Carbon Advisors Need Code of Practice

December 3, 2008

ETS on hold results in some carbon traders promoting VCS to New Zealand forest owners.

 

Parties are trying to promote the voluntary carbon standard (VCS) www.v-c-s.org now the ETS is under review. They are saying to NZ foresters that they can receive credits for pre 2008 radiata forests. These statements provide one example of the need to promote better understanding and complete information. The following relates to the VCS, other standards exist, each with its own issues.

 

The VCS standard requires the forester to prove that the project (forest) was undertaken with some reliance on the environmental benefit, and therefore reliance on receiving credits.  This is quite rigorous and has several potential tests, but at present there is only one which is available. This is the project test which  is a “barrier test” .. Overcoming a barrier analysis relates to proof of constraints overcome by the injection of the credits. A good overview of this standard was recently undertaken in New Zealand by the  University of Canterbury Forestry School (Merger and Williams) where they point out the final issue,  ‘the project proponent must give evidence that his/her activities are NOT common practice‘ (www.fore.canterbury.ac.nz/research) . Clearly radiata planting is common practice in New Zealand and therefore we believe unlikely to pass the projects test to receive VCS credits.

 

 

Such an exercise has the potential to be a considerable waste of time and resources, not to mention forest owners hard earned money. The true cost of applying the VCS, both initially and for the required reviews must be factored in as well as any buffers (held back credits) under the VCS. The methods available to measure the carbon are NOT the system of ETS, the use of look up tables, nor the use of current NZ forestry practices. The only current options are the United Nations approved methodologies which are used for projects in developing countries(the A/R CDM). EITG has applied CDM methodologies for UN registration. These are not an undertaking to be taken on lightly.

 

Environmental Intermediaries & Trading Group Limited  has come to the view that the proliferation of new companies offering services in this area is generating  a real need for disclosure of standards and ultimately a code of practice to ensure potential clients receive proper advice. EITG will be publishing the standards/links on its web site shortly to assist foresters and others to see where the standards come from and to answer questions.

 

Further information on Carbon Trading the NZETS and Kyoto can be found at www.eitg.co.nz

 

Ends

 

For further information contact:

 

Richard Hayes

Environmental Intermediaries & Trading Group Limited

Ph: 09 9201092

Email: richard.hayes@eitg.co.nz

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Forestry and the New Zealand Emissions Trading Scheme

December 3, 2008

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Carbon Monitor

Volume 13 Issue 10    November 2008

Update on Forestry in the New Zealand Emissions Trading Scheme

Forestry is the first sector to enter the scheme (effective 1 January 2008) because it plays a core role in managing New Zealand’s carbon footprint.

 

Under the legislation:

 

Forest landowners who deforest pre-1990 forest land any time from 1 January 2008 incur emissions liabilities New Zealand Units (NZUs) can be earned for net increases in carbon stocks in post-1989 forest land from 1 January 2008, at a rate of one NZU per one tonne of carbon dioxide.

 

**Key points of the scheme **

 

Forest landowners and certain other persons will either automatically or may voluntarily become participants in the ETS depending on:

 

  • the date the forest was established
  • the type of forest owned, leased, or held under a forestry right whether there has been any deforestation.

 

Forest land is defined as being at least one hectare with forest species that have, or are likely to have at maturity:

 

  • a crown cover of more than 30 percent on each hectare a crown cover with an average width of at least 30 metres.

 

  • Forest species are tree species capable of reaching at least five metres in height at maturity in the place they are growing.

 

There are two forest classifications: pre-1990 forest and post-1989 forest.

 

Pre-1990 forest land is land that contained predominantly exotic forest species on 31 December 1989 and 31 December 2007. Pre-1990 forest landowners may apply to be allocated NZUs under the Forestry Allocation Plan (see ‘Draft Forestry Allocation Plan released for consultation’ below).

 

Some pre-1990 forest may be eligible for exemption from the ETS if the land holding is less than 50 hectares of pre-1990 forest land or includes deforestation of tree weeds. However exempt pre-1990 forest land will not be eligible for an allocation of NZUs. Exemptions are not automatic and must be applied for.

 

Indigenous forests established before 1 January 1990 are not included in the ETS. Owners of these forests have no liabilities under the ETS, even if they deforest. Equally, they are not entitled to an allocation of NZUs.

 

Post-1989 forest land is land that contained exotic or indigenous forests established after 31 December 1989 on non-forest land.

