Forestry and the Emissions Trading Scheme

Tax Working Group

Although Capital Gains Tax considerations have captured most of the nation’s attention upon the recent release of the Tax Working Group’s “Future of Tax” final report, the report also makes recommendations on future greenhouse gas tax policy. According to the report summary, the Group:

  • supports a reformed Emissions Trading Scheme (ETS) remaining the centrepiece of New Zealand’s emissions reduction efforts but recommends it be made more ‘tax-like’ – specifically, by providing greater guidance on price and auctioning emissions units to raise revenue (as recommended by the Productivity Commission).
  • recommends periodic review of the ETS to ensure it is fit for purpose and is the best mechanism for pricing greenhouse gas emissions.
  • recommends that all emissions face a price, including from agriculture, either through the ETS or a complementary system.

Price update

The NZU market traded above $25.00 for most of February, with emitters seemingly prepared to bank units at this level for future emissions years. Many emitters will choose the fixed price surrender option available right now if they can afford to hold onto any units acquired to date.

It seems unlikely that prices will drop much below current levels, as foresters remain cautious while they await more news on ETS changes due to be announced over coming months. Current pricing (as at 7/03/19) is around $25.10 / NZU.

EUA prices continued to trend downward for most of February, reaching a low point in the month of €18.70 (NZ$30.90). Prices recovered to around €21.60 (NZ$35.90) by month-end, but this level is still down 14% on highs from January.

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

Carbon prices