests over the next ten years.

Internet-Mana

The Internet-Mana party would repeal the ETS. They have a goal of 100% of electricity generated by renewable resources and carbon neutrality by 2050.

ACT

ACT wants to dismantle the ETS and have no alternative policies designed to reduce emissions. ACT believes that if NZ puts a mitigation scheme into place, then it should be in the form of a transparent carbon tax.

United Future

United Future supports the ETS in its current form and is opposed to the introduction of a carbon tax. They would consider minimum pricing if necessary to ensure pricing of carbon is high enough to reduce emissions.

United Future wants land conversion to require the purchase of ETS credits when forested areas are converted to another use to account for the loss of the carbon reservoir.

Conservatives

The Conservatives want to abolish the ETS.

Source: Various party websites, NZ Herald.

Price Update

The announcement of the Green Party, then Labour Party climate change policies initially had no impact in the market. More recently, NZU prices have rallied to trade in the range of $4.20 to $4.50 per NZU.

ERUs continue to trade in the range $0.17 -0.18 per ERU. There is some political risk in purchasing ERUs for surrender purposes (as described above) for pre-1990 deforestation in 2014 (with surrender due by May 2015). We recommend waiting until after the election results is known before committing to purchase these units for this purpose.

The figure below shows the recent carbon credit prices, for both NZUs and ERUs.

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