 

Post-1989 forest landowners and certain other persons can choose to enter the ETS. If they do, they become Participants and are entitled to receive NZUs for net increases in carbon sequestered in their forests as they grow. Participants may choose to register part or all of their forest area in the ETS, at their discretion. Additional forest areas can be added at any time.

 

As part of their obligations under the ETS, post-1989 forest landowners will be required to report to MAF at least once every five years on the change in the amount of carbon stored in their registered forest area. If the net carbon stored in their forest falls (for example, due to harvesting), they may be required to surrender any units previously allocated to them.

 

**Essential information**

 

MAF has launched new web pages specifically for Sustainable Forestry and the ETS (Forestry): http://www.maf.govt.nz/sustainable-forestry

..

 

These pages contain information about the forestry sector’s involvement in the scheme, including:

 

A Guide to Forestry in the Emissions Trading Scheme

 

This is a comprehensive booklet detailing how the ETS applies to the forestry sector. It includes information on forest classification, carbon sequestration, carbon measurement approaches, allocation of New Zealand Units, deforestation issues and tax treatment. Hard copies of this guide can also be obtained by calling 0800 CLIMATE (254 628).

 

Tools and information

 

A webpage devoted to tools and information around the ETS (Forestry) and other sustainable forestry initiatives including the Climate Change (Forestry Sector) Regulations 2008, fact sheets, carbon sequestration rates, measurement information, key dates and frequently asked questions.

 

Additional guides and user manuals and standards

 

The detailed administration of the ETS (Forestry) will be covered in a series of guides and user manuals and standards. These documents will provide guidance to, and in some cases, further detail of, the prescribed rules and procedures that a Participant must follow in order to comply with the ETS and related legislation.

 

These manuals and standards will be progressively available from December 2008 at http://www.maf.govt.nz/sustainable-forestry

:

 

1. The Land Eligibility Guide will give practical guidance on how to determine whether an area of forest is pre-1990 or post-1989 forest land under the Act.

 

2. The Mapping Manual and Standard will describe how to define an area of forest using either the online mapping tool or by submitting existing data in electronic form, for example, shapefiles.

 

3. The Look-Up Table Guide will describe how to use tables to determine the amount of carbon (the ‘carbon stocks’) within a Participant’s forests.

 

4. The Field Measurement Manual and Standard will describe how to carry out standard forest inventory field measurements to provide data that can be used to assess forest carbon stocks using an online Carbon Calculator supplied by MAF.

 

5. The Carbon Calculator Guide will describe how to calculate the carbon stocks and how these change over time within a Participant’s forests based on data obtained by Field Measurements.

 

**Draft Forestry Allocation Plan released for consultation**

 

The Minister Responsible for Climate Change Issues has given public notice of the Draft Forestry Allocation Plan and supporting Information Document: New Zealand Emissions Trading Scheme Draft Forestry Allocation Plan and Deforestation Exemption Policies for Pre-1990 Forest Land for consultation and submissions.

 

The Draft Forestry Allocation Plan outlines the proposed approach to allocating New Zealand Units to pre-1990 forest landowners under the ETS.

 

The supporting Information Document: New Zealand Emissions Trading Scheme Draft Forestry Allocation Plan and Deforestation Exemption Policies for Pre-1990 Forest Land explains the rationale for that intended approach in more detail and also outlines the intended approach for granting exemptions.

 

Under the ETS, all owners of pre-1990 forest land will need to decide in the first half of 2009 whether to:

 

apply for an allocation of NZUs; or

if eligible, apply to have land permanently exempt from the ETS (under the “less than 50 hectare” threshold exemption or the “tree weed exemption”).

 

The Draft Forestry Allocation Plan establishes criteria and process for allocations and exemptions.

 

Call for submissions

 

Submissions on the Draft Forestry Allocation Plan are due by 28 February 2009. Submissions can be made on the form attached to the Plan (see www.maf.govt.nz/sustainable-forestry) and submitted by email to FAPsubmissions@maf.govt.nz or sent to FAP Submissions, Ministry of Agriculture and Forestry, PO Box 2526, Wellington.

 

More information

 

The Draft Forestry Allocation Plan and supporting Information

Document: New Zealand Emissions Trading Scheme Draft Forestry Allocation Plan and Deforestation Exemption Policies for Pre-1990 Forest Land can be downloaded from www.maf.govt.nz/sustainable-forestry

..

