Forestry and the Emissions Trading Scheme

The recent announcement by the owners of Tiwai Point aluminium smelter that they intend to close the facility next year raises several questions around the impact on emissions nationally. On the face of it, the smelter is a substantial emitter of carbon, with around 2 tonnes of CO2e discharged per tonne of aluminium produced (approximately 0.5-0.7 million tCO2e per year). The smelter also currently consumes a substantial amount of New Zealand’s renewable hydro energy supply. Freeing up Manapouri’s generation could reduce our need for coal and gas-fired plants such as the Huntly power station.

But on the flip-side, should we be considering the potential for “emissions leakage” – the risk that Tiwai’s lost production is back-filled by an overseas plant powered with fossil fuel generation that actually results in increased emissions at a global level? The reality of this will depend on aluminium demand as well as emissions reduction policy of other countries. Power companies in New Zealand have also stated that a closure of Tiwai may lead them to reconsider investment in proposed renewable energy projects.

Finally there is the issue of timing – a large upgrade of transmission networks is required to enable Manapouri power to be moved to the North Island and could take a number of years to complete, so  we will likely see either cheaper power in the South Island, or more water spilled from Manapouri and opportunity lost in the meantime.

All of this uncertainty has influenced the spot market for NZUs, with prices reaching a new high of $33.00/NZU on the eve of the closure announcement, before checking back $0.80/NZU once the news landed. Spot NZUs are currently (15th July) trading around $32.15/NZU.