Forestry and the Emissions Trading Scheme - April

In April 2015 the Ministry for the Environment released the New Zealand Greenhouse Gas Inventory & Net Position Report for 1990-2013.

New Zealand's gross greenhouse gas emissions were 21% higher in 2013 than 1990 levels. Net emissions, which include removals (or emissions) from forestry and land use change, were actually 42% higher in 2013 than in 1990, partly due to the harvesting of trees planted before 1990 as part of the normal harvest and replant cycle that is the norm in production forestry, but also due to emissions from deforestation, the decision from some forest owners not to replant this land. According to the same report annual deforestation in 2013 was approximately 8,500 hectares. This deforestation is more than the average area of new forest planting over the same period, provisionally estimated by the National Exotic Forest Description (NEFD) to be 3,500 hectares in 2013.

Of concern is the fact that this report only includes activities up to and including 2013, due to a 15 month lag in reporting. Therefore the impact of the expiring availability of cheaper Kyoto units in 2015, which we believe has increased the deforestation area in 2014, is not currently factored into the Ministry's reporting. Furthermore, new forest planting during 2014, we believe, was at a level below that in 2013.

Although New Zealand contributes only 0.15 percent of global emissions, according to the report, we have the 5th highest emissions profile on a per capita basis among the 40 developed Annex 1 countries that are party to the United Nations Framework Convention on Climate Change (UNFCCC).

This report from government itself is evidence that New Zealand IS NOT on track to reach stated emissions targets of a 5% reduction of 1990 levels by 2020, now only 5 years away.

The New Zealand government is planning to review the ETS this year, but the timing for that review has not yet been advised. As discussed by Peter Clark in last month's Clarky's Comment (Issue 073) there are major constraints to forest planting providing a solution to New Zealand's impending blowout of emissions. It will be very interesting to see what the government comes up with in its review.

Price Update

During the past month, NZUs traded spot at up to $6.65 per NZU, currently trading at around $6.25 - $6.50 per NZU.

ERUs and CERs are currently trading at around $0.10 - $0.15 per unit. The only forestry related activities ERUs can now be used for is for surrender liability that is associated with deforestation that was notified prior to the 31st December 2014, with an emission return submitted by 31st March 2015.

The figure below shows the recent carbon credit prices for EUAs, CERs, NZUs and ERUs. Note that from 1st June 2015 only NZUs or New Zealand AAUs are valid units in the NZ ETS.

CO2 price trend

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