 

Copies are also available from the Climate Change contact centre – 0800 CLIMATE (254 628), MAF’s head office, 25 The Terrace, Wellington, or the head office of the Ministry for the Environment, 23 Kate Sheppard Place, Wellington, (tel +64 4 439 7400).

 

Public workshops about forestry and the ETS will be held around the country early in the New Year. The workshops will include details of the Draft Forestry Allocation Plan and the pre-1990 forest land exemption policies. Dates and venues will be provided in future issues of the Sustainable Forestry Bulletin and posted on www.maf.govt.nz/sustainable-forestry

 

To subscribe to the Bulletin, please email sustainableforestrybulletin@maf.govt.nz with ‘Subscribe: Sustainable Forestry Bulletin’ in the subject line and your contact details in the body of the email.

 

If you have any questions relating to anything in this Bulletin or other forestry matters, please email your enquiries to:

climatechange@maf.govt.nz or ring 0800 CLIMATE (254 628).

 

CDM Project Capability now Available in New Zealand

 

EITG has recently been approved as a service provider under the Clean Development Mechanism of the Kyoto Protocol by the CDM Bazaar part of the UNFCCC UNEP RISO Centre http://www.cdmbazaar.net/default.asp

 

Under the Kyoto Protocol Annex B countries, the so called ‘developed countries’  can promote and invest in projects to reduce emissions in developing  countries such as South Africa. Approved projects received certified emissions reductions or CER from the UNFCCC. The CDM Bazaar is a central site listing leading companies such as EITG that offer CDM project services.

 

These carbon credits will be added to the extensive project and forestry credit portfolio either managed or owned by EITG further cementing its role as the leading supplier of Carbon Credit solutions and projects under the Kyoto Protocol in the region and to the NZETS.

 

Further accounts to hold these CER credits have been opened with the NZEUR (New Zealand Emissions Units Register) www.eur.govt.nz

 

Joint Implementation Study in Australia

 

EITG appointed Tsakounis Global to investigate Joint Implementation Projects for Coal Mine Methane in Australia.

 

Under the Kyoto Protocol Annex 1 countries, the so called ‘developed countries’  can promote and invest in projects to reduce emissions in other Annex 1 countries such as Australia. Coal Mine Methane involves capturing methane from coal mining and using the methane to generate electricity.  Significant reduction in GHG emissions are achieved as the global warming  potential of methane is 21 times that of carbon dioxide.

 

Projects have been completed to earn carbon credits under the UNFCCC clean development mechanism in Non Annex 1 developing countries, qualifying to do so on the basis they are not economic without carbon credits.
With the extensive use of coal in the electricity industry in Australia coal
mine methane is typically vented into the atmosphere
contributing significantly to Global Warming.

 

www.tsakounisglobal.com

 

EU Price Update

 

All allowances slid heavily as the uncertainty of the banking crisis hit oil and energy prices in the last month. Prices of CER’s slid to an 8 month low in all categories.

http://www.cantorco2e.com

New Zealand ETS More Detail

Royal assent was given on 25th September and the New Zealand Emissions Trading System is now Law.

 

Pre 1990 ‘free’ allocations

 

The legislation appears to prohibit the transfer of these units granted ‘free’ to pre 1990 forest owners from NZU to AAU.

 

In our view this restricts the sale to the local market at least before 2012. This involves some 34mt of NZU.

 

Pre 1990 Forest deforested as at 1/1/08

 

MAF, in its papers and in diagrammatic form suggests ‘pre 1990’ forest deforested prior to January 2008 is eligible for the NZETS.

 

This will create another category of potential participants in the ETS. It’s not at all clear as to what deforestation means in this context as it is only defined in terms of the liability for clear felling.

 

Restriction on Entry of CDM CER’s to NZETS

 

The legislation appears moot on the amount of CER credits permitted into the NZETS. The Kyoto Protocol limits CER use for compliance to 2% of the allocated target in the case of New Zealand, around 7mt.

 

LCERs not Permitted in ETS

 

The NZ emissions registry does not accept Long term CER’s from forest activities in the CDM, or LCERs. Temporary CERs or tCERs are however permitted. These expire after a specified period and are issued from forest projects in developing countries.

 

Price Discovery

 

Recently 100kt of 2009 delivery NZU was offered at 17 euro per NZU, with bids quoted at 12 Euro. Apparently bids went as high as 13 Euro. The vendors reduced the asking price to 15 Euro late in October as the NZD fell against the Euro. No takers yet!

