Latest Kyoto Projections Indicate New Zealand in Surplus
Climate Change Minister Nick Smith released New Zealand’s latest net position report under the Kyoto Protocol which projects greenhouse gas emissions and removals through to 2012.
“The projected position has improved slightly from a surplus of 9.6 million tonnes to 11.4 million tonnes, or at today’s carbon price of NZ$20.29, an improved surplus from $194 million to $231 million,” Dr Smith said.
“The small improvement in New Zealand’s projected surplus over the past year is due to lower agricultural emissions from the ongoing impacts of drought in some regions. There have also been updated figures on forest removals due to improved information from the Land Use and Carbon Accounting System (LUCAS).
“I am still quite cautious of these estimates as they are based on projections of future emissions. The actual position will not be known until after the first commitment period ends in 2012.
“These projections include the estimated effects of the modified emissions trading scheme. New Zealand would face a deficit of 22 million tonnes or $446 million without the ETS.
“New Zealand’s Kyoto commitment is to stabilise net emissions between 2008 and 2012 at 1990 levels. The only reason New Zealand is in surplus is because the growth of post-1989 forests is more than offsetting the 23% increase in gross emissions.
“It is important to recognise that although New Zealand’s net position is a surplus, this is not the Government’s position. Post-1989 foresters are eligible to claim credits for their trees and, as a consequence, the Government will face a substantial deficit. The impacts of these latest projections on the Government’s deficit will be assessed as part of the 2010 Budget.”
The Net Position Report is available from the Ministry for the Environment at http://www.mfe.govt.nz/issues/climate/greenhouse-gas-emissions/net-position/index.html.
Dr Smith also welcomed the release yesterday of the National Greenhouse Gas Inventory, the official account of New Zealand’s emissions up to 2008.
The Greenhouse Gas Inventory is available at http://www.mfe.govt.nz/publications/climate/greenhouse-gas-inventory-2010/index.html.
Carbon Risk Specialists Comments on Insurance and Fire under the NZETS
Following coverage of the recent forest fires and the potential risks under the ETS to forest owners, Geoff Manks of Sage Partners, Insurance & Risk Consultants wrote to us saying:
In respect to insurance of forests & their carbon credits, your respondent, Piers MacLaren, hit the nail on the head when asking what rules will MAF apply to fire damaged forests when assessing residual value of carbon left behind? Without such rules or guidelines in place, Piers earlier statement that insurance premiums would be enormously affected cannot be substantiated. Any claim settlement arising from a loss such as fire would be adjusted based on the scientific data and accepted practises (the methodology of using precedent cannot be relied on as this doesn’t exist yet).
With rules in place around assessing residual values of carbon left behind following certain events (not just fire), this would then form part of the risk assessment process when setting insurable values for forests (in regard to carbon credits), hence the value in access to credible experts in the area of forestry.
As raised in the last GFP Carbon Seminar, it is worth reiterating an important aspect ETS participants (in particular those thinking of trading the credits) should be cognisant of. Because of the potential liabilities for the surrendering of credits, and possible supply agreement commitments, any parties (contractors or service providers) working for the ETS participants should demonstrate they carry suitable liability insurance cover before being engaged. The amount of indemnity necessary would vary between the asset owners but can be calculated.
You can contact Geoff at email@example.com
Prime Carbon Runs Foul of Australian Trade Practices
In Buddle Findlay’s September 2009 climate change update they reminded businesses about the application of the Fair Trading Act 1986 to carbon-related claims, following the release of the Commerce Commission’s guidelines for carbon claims. A recent Australian case brought under Australia’s equivalent of the Fair Trading Act highlights the importance of ensuring that any claims that are made are accurate and able to be substantiated.
On 8 March 2010, in proceedings brought by the Australian Competition and Consumer Commission against Prime Carbon Pty and Prime Carbon’s sole director Kenneth Bellamy, the Federal Court of Australia declared that Prime Carbon made false or misleading representations under the Australian Trade Practices Act 1974.
The case involved representations made in Prime Carbon’s brochures and on its website in relation to the supply of services relating to the sale of carbon credits. In particular, Prime Carbon made representations that it was registered as a broker and an aggregator with the National Stock Exchange of Australia, when it was not. Prime Carbon also made misrepresentations in relation to a company through which it supplied some of its services, the National Environment Registry Pty (NER). The misrepresentations included that:
- NER’s registry was regulated by the Australian Government, when the Government had not in fact regulated the NER registry specifically with respect to the listing of carbon credits and had not regulated or approved carbon credits listed on the registry
- The registry was the registry for all approved carbon credits in Australia, when it was not; and
- NER had entered into an arrangement with the Chicago Environment Registry that would assist Australian carbon credits being traded on the international market, when it had not.
Such conduct breached the Trade Practices Act because Prime Carbon represented that its services had benefits that they did not have and that Prime Carbon had an affiliation that it did not have.
The Court ordered Prime Carbon and Mr Bellamy not to make similar misleading representations in the future, required Mr Bellamy to attend a trade practices compliance seminar, and required Prime Carbon to receive written legal advice before publishing any representation in relation to the supply of services relating to the sale of carbon credits for the next 3 years. The Court also required Prime Carbon to send a letter to all persons who purchased carbon credits from or through Prime Carbon, or who entered into a soil enhancement and carbon sequestration agreement, and to publish a notice on its website for 60 days. Prime Carbon was required to pay the ACCC’s costs of AU$15,000.
As noted in our September 2009 update, any entity considering making carbon-related claims should consult the Commission’s guidelines carefully, and if necessary seek further advice, to avoid breaching the Fair