Carbon Monitor April 2009 Edition EITG

March 26, 2009

Carbon Monitor

Volume 14 Issue 3    April 2009

Commerce Commission Steps in to Regulate Carbon Claims

The New Zealand Commerce Commission the regulator for the Fair Trading Act issued a discussion document regarding carbon offset and neutrality claims.

As the regulator for trade practice and claims made in trade, the COCOM as it is known wants to send a strong message to the market that unfounded claims will be prosecuted.

The problem is that the Commission has yet to fully appreciate the complexities of its undertaking. The discussion document for instance insists on the use of Additionality as a ‘basic requirement’ for a legitimate carbon offset.

This of course is true with projects in Non Annex B countries, which are not subject to an emission cap under the Kyoto Protocol, but completely irrelevant in the New Zealand context with the NZETS and NZU units.

It goes on to deal with ‘double counted offsets’ which again are dealt with in the NZ regulatory environment.

COCOM fails to distinguish between the Kyoto Market and Voluntary Markets in its draft guidelines. We have made this point to them in submission and would like this clarified in the final document.

We think what COCOM is doing is very positive for Voluntary Carbon Markets and essential given some of the snake oil being promoted to NZ forest owners by the Johnny come lately forest carbon ‘experts’ who promote the VCS carbon standard to forest owners. (See December 2008 Carbon Monitor)

We hope the COCOM comes down hard on irresponsible carbon advice and this paper indicates they may very well do so.

The section on Permanence and Risk Management illustrates why carbon pools are essential.

It suggests that misleading conduct may be derived from ‘poor risk management’

What this means is that those who receive forest based credits could use the Fair Trading Act deceptive and misleading conduct provisions to reverse contracts. Should a forest owner sell ANY credits Kyoto or otherwise to a purchaser and that purchaser relies on the vendors risk management and the risk management proves to be faulty and potentially misleading the remedy under the Fair Trading Act allows the purchaser to reverse the contract to place them back in the position they would have been before they entered into the contract to purchase the credits.

This of course is not normal contract law and as such would place major burdens on the Vendors as forest owners to ensure that the proper risk management was in place.

http://www.comcom.govt.nz//Publications/ContentFiles/Documents/Draft%20guidelines%20on%20carbon%20claims.pdf

First Trade of NZU Recorded

 

OMF financial announced what it claims as a world’s first trade in NZU units under the New Zealand Emissions Trading System.

 

NZU or New Zealand Units represent one tonne of C02e and are the currency of the NZ emissions trading system.

 

They noted that the units were issued based on the removal from the atmosphere of C02 by New Zealand forestry post 2008. Some 50,000 tonnes were traded at NZD$20.

 

They also noted whilst the parties remained anonymous, they wished to see the NZETS operational and functioning.

 

Commentary

 

It is interesting to note that whilst under review the New Zealand ETS is still fully functional. Emissions returns can still be lodged, the NZU entitlement calculated and NZU units issued.

 

The New Zealand Emissions unit register https://www.eur.govt.nz/ where all such NZU units are registered shows no transactions at this time and no NZU units issued to any forest owner.

 

The sale therefore is likely subject to the issue of such units and when the transfer is recorded we will update readers.

 

 

EU Price Update

 

Allowance prices continued a general upwards trend with prices in NZD for CER units increasing to nearly $30 NZ, the price prior to the recent financial uncertainty.

 

The market however remains nervous and volatile with uncertainty surrounding many of the factors influencing the price.

 

An up coming auction of EUA by the UK Government is expected to inject further volatility into the market over the coming fortnight.

 


http://www.cantorco2e.com

MAF Releases Final Look Up Tables for the NZETS

The New Zealand Ministry of Agriculture and Forestry has released its guide to using the Look-Up tables for the New Zealand Emissions Trading Scheme.

 

http://www.maf.govt.nz/sustainable-forestry/ets/guide/lookup-table-guide.pdf

 

Whilst the NZETS remains under select committee review the structure and registration process continues forward.

 

Some of the examples are interesting and worth reproducing.

 

Using Look Up Tables

 

To use a look-up table to calculate carbon stocks for a given area of forest land, the following information needs to be available from records held by the Participant:

 

  • whether the area is a pre-1990 or post-1989 forest land;
  • the forest type on each area of forest land;
  • if the forest type is Pinus radiata, the region the forest land is located in;
  • the age of the forest type at the time carbon stocks are to be determined; and
  • if a second (or later) rotation post-1989 forest, the previous forest type and its age at harvest, and
  • the region the forest land is located in if the previous forest type was Pinus radiata.

 

The information needs to be available on a hectare-by-hectare basis, and is reported as summarised data for either the entire registered forest area (for pre-1990 forest land) or at the CAA level (for post-1989 forest land).

 

Examples: Tree age at the time of deforestation of pre-1990 forest land

 

  1. A first rotation Douglas-fir forest was planted in September 1985 and is deforested in February 2013. Applying rule (i) above, the age of the forest to be used to calculate the deforestation liability using look-up tables is 28 years.

     

  2. A Pinus radiata forest was planted in the Auckland region in June 1968. It was harvested in June 2008 at age 40 years and Douglas-fir seedlings were planted soon after. The land therefore remained pre-1990 forest land. In November 2012, the Douglas-fir forest was cleared and the area changed to dairy farming: that is, deforestation occurred. The Douglas-fir trees are thus fouryears old at the time of deforestation. However, under rule (ii) above, the deforestation liabilitythat exists is calculated using the look-up tables for the previous rotation Pinus radiata forest at an age of 40 years. The resulting liability is very large: 1090 tonnes CO2 per hectare for anAuckland forest (look-up table data from Appendix 1, Schedule 4, Table 1, column 2).

     

  3. For example B above, consider that the harvest of the Douglas-fir forest is delayed until January 2017. The Douglas-fir trees are then nine years old under rule (i). Rule (ii) above nolonger applies, and the deforestation liability that exists is calculated using the look-up tables for Douglas-fir forest for an age of nine years. The resulting liability is much smaller than for example B: 131 tonnes CO2 per hectare (look-up table data from Appendix

 

Example: Tree age at the time of commencement and end of an emissions return period

 

A Douglas-fir forest is planted in June 1992. The owner joins the ETS in June 2012, and files a first emissions return in the first quarter of 2013. The return covers the period 1 January 2008 until 31 December 2012. Under the rules for determining the age of trees on post-1989 forest land:

 

  • The year of planting of the trees is 1992.
  • The year of commencement of the emissions return period is 2008, and the age of the trees in that year is: 2008 – 1992 = 16 years.
  • The emissions return period finishes on 31 December 2012, so the year used to determine age at the end of the emissions return is the year after, that is, 2013. The age of the trees at the end of the emissions return period is: 2013 – 1992 = 21 years.

 

Example: Tree age at the time of commencement and end of an emissions return period, with harvesting and replanting of part of the forest during the return period

 

A 40 hectare Pinus radiata forest is planted in the Auckland region in June 1992, but in May 2010 the owner decides to harvest half of it and immediately plant Tasmanian blackwood.

 

The owner joins the ETS in June 2012, and files a first emissions return in the first quarter of 2013 that covers the period 1 January 2008 until 31 December 2012. Under the rules for determining the age of trees on post-1989 forest land:

 

  • The year of planting of the Pinus radiata is 1992.
  • The year of commencement of the emissions return period is 2008, so that the age of the Pinus radiata trees at that time is: 2008 –1992 = 16 years.
  • The year that half of the Pinus radiata forest was harvested is 2010, irrespective of when in that year the trees were cleared. The age of those trees that were harvested is: 2010 – 1992 =18 years.
  • The year that half of the post-1989 forest land was re-planted with Tasmanian blackwood is 2010, irrespective of when in that year the new trees were planted.
  • The age of those trees at the end of the emissions return period is therefore: 2013 – 2010 = 3 years.
  • The age at the end of the emissions return period of the Pinus radiata trees that were not harvested in 2010 is: 2013 – 1992 = 21 years.

Australian Emissions Trading Legislation Draft Released

The draft Carbon Pollution Reduction Bill 2009 was published in mid March. The bill reflects most of the points in the white paper of December 2008 and codifies this into law.

Robust debate and lobbying is expected as the Bill transits the house and faces approval of the Australian Senate.

Some speculation as to the timing is emerging given the expectation or otherwise that the Rudd Labour Government will call an early election, in part to seek a mandate for this Bill.

Regional Performance Comparison of Look Up Tables

Michael Cambridge of Blenheim, a long time supporter of Environmental Intermediaries & Trading Group Limited and avid Carbon Monitor reader wrote to us supplying a table comparing growth rates of Pinus Radiata in different parts of New Zealand.

He proceeds to say in the email, ‘It includes new simplified look up tables for pine. It is interesting to note the difference in growth rates between Nelson/Marlborough and Gisborne and other fast growing North Island areas. I have extracted the data below which shows that trees grow much faster initially in Gisborne but the difference decreases with age. Does this look right to you professional foresters?’

The table looks like this:

Year

Gis

Marl

Gisborne

Marl

Compared

Marl

0

0

0

Increase

Inc

to Gisborne

per year

5

77

28

77

28

36.36%

5.6

10

219

132

142

104

73.24%

20.8

15

372

232

153

100

65.36%

20.0

20

558

386

186

154

82.80%

30.8

25

722

543

164

157

95.73%

31.4

30

861

690

139

147

105.76%

29.4

35

985

825

124

135

108.87%

27.0

40

1102

947

117

122

104.27%

24.4

45

1220

1061

118

114

96.61%

22.8

50

1347

1170

127

109

85.83%

21.8

 


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, Europe, USA and South Africa

 

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

 

Let your thoughts be known at www.ghgemissionstrading.wordpress.com

 

This blog is designed to discuss all aspects of emissions trading and GHG as well as the Kyoto Protocol

 

Portions © 2008,2009 Environmental Intermediaries & Trading Group Limited all rights reserved

 

www.eitg.co.nz

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Carbon Monitor March 2009 Edition from EITG

March 2, 2009

Uncertain Times and an Uncertain Carbon Market?

Whoever said ‘we live in interesting times’ certainly had the current situation in mind when coining the phrase.

Since the financial crisis hit and oil slumped from an all time high to around $40 USD the carbon market has followed with its own tumble loosing 60% of its value.

So what has happened? Simply the market is led by the European Emissions Trading System where European Allowances or EUA’s are issued by participating Governments. These allowances have been in most cases ‘given’ to selected industries as part of Phase 2 of the European Emissions Trading Scheme.

Other than an EUA (European Allowance) only CER or certified emissions reductions (non forestry ones at least) are permitted in the EUETS. Given last years projected growth, EU companies spent time forecasting and then positioning themselves to meet their EUETS obligations. A forward market to 2012 was thriving and prices rocketed in early 2008 to nearly 30 Euros.

No one wanted to pay 30 euro for something they could pay 12 for so CER’s suddenly became flavour of the month! Clever operators sold their EUA’s at market and then replaced them with CER’s. Some of them even staggered delivery and therefore payment unlocking even more wealth.

It was not long before the CER prices started to converge with the EUA price as those engaged in arbitrage fought for more and more allowances. Soon an upward moving CER price coincided with a dropping EUA price and then the whole lot spiralled down to the current lows.

Meanwhile Governments are overjoyed as their Treasuries can now reforecast their Kyoto Liabilities. New Zealand Treasury forecast a cost of $9.80 USD which the market is now potentially at, and along with the decrease in emissions deficits due to lower forecast growth the story for presiding Governments is a good one.

So how accurate are the forecasts? Looking at a moving average over the last 12 months it would be inadvisable to calculate liabilities 4 years hence at the spot price today. We don’t see any Government jumping into the market to mop up their Kyoto Liability right now either!

Why not? You may ask. Simply they will start to drive prices upwards. Recently a small reduction in sellers created a significant price spike and that this just the harbinger of future correction in the market once buyers return.

Politically both New Zealand and Australia appear very worried as to the impact of an ETS on industries and the lobby groups constantly remind them an ETS is jobs lost. With the economic crisis the call now is we can’t afford an ETS. Is that true? The answer is an age old one, short term pain for long term gain. With short electoral cycles and even shorter CEO tenures the age old adage is in our view overlooked too often.

Just because there has been an overdue clean out of bankers who had never run their own business, never had their own money on the line, does not mean we need to ignore our children’s futures. Thank goodness these people and their MBA mandated ‘business experience’ have been cleaned out of the positions of power they should have never been afforded.

So do the Politicians listen to the new crop of CEO’s bemoaning job losses? Or make it clear to them that climate change is here to stay and those who look hard will see sustainability is profitable and preferable.

Australian Market Evaporates as Carbon Prices Slump

 

The market was void of buyers on 12 February following ever-decreasing international carbon prices and Treasurer Wayne Swan’s order to the House of Representatives’ economy committee to examine whether the carbon pollution reduction scheme is the best way for Australia to move forward (see story page 1).

 

CERs in the European market have dropped to below AUD $15 in recent days, hitting one record-low level after another.

 

On Monday 2 February broker Newedge reported the first-ever trade in the 2010/11 AEU contract, when 50,000 permits changed hands at A$21. The trade was the biggest so far to go through in the Australian market, and market participants commented that traders now feel more comfortable that the scheme will go ahead as planned.

 

However, Swan’s inquiry has now removed that confidence, and with the slump in CER prices, no buyer is currently willing to go near the A$20 price level.

 

There have been firm bids for AEUs over most of the two-week period, with traders bidding around A$18.75 for the 2010/11 contract, A$20 for the 2011/12s and A$20.50 for the 2012/13 financial year AEUs.

 

All bids went off screens on Thursday, however, according to brokers.

 

“All the buyers have stepped away, and I don’t think anyone would be willing to pay more than A$15 or A$16 now,” one broker said.

 

There is speculation in the market whether the government will reintroduce a quantitative cap on CER use in the emissions trading scheme given the recent developments. The answer to that will come when the ruling Labor publishes a legislative package for the scheme by the end of this month.

 

AEU OTC closing prices (A$/t)

 

Delivery

Bid

Offer

Close

AEU 2010/11

21.40

AEU 2011/12

22.75

AEU 2012/13

23.75

www.pointcarbon.com

 

Update

 

As of the 27th February Point Carbon now reports buyers and sellers are back and active in the market with bid and offer prices.

 

Delivery

Bid

Offer

Close

AEU 2010/11

19.25

21.00

21.00

AEU 2011/12

20.50

22.00

21.25

AEU 2012/13

21.00

23.00

22.00

 

Speculation as to the reason for this sudden return and prices above prevailing CER prices were that in the Legislation about to be announced restrictions may be placed on the number of CER’s permitted into the AUETS and the position of the USA in the emissions trading space.

 

Brokers confirmed that they are sick and tired of the political back and forth in the process causing nervousness in the buyers.

 

EU Price Update

 

All allowances bottomed out and bounced as the oil and energy prices slide in the last month. Prices of CER’s bounced off a 12 month low in all categories of 8 Euro or $20 NZD or $16AUD.

 

Commentators are attributing the drop in EUA prices to companies with free allocations of EUA selling them to raise cash for their operations during the current financial crisis. Accordingly this has dragged down CER and that of course sets the NZU price, and potentially the AEU price.

 


http://www.cantorco2e.com

TZ1 Now Global Registry Partner for Plan Vivo

World leading environmental markets registry provider, TZ1 Registry has been appointed as the Global Registry Partner for Plan Vivo. The Plan Vivo System and Standards are developed and maintained by the Plan Vivo Foundation, a charity registered in Scotland.


Plan Vivo is a framework for community-based land-use projects that develop livelihoods, conserve and restore local ecosystems, and help to fight and adapt to climate change through Payments for Ecosystem Services (PES).The Plan Vivo Foundation registers and reviews projects against the Plan Vivo Standards, and issues Plan Vivo Certificates, each representing the reduction or avoidance of one tonne CO2e plus additional livelihood and ecosystem benefits.

 
 

There are currently three operational Plan Vivo projects in Mexico, Uganda and Mozambique with more in the pipeline. Collectively Plan Vivo projects have generated over 600,000 voluntary emissions reductions (VERs) to date.

 
 

The TZ1 Registry is recognized as the thought leader in extended environmental markets registry provision including the only biodiversity registry services, and other significant ecosystem infrastructure facilities.

 
 

“Plan Vivo has the potential to have a critical and significant impact in developing countries. It is imperative that our infrastructure and services support our goals and projects,” said Alexa Morrison, the Plan Vivo Governance and Policy Manager. “The TZ1 Registry team has shown tremendous empathy to our needs and overall organizational objectives, and will add value and robustness to our offering.”

 
 

“Plan Vivo is internationally recognized for its focus on helping address key international challenges and TZ1 is delighted to be chosen to play such an important role in the provision of listing the Plan Vivo credits, and to ensure authenticity and viability of the Plan Vivo system,” said Helen Robinson, Chief Executive, TZ1 Registry.

 
 

The TZ1 Plan Vivo Registry will list Plan Vivo Certificates (VERs) which will be publicly available on-line for viewing by accessing http://www.planvivo.com and TZ1 http://www.tz1market.com

South Africa Proposes Favorable Tax Treatment for CER’s

The 2009 South African National Budget provides for tax incentives for the implementation of CDM projects by proposing favourable tax treatment for Primary CERs and seeking to introduce more certainty in the tax treatment of both Primary and Secondary CERs.

 

The South African Minister of Finance, Trevor Manuel, delivered his 2009 Budget Speech to Parliament on Wednesday 11 February 2009.

 

The Budget links the environment and the economy by noting that, over the long term, environmental considerations will affect the sustainability of economic growth and, with this in mind, government intends to promote efficient use of energy and water resources by producers and households, along with measures to mitigate the effects of climate change.

 

The 2009 Budget addresses environmental fiscal reform in various ways, including through the following key measures:

 

  • Introducing incentives for cleaner production (energy efficiency).
  • Increasing the levy on plastic bags.
  • Introducing taxation of incandescent light bulbs.
  • Proposing a tax incentive for carbon credits from Clean Development Mechanism.
  • Increasing motor vehicle ad valorem excise duties.
  • Increasing international air passenger departure tax.
  • Increasing fuel levies.
  • Providing ZAR 45 million to Working for Energy, a programme which uses biomass to generate electricity.
  • Providing ZAR 30 million to support research on climate change mitigation and adaptation strategies to inform the development of a national climate change strategy.
  • Implementing, as from 1 July 2009, the electricity levy announced in the 2008 Budget. The levy, which is intended as the first step towards the introduction of a more comprehensive greenhouse gas emissions-based carbon tax, is a tax of ZAR 0.02c/kWh levied on the sale of electricity generated from non-renewable sources, to be collected at sources by the producers / generators of electricity. The electricity levy acts as a disincentive to fossil-fuel based power generation.
  • Providing ZAR 1 billion to the Department of Water Affairs and Forestry for the installation and rehabilitation of 71 regional bulk water and sanitation schemes.

 

Most of the environmental interventions proposed in the 2009 Budget will take effect from the beginning of the 2010/2011 fiscal year.

See Warburton Attorneys release http://communities.thomsonreuters.com/Carbon/documents/

EcoSecurities CEO Resigns

The chief executive of London-listed carbon project developer EcoSecurities , Bruce Usher, will step down once a successor is found, the company said.

The change in chief executive had nothing to do with trading issues, EcoSecurities said in a statement.

“Usher, who is stepping down to pursue personal interests, remains fully committed to the Company. The Board confirms trading is in line with its expectations.”

EcoSecurities develops projects which avoid greenhouse gas emissions in the developing world, for example by building wind farms or improving energy efficiency.

The company sells the resulting carbon offsets to countries and businesses in the north which are struggling to meet their climate targets.

Carbon prices both under both the U.N.-run offsetting scheme, called the clean development mechanism, and under a cap and trade scheme in Europe have collapsed as a result of the recession, which is curbing industrial output, in turn cutting carbon emissions and demand for permits under EU and U.N.-led emissions trading schemes.

Prices hit new record lows on Wednesday, piling pressure on project developer profit margins.

The European carbon price has lost three quarters of its value in seven months and is down nearly 50 percent since Jan. 1.

Sources earlier told Reuters that Usher wanted to pursue an academic career and that the company had already prepared a short list.

“He’s already an adjunct professor at Columbia (University) and he wants to focus on his role there,” a source close to the company said.

“He will continue to work with the business in a consultancy capacity.” EcoSecurities shares closed down 7 percent at 18 pence earlier on Wednesday.

This news failed to feature on EcoSecurities web site. http://www.ecosecurities.com

Commentary

Promode Kant of the Institute of Climate Change & Ecology, New Delhi shared his view on the resignation.

In my view excessive speculation has not yet arrived in the carbon markets and can not be the reason for the turbulence. The declining prices, beyond the previous market projections based on which EcoSecurities entered into forward purchases of that size, is better explained as linked behaviour, a kind of ‘sympathetic’ response to the tribulations of an apparently unrelated general world market of all goods and services.

I would be concerned about EcoSecurities CER portfolio, not the prices at which they effected their forward purchases which I think were reasonable, even conservative. They are perhaps more exposed to risks because they invested too heavily in one or two sectors in one country driven primarily, I suspect, by the ease of carbon investment.

But whatever the reason for this price behaviour ultimately a centralized regulation would be required to keep the market within the four walls of reason, even the ‘bazaar’ reason. So why not do it now !

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

        skype iain040962

 

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, Europe, USA and South Africa

 

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

 

Portions © 2008,2009 Environmental Intermediaries & Trading Group Limited all rights reserved

 

www.eitg.co.nz