 

This contrasts with solid international AAU sales at 13 Euro with bidders wanting over 250kt parcels. Proof at this stage that the overseas market is the place to be.

 

With no bid/ask spread quoted the market in New Zealand has yet to show the depth necessary to function without severe volatility.

 

MAF Charges

 

MAF has proposed a charge of $550 per participant registering in the ETS, or 4.25 hours work, and $100 per emissions return filed as a processing fee.

 

Our view is that these charges are based on a manual processing system and should drop rapidly over time. On line return filing the same as GST returns should be implemented without delay.

 

EITG pool customers will be joining the system en masse, and we will be working with MAF to get an actual cost scenario in place.

New Zealand Election and the NZETS

The National Party, the only likely contender to oust the incumbent Labour Government in New Zealand, announced clearly that it would retain the ETS.

 

It further announced that it would review support for industry at risk from overseas competition and align more closely with the AUETS. This policy of protecting at risk parties is one of the core principles of the proposed AUETS.

 

National also supports the flexible land use alliance and has promised to lobby for the second commitment period to allow substitution of land deforested with land elsewhere.

 

A quirk of the protocol presently is that the carbon density of an area of land is that which is measured and if the land use remains, i.e. as forest then the carbon is assumed to be constant even after clearfelling. Of course this is correct if you look at an overall average.

 

However the policy has created a storm over those who want to benefit from land use change. So the question is ‘are national prepared to write a $2bn cheque’ for CP1 to cover this off? One would think the answer is no.

 

Australia Forest Credits restricted to use in AUETS

 

Part of policy in the AUETS discussion documents proposes to restrict any unit issued in the AUETS from forest sinks to be restricted to the AUETS alone and not able to be exchanged for AAU units.

 

This differs from the NZETS where exchange of Kyoto forest NZU units for AAU units is by right.

 

Contact Details

 

Terry Quilty    ph 64 21 250 6789    

        fax 64 9 920 1093

skype terryquilty

        email terry.quilty@eitg.co.nz

 

Richard Hayes    ph 64 21 310 301

        fax 64 9 920 1093

        skype richardshayes

        email richard.hayes@eitg.co.nz

 

Simon Baillieu    ph 27 82 558 9616

        skype sbaillieu

        email simon.baillieu@eitg.co.nz

 

‘Carbon Monitor’ is a client service of EITG.

EITG develops, facilitates and engineers Carbon Mitigation projects and strategies.

 

EITG corporate advisory provides high-level briefings and advice on building robust responses to emerging regulatory structures.

 

EITG Carbon Pool provides forest owners with a robust platform to access local and international markets while dealing with harvest and other liabilities.

 

EITG provides trading platforms and strategies based on extensive mitigation and avoidance platforms under JI and CDM, with matched offset packages for emitters.

 

EITG is part of an international consortium with representation in Asia/Pacific, UK, USA and South Africa

 

To subscribe email richard.hayes@eitg.co.nz with your full contact details.

 

Portions © 2008 Environmental Intermediaries & Trading Group Limited all rights reserved

 

www.eitg.co.nz


Emissions Trading Legislation and update on the New Zealand ETS

December 3, 2008

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Carbon Monitor

Volume 13 Issue 11    December 2008

Chaos Rains as NZETS Placed Under Review

OMF Financial, a leading local Carbon Broker, said ‘locally the market is a little stunned and still digesting the news of a complete review of the ETS and possible reversion to a carbon tax’.

‘Given 50% of our emissions are from Energy, Waste & Transport which are unlikely to be changed in a revised ETS we feel the ETS should have been allowed to continue in order to establish a carbon market.

Forest owners have deals to do and some emitters wanted to start buying now. We don’t think a carbon tax is the answer as its better for the market to establish pricing as opposed to the government. Being market participants we are biased.’

Mike Smith of Southem reiterated the sentiment from the forest sector saying ‘The New Zealand Government’s decision to suspend the emissions trading scheme has been described as “absolutely catastrophic” for the economy and the burgeoning carbon market’s credibility.

