Forestry and the Emissions Trading Scheme

Erin Leahy

As part of the current review of the New Zealand Emissions Trading Scheme (ETS), 240 submissions on the priority issues around the 2 for 1 subsidy and the $25 fixed price option are being read and considered by the government. Its decision on these priority issues is expected over the next few weeks. The wider ETS review is expected to take 12-24 months, as advised by the Minister for Climate Change Issues, Hon. Paula Bennett, when addressing the Climate Change conference in Rotorua organised by the Te Arawa Federation of Maori Authorities last week.

In phase two of the ETS review, the government is seeking feedback on the way the ETS and forestry sector interacts and how it will contribute to New Zealand meeting its future international targets. Topics being consulted include:

  • The future cost of emissions and how businesses plan for these costs.
  • Whether free allocation rates to emissions intensive industries should be reduced after 2020. Some emissions intensive industries are currently receiving allocations equivalent to 90% of their total emissions.
  • How the price of carbon impacts on forestry investment decisions.
  • The use of international units post 2020 (dependent on international negotiations), and whether there should be any restrictions on the source or number of units surrendered.
  • Auctioning as a tool to manage carbon unit (NZU) supply and how this should be implemented.
  • The use of price ceilings and floors to manage NZU price volatility.
  • Forestry accounting settings in the NZ ETS, including the possibility of averaging for post-1989 forests.
  • Deferred liability for harvested wood products.
  • Administrative efficiency of the NZ ETS.

PF Olsen is currently preparing a submission for these consultation items.

Price Update

The market has moved from NZUs trading at around $9.25 (February Wood Matters) to $10.50 currently. This is a rise of 8% since the start of the year and a rise 64% since 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. EUAs are valid units for trading within the European Union.

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

Carbon price