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Forestry and the Emissions Trading Scheme

Domestic News

After theorising last month that it would be unlikely for the government to make any ETS announcements before the election, we received an announcement!

Climate Change Minister Paula Bennett announced on the 26th of July that the Government will make changes to the ETS to ensure a good fit with Paris Accord emissions reduction targets. Proposed changes are to:

  • introduce auctioning of units, to align the ETS to our climate change targets

  • limit participants’ use of international units when the ETS reopens to international carbon markets

  • develop a different price ceiling to eventually replace the current $25 fixed price option

  • coordinate decisions on the supply settings in the ETS over a rolling five-year period

This announcement effectively signals the strategic direction the ETS will take, and shows that future changes will likely be well signalled. It seems that the objective will be to benchmark New Zealand’s carbon market with others around the world, while protecting the integrity of our ETS.

There is likely to be 12 – 18 months of consultation before any changes come into effect, and long-awaited information on changes to forestry accounting and operational improvements may not be available until 2018. The full press release can be found here.

Meanwhile, the NZ Productivity Commission has published an issues paper for its inquiry into transitioning to a low emissions economy.

The purpose of the issues paper is to assist individuals and organisations to participate in the inquiry. It outlines the background to the inquiry, the Commission’s intended approach, and the matters about which the Commission is seeking comment and information.

The paper contains specific questions to which responses are invited. Submissions are due by 2nd October 2017.

The inquiry will identify options for how New Zealand could reduce its domestic greenhouse gas emissions and transition towards a low emissions future, while continuing to grow incomes and wellbeing. More information can be found here.

Price Update

NZU trading has remained in a pretty tight range for the past month, around the $17.75 mark. A short-term dip towards the end of July saw trading around $17.50. Pricing has remained healthy into August, with trades reaching the $18.00 mark on 17th August.

European markets continue to show gains, with EUA prices moving up for the fourth month in a row.

The figure below shows the recent carbon credit prices for EUAs and NZUs. 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)