The newly elected National Party-led Government has announced a policy agreement with its ACT Party partner to suspend the emissions trading scheme (ETS).  A parliamentary select committee will review the ETS and resurrect the possibility of introduce a carbon tax instead.’ http://www.southem.com

ETS Review may be Lucky for Some Forest Owners

We have noted with concern sales that our clients have become aware of and asked if this is an option for them. This relates to both the ETS and voluntary markets. The ETS being on hold has curtailed many sales contingent on the issue of credits.

The sales of concern are those that provide a forward contract for sale with little realistic regard for the two intrinsic risks: having credits for harvest, and the contractual obligation related to loss of the sequestration by fire, pest, or any other reason.

The other counterparty risks exist for any over the counter sale (OTC). The ETS suspension has curtailed this and given those foresters time to think. The sequestration isn’t going anywhere, so in effect the money has simply gone back in the bank.

 

What are the Risks of Trading in the ETS?

This is a question we are often asked especially by forest owners. The risks relate to those of any sale, will they pay, generally referred to as counterparty risk. This is complicated by the nature of credits and delivery dates but essentially it’s the same as any financial transaction.

The risks related to selling emissions units are peculiar to this market alone. The major risk with forestry in the ETS is the harvest liability. You must have credits to meet this liability or buy them at the time. This liability is the amount deemed to be emitted when you harvest your trees or around 60% of the carbon in the forest. Selling now without having credits available at the known price at harvest is a significant gamble.

Those selling a forest credit for $30 today have no idea, as does anyone the, price they will pay to buy that credit back at harvest. With forest planted in 1990 harvest may be only 10 years away. There is little chance the ETS will have achieved its desired outcome of a low carbon economy and driven the credit prices to near zero in that time. More likely is that carbon prices will have increased dramatically.

Prices according to off shore reports may go as high as $100 US per tonne. So if you received $30 now and had to pay back nearly $200NZ in 10 years for each credit then you would have made a bad business decision. All for $16,000 per hectare at harvest!

Government officials made it clear in their road show in late 2007 having one age class forest was risky and that steps should be taken to deal with this before forest owners should trade their credits.

Forestry is a specialised business. The link between simply selling a commodity and getting the best price, AND, protecting the forester , building the systems into silviculture, inventory measurement, and all the other issues unique to forestry that matter so much, IS NOT being made clear by many brokers who have recently seen the potential and jumped on what they see as a money spinner. The simplistic approach we are seeing, while appealing initially, has some very large long term risks.

What about the Voluntary Market?

This is another area of confusion. Most of this comes from the lack of or inaccuracy of information available. The only reason anyone is discussing this market is due to the ETS being under review.

Voluntary markets also involve the sale of CO2 credits. The difference is that the credits are not recognised in Kyoto.

This means they cannot be used in the NZETS or any other government ETS. They have been issued by a range of organisations carving out a commercial niche who write a “standard”. Some are well recognised and definitely worth looking at, having environmental integrity and a reasonable buyer following.

The most recognised has been the Chicago Climate Exchange. However its prices are low and it is generally accepted this is a reflection of the buyer’s perception of the credits environmental integrity.

Recently CCX decided to exclude foreign credits from its market. EITG has experience with creating these credits and looked at them only as an exercise while the ETS became law.

The problems with voluntary credits vary. One is that the standard must be internationally acceptable. There are several that are. Most when applied to NZ plantation forestry conclude the forests lack “additionality”. What this means is the forest was planted with no regard for the credit income so any credit income is just a free ride.

One approach to compensate for this is to ‘dress up’ existing forestry, change the harvest dates, add FSC stewardship or other arrangements so that there is an arguable move to benefit the environment. Beware of this, buyers are sophisticated and far from stupid and these actions really transparent to buyers.

Most suggestions to seek voluntary credits relate to pre-2008 forest, which is outside of the NZETS and Kyoto. There was a potential window, but it is by no means certain. Some promoters insist that you can get credits retrospectively back prior to 2008. We disagree. This was potentially possible from the CCX until they closed their market to non US credits earlier in 2008.

If one looks to create voluntary credits after 2008 a real problem of ‘double dipping’ exists. To use voluntary credits the standard will usually require (and should) a confirmation from MAF that it is not double dipping. MAF have given us such a letter relating to our pre 2008 work with CCX.

The penalties of receiving two lots of credits on the same forest for the same period could be severe. Not worth the time we suggest.

There is also a misunderstanding that because a credit would exist under the ETS, it will also exist under a voluntary market. That is the ETS is in effect a ‘credible’ voluntary standard. It is not.

