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Forestry and the Emissions Trading Scheme

Domestic

Each month we seem to hear of new businesses in New Zealand setting “carbon neutral” goals, with organisations such as Air New Zealand, South Port and Beef & Lamb NZ recently making headlines for their emissions reduction ambitions, while Waiheke Island aims to be New Zealand’s first carbon-neutral island. The University of Canterbury (UC) recently set a target of reducing its carbon footprint by 45%, having already reduced its GHG footprint by 32% since 2010. 

We will likely see more and more of these strategies being announced, as New Zealand business look to front-foot the issue and protect their “green credentials” and social licence to operate. Many implementation tools will likely be employed, but we believe that offsetting of emissions through afforestation or associated carbon investments will form part of the portfolio for many of our larger organisations. 

International

Britain faces removal from the European Union’s ETS should it fail to make agreements with the EU as it negotiates Brexit. A full withdrawal in 2019 could see the market flooded by British polluters with unused EUA allowances, and this fear has contributed to recent declines in EUA pricing. 

The UK Treasury has developed a proposal for an alternative system should Britain exit the EU ETS. The proposal is for a Carbon Tax of £16 per ton of CO2 emissions (NZ$31.40). Emitters currently pay £18 per ton under UK carbon floor policy, as well as the EU carbon allowances. The proposed carbon tax would replace the EU component and would result in a total “tax” of £34 per ton of CO2 (NZ$66.80). The removal of the EU component means that the charge is fixed, avoiding volatility associated with the EUA cap and trade system. 

Analysts see this as a “stop-gap” measure, with a UK ETS apparently being the favoured option in the long-term.

Price Update

The NZU market remains characterised by lack of activity and little price movement, with NZUs trading a range of $25.00 - $25.10 for most of the last two months, as it awaits guidance from the government.

EUA prices continued to fall last month, moving from €21.30 at the start of October to €16.40 by the end – a devaluation of 23%. Prices began to recover in the first days of November, with December 2018 EUA contracts trading at €17.49 on 2nd November (NZT). This equates to just under NZ$30.00.

Recent declines have been a result of profit-taking by speculators, weaker energy prices and mild weather. 

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