Forestry and the Emissions Trading Scheme

Forestry and the Emissions Trading Scheme

On budget night in May the government announced the outcome of the stage 1 priority issues as part of the ETS review. The priority issues of the ETS review were to consider whether transitional measures, introduced during the global financial crisis to help moderate the initial costs of the ETS, should be removed or phased out. Transitional measures include the 2 for 1 subsidy and the $25 fixed price option, which effectively caps the cost of emissions at $12.50 per tonne.

The government has decided that the $25 fixed price option will remain. The 2 for 1 subsidy will be phased out over the next three years, beginning 1 January 2017. In 2017 emitters will be required to surrender 67% of emissions, 87% of emissions in 2018, and the requirement for full surrender of emissions commences in 2019. Businesses exposed to international trade competition, and whose emissions are a big part of their costs, will continue to receive an allocation of emissions units from the government to protect their competitiveness.

Whilst this phase out of the 2 for 1 is viewed by the forestry sector as a more conservative approach than hoped for, there has been an immediate price response in the NZU market. The remainder of the governmental ETS review is expected to take 12-18 months.

Price Update

The NZU market price has continued to increase as a response to the announcement around the phase out of the 2 for 1 subsidy, and is currently trading at around $16.75 per NZU. This is a rise of 15% since May. The market price for NZUs has increased by over 40% since the start of the year.

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. EUAs are valid units for trading within the European Union.

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