The ETS is a political mechanism the government creates to distribute and trade the credits the government receives under Kyoto and to comply with its Kyoto obligations. These are the AAU (assigned amount units) of which New Zealand receives 309mt for 2008-2012. In addition the project credits of Kyoto can be traded. Those project credits can also be limited as the EU does in its ETS. We do not know if the government here will do this yet due to the review.

A final point we believe needs to be made is that the selling of carbon credit carries with it an obligation to continue to keep the carbon stored. This is particularly so with many voluntary standards. What happens if the forest burns down? The buyer may be relying on that carbon being contained in the tree. Its not, so did you in effect guarantee this? This point is not quite the same with an ETS where the government converts your NZU into the AAU. The AAU has a sovereign guarantee so the buyer is safe. However the government may well require you to offset losses as they do already with harvest.

What Voluntary Standard should NZ Foresters avoid?

If intending to look at the voluntary market for forest that may be within the scope of the NZETS, then the question becomes what standard do you choose? The standard is very important as it dictates both price and market acceptability.

 

Buyers of credits purchase to fill a need. What they need them for varies, but what is consistent is that they will come looking if the credits evaporate, are proven to lack credibility, and increasingly cannot be traced.

 

For forest outside the ETS, offset projects, and non forestry projects, then voluntary markets have potential and are an option. Do not take our comments on the voluntary market as being negative. It is a viable and useful market, but comes with many provisos for forestry.

 

There are credible standards. A recent standard with few registered projects, is the Voluntary Carbon Standard (VCS). We have heard of statements made in New Zealand that the Voluntary Carbon Standard can be used for New Zealand exotic forestry! This is a very broad statement and difficult to apply to NZ forestry. The main reason to question this is that the VCS has a projects based test (see www.v-c-s.org )

 

Coincidentally recent research from University of Canterbury Forestry School: Merger and Williams state in relation to VCS ‘the projects test requires the execution of an investment barrier test’ and concludes ‘the project proponent must give evidence that his/her activities are NOT common practice’ (www.fore.canterbury.ac.nz/research)

 

This relates to so called ‘additionality’. In essence showing you did something different for an environmental purpose that you would not have otherwise considered. We have some difficulty with a suggestion that growing Pinus Radiata can be considered as being NOT common practice in NZ.

 

What this suggests is existing afforestation (as all pre 2008 forest is) is unlikely to qualify under VCS in our view. These plantations are and were COMMON practice!!!

 

Using CDM Credits to Cover Future Forest Harvest Liability – FACT or FICTION

 

Before we cover this, recall that CDM (clean development mechanism) credits or CER’s are from projects in developing countries that reduce carbon emissions. These projects are subject to intense scrutiny and based on forecast estimated emissions reductions. The credits they generate are approved by the United Nations. The credits called CER’s can be used in developed nations. This requires approval of both the host government and the recipient government (an Annex B country).

 

Can we use CDM CER credits to cover harvest liability? The short answer is yes under the current ETS. That’s because the NZETS does not limit these credits being brought into New Zealand.

 

This may not be the case after the review.

 

Will EITG use CDM credits for its carbon pool?

 

At this time we are active in CDM projects and are currently registering projects with the UN and commencing more new projects. These projects do include forestry, but are mostly in other industries and gases other than CO2.

 

So why don’t we promote them? Well, we do to an extent, and we may bring them to NZ to use for our emitter clients. The problem is there are real issues and as above, a review, with some potential limits or restrictions.

 

CER’s may provide a useful hedge, but we do not believe foresters should rely on this market to cover their harvest liability. We are cautious, but with good reason.

 

CER credits are permitted in the EU ETS so prices have been as high as Euro 21 ($50NZ) and currently sit around 15 Euro ($36NZD). Recent NZ ETS trades are $30.

 

The supply of CDM credits is difficult to be certain on. The projects themselves are easily found as they are all published by the UN, as are the volumes and predictions. What is not clear in the forestry time frame (that is over a rotation of 27 years or so) is where the prices, the rules on acceptability, and the volumes of credits issued will actually be.

 

So can you use a CDM credit to cover harvest liabilities?

