Update From London Emissions Trading Markets
A recent visit by EITG staff to the centre of the European Trading Markets, London, provided some interesting insights into the EU ETS, trading and dealing with snow! Lots of it!
Assigned Amount Unit (AAU) Pricing
Assigned amount units are the inter country currency of the Kyoto Protocol and are issued to Annex B countries to represent their emissions cap 2008-2012. The NZETS allows forest owners (not others) to convert their forest NZU units to an AAU.
These AAU can be sold on the international market. Expectations were, according to the expert report in the Roger Dickie Douglas Fir carbon farm prospectus, NZD$25 or maybe more.
As at January, Evomarkets were quoting AAU units at 8 Euro per tonne or around $16NZD.
Evomarkets broker Norwegian Government Sale
Evomarkets also claimed to have brokered the large sale from New Zealand of Forest Credits to the Norwegian Government.
This demonstrates the importance of the need for European links with any credible carbon trading organisation if New Zealand Forest Credits are to be sold off shore. Transparency, which has been lacking in recently reported trades is also in our view essential to protect forest owners from highly suspect information and potential under pricing of trades.
Long term expectation of price of an AAU
The former Soviet Union or FSU has significant surpluses of AAU units from the collapse of their economy in the early 1990’s. These so called ‘hot air’ units have dragged on the price of AAU from the start.
It has been a long held belief that the FSU, would in the majority, hold such units past 2012 so as not to limit economic growth with carbon costs.
This has in effect made most of their AAU units unavailable to the market in the minds of most traders. Recently it is being suggested that the FSU will lose the AAU credits it has on the 31/12/2012. If so expect a collapse in AAU prices.
Another factor is the political acceptability of such credits in the marketplace. Problem is with the recent economic turmoil and threat to the economy and jobs carbon has taken a back seat.
Attitude to NZ credits
On a more positive note, New Zealand Forest Credits are well accepted by European traders. The perception of the NZETS is sound and there is a demand at a price for New Zealand forest AAU units.
We expect that this change in attitude is also due to the emergence of REDD (reduced emissions from deforestation and degradation) and its general acceptance in the EU, with the expectation REDD forest credits will be part of the EUETS after 2012.
REDD its impact on future Forest AAU prices
The acceptance of REDD will offer the benefit of potential access to the EUETS for NZ forest credits which may be good for maximising the price.
Not so good is the expected flood of REDD credits into the market.
So whilst countries are setting ambitious post 2012 targets of up to 1990 minus 30% in some cases, they are also insuring large scale supplies of cheap credits to take up the difference between their emissions and their cap.
Carbon Monitor is 15 Years Old!
This issue marks the 15th year of publication of the Carbon Monitor.
As an informative tool that simplifies the language and development of the world’s response to Global Warming, Carbon Monitor is unique in a number of facets.
Key in that is not to promote EITG services or offerings in any way and thereby maintain a level of impartiality and giving readers confidence that the material maintained balance and objectivity.
We try and provide commentary where applicable to explain or offer insight into some aspect of the subject matter of the article.
From this we have been the first in the world to expose some of the less attractive aspects of the Carbon Markets including the announcement of the worlds largest carbon trade from the Ukraine that traced back to a New Zealand University Graduate.
We have also queried claims on web sites of grand activities of off shore carbon projects that cannot be traced in the international records of the United Nations. Such claims were supposedly removed from the web site after our queries were made aware to the promoters.
We in this issue clarify who also claims to have brokered the AAU trade with the Norwegian Government and Earnslaw One.
Carbon Pooling Using a Reservoir Approach
This concept involves using some of the income from trading carbon to establish new forests. Groups of owners need to ‘pool’ together to fund such activities and presumably share the benefits.
The carbon growth in these forests will then be used to meet the harvest liability of the forests that have a carbon liability at harvest.
Various species are suggested to create a combination of growth curves so as to have sufficient carbon at the time of harvest to surrender to meet harvest liabilities.
