Forestry and the Emissions Trading Scheme

Domestic News

With the formation of a Labour / NZ First / Greens coalition, we now get a feel for the direction of future climate policy. Key developments expected under this government include:

  • A new goal of net zero carbon emissions by 2050.

  • Establishment of an independent Climate Commission.

  • The newly established commission to determine whether agricultural emissions should be brought into the ETS.

  • If agriculture was brought in, it would initially receive 95% free allocation.

The new Minister of Forests, Shane Jones, has also announced a plan to plant up to 1 billion trees over the next 10 years. The aim of this ambitious plan is to offset emissions, create jobs in the regions, and supply timber for the Government’s housing programme.

There is no word yet on whether the change in government will have any impact on the in-progress ETS review. We expect that officials will re-engage with industry advisors once they have fully briefed and received direction from their new ministers.

International News

The new Climate Change Minister, James Shaw, is in Bonn for COP23 - the 23rd Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC). Thousands of protesters have taken to the streets of Bonn, with many protesters taking aim at the US withdrawal from the Paris Agreement. However, many US delegates at the conference are condemning President Trump’s environmental policy, and are voicing support for urgent action on climate change.

Also in Germany, coalition negotiations to form a new government are slow, as parties disagree on climate policy. Although the coalition partners have agreed to honour the Paris Agreement commitments, agreement has not been reached regarding phase out of coal-fired power plants. One shorter term option recommended by government advisors is a national CO2 price to cover all emissions. This would be in addition to the European ETS, where current EUA prices are not seen as sufficiently high to drive down coal-fired generation.

A similar plan is being developed by the newly formed Dutch coalition government where a carbon price floor is proposed to be introduced for the electricity industry from 2020. The price will initially be set at €18/tonne (NZ$30/tonne) and rising to €43/tonne (NZ$72/tonne) in 2030. This price includes the ETS price paid (currently €7.40). It is hoped that this policy will help increase coal-to-gas transitions in The Netherlands, where five remaining coal-fired plants make up approximately 30% of generation, but account for 60% of all power-related CO2 emissions. 

Price Update

The NZU price has continued to rise throughout October and into November, topping the $19.00 mark to reach a six-year high. Current pricing (as at 13th November) is $19.25.

Some market commentators are predicting that we may see the market move to $20.00 by the end of the year, as emitters look to finalise their requirements for next year’s surrender, and factoring the two-for-one unwind increasing compliance requirements by another 6 million units next year.

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