 

  1. The CDM projects are for 7 (renewable twice for 7 years) or a fixed 10 years – significantly shorter than a forest rotation of 27 years so the CDM project may not be generating credits at harvest time at all. If the project is 7 years then it must be renewed at year 7 and 14. Renewal may be denied and any credits that could have been created are no longer available to offset harvest
  2. The CER credits from CDM are worth more than an NZU so why would a project owner sell them in New Zealand when they can get more overseas right now?
  3. Very few companies in this market ‘own’ the project. We don’t. We create the project with the owners. The projects are usually very large with credits of 250,000 tonnes/pa seen as small. The owners want the best price. That means NZ buyers will pay the international market price which at present means the EU price.

 

This all suggests that the only safe way to offset the harvest liability with CDM credits is to buy them now (a forward contract), but of course that means you pay the current market price. CERs are worth more than an NZU so that does not make commercial sense.

 

Otherwise it’s just a promise from an off shore company to sell you a CER at fixed price lower than the price today in 10 or 20 years time – if their projects are renewed and if the credits are issued. All speculative and risky in our view there are better ways.

 

The CDM market has been changing. Projects have gone from being easy to register to being very difficult. This is a good thing in our view from an environmental integrity perspective.

 

During this period of change notable companies were forced to write down the value and quantity of credits they had publicly stated that they held. This is because CDM credits are a projection of what will happen and reviews and revisions as a result of initial over optimism, meant in some cases the overestimation of the credits was 30% or more. This also of course significantly affected the value of their shares. If NZ foresters had been relying on these credits to cover harvest they would have been exposed to unnecessary risk.

 

We don’t recommend relying on CDM credits to cover your forest harvest liability.

 

EITG view of the ETS Review

What we know is the Government is committed to Kyoto. Exiting would place us directly in conflict with our close trading partners.

We also know loss of carbon due to harvest will still be a part of Kyoto and therefore part of policy.

We see Australia with a planned ETS, Europe already with an ETS and Japan and the USA planning theirs.

We also see non compliance with emissions agreements as an excuse for trade barriers.

In the review therefore we see the Government subject to some significant constraints.

The first is the accounts don’t allow a cheque to be written for $3bn to agree to the flexible land use alliance wish to relocate forestry by right with no deforestation liability for pre 1990 forest. We think the government will push for this policy in Kyoto post 2013.

We see a Government committed to employment and business and will protect industries at risk from climate policies such as Kyoto.

We see efficiency as key and the policy of Australia in particular and other trading partners as guiding our actions.

So our view is we will align with the Australian ETS as it emerges particularly adopting their cap of AUD $40 on the carbon price. This creates a carbon tax over $40 AUD and leaves the government to buy the credits with the $40 AUD.

We see the sectors already 100% exposed to emissions charges, which are transport, fossil fuels, forestry and electricity all remaining 100% exposed.

Finally we see a more proactive involvement with industry (read agriculture) at risk and initiatives both in lobbying and science to resolve the issues.

We are told the ETS review will be completed September 2009 around the time the AUETS is expected to become law.

EU Price Update

 

All allowances slid heavily as the continued uncertainty of the banking crisis continued to hit oil and energy prices in the last month. Prices of CER’s slid to an 12 month low in all categories.

http://www.cantorco2e.com

How much Carbon is in your Forest?

EITG associate Ecometrix have released a new site that allows forest owners in New Zealand to assess their forest carbon and the number of NZU units they will receive under the current legislation from 2008-2012

 

To use this service simply go to http://www.eitg.ecometrix.biz

 

We then assess the data, match it to MAF standardized tables and provide a basic report back via email.

 

This is a sample output from the review:

 

 

We are finding that even with the MAF scaling down the amounts of carbon per ha in some places exceed 45 tonnes per annum!

 

Clarifications on the November Issue

 

Thanks to Ollie Belton, who corrected us saying the pre 1990 allocation for 2008-2012 is 21mt and not the 34mt we stated, rather the 34mt was for the period post 2012.

 

He also notes that while tCER’s can be held in the NZ registry they cannot be retired without the minister’s consent.

 

Contact Details

 

Terry Quilty    ph 64 21 250 6789    

        fax 64 9 920 1093

skype terryquilty

        email terry.quilty@eitg.co.nz

 

Richard Hayes    ph 64 21 310 301

        fax 64 9 920 1093

        skype richardshayes

        email richard.hayes@eitg.co.nz

 

Simon Baillieu    ph 27 82 558 9616

        skype sbaillieu

        email simon.baillieu@eitg.co.nz

 

Martin Albrecht    ph 64 21 565 682

 

Iain MacDonald    ph 64 27 438 2544

 

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