An interesting concept, the model appears to be sound until land prices are taken into account. The question is whether the strategy can actually provide in rotation income or is all the money from carbon credits and more required for replanting? The model was also silent on the tax that must be paid on the carbon income before it can be used to create new forests.
We hope to report back on this innovative concept as it evolves.
EU Price Update
Allowance prices had a reasonable month with some recent volatility. Prices in Euro terms dropped over the month.
2012 CER prices suggest NZU prices of $25 at the current exchange rate of 0.50.
We now have post 2012 pricing being quoted in early January of around 16 Euro or $32NZ for an EUA.
What Copenhagen Means for Emissions Trading
It was widely reported that the climate change talks in Copenhagen failed to produce an outcome.
Whilst the expected outcome was not forthcoming, there were several notable results
- The involvement of the USA pledging to have some sort of emissions trading scheme
- Developing Nations in part agreeing to long term reduction targets
- China becoming involved at a very high level
- The commitment to future talks and the nature of the outcome
- Further affirmation of REDD as a viable tool to offset emissions
Watching these talks over the last 15 years none of this is surprising. The press, always wanting to fill newsprint were highly enthusiastic towards the outcome of confirmed post 2012 commitment periods and agreed caps.
The sort of caps and their impact had to involve countries like India and China and as it turned out China in particular wanted clarity and a way forward before they would sign. And at the end of the talks than was not forthcoming, hence the lack of the predicted outcome.
Notably we are now able to quote a price for post 2012 EUA units for 2013 being 16 Euro or over $30NZD. We would suggest that REDD and other instruments are priced into this amount already.
So as they say, we wait. And later on this year we would expect progress and a likely some certainty for the post 2012 period.
Meantime those wanting to make long term carbon farming investments still are looking at significant risk.
Changes to ETS and MAF
Carbon Accounting Areas
Each forest must be lodged with MAF and carbon accounting areas selected. These areas were not able to be changed.
A problem arose when ill informed ‘consultants’ started to load these without any real thought to the implications of their choices.
Some major mistakes were made and forest owners were placed in a position that had their consultants understood the ETS and forestry these should not have happened.
MAF has now changed policy to allow forest owners afflicted with the wrong carbon accounting areas to exit the ETS surrender credits and re enter the ETS. This means for a forest owner who has not sold their credits (few have) they can correct the error.
No news as to who will pay the fees for correcting these errors?
Update on Timing
31st January 2010 – last day to notify of deforestation of 2008/2009 pre 1990 forest
1st February 2010 – MAF recommended deadline to be registered to receive credits on the 31st March 2010
Late Q2 2010 – pre 1990 forest allocation plan released
1st July 2010 – 50 ha exemption for pre 1990 removed
MAF are committed to resetting deadlines to take into account the new ETS and its delay in passing into law.
Measurement versus tables
MAF are moving quickly to allow the use of a measurement system rather than look up tables. This may offer access to more NZU per ha in some plantations.
Consultation will start some time in 2010 and it would appear the past limitations on accessing cchange (c change is a software module that measures carbon in a forest stand) and the 400 series index software on a universal basis may have been resolved.
Some forest managers are using cchange currently but of course the results are not accepted in the NZETS.
It has been suggested that the measurement tables will be retrospective, that is credits not already allocated in prior years that have been identified as present by the use of the measurement systems, will be allocated to the forest owner.
As to the costs, a forest owner with permanent sample plots (PSP) – not play station portable!! and a 400 series index log volume measurement can simply have a desk application of the cchange extension and the carbon measurements will be forthcoming. To what extent the measurements can be relied on depend on the number of PSP’s.
EITG Updated Web Site
To improve service and access to information we have completed the first stage of the update of our web site.
Over the next couple of months we will be adding private areas for clients and downloads of our key information.
Please bear with us as we reorganise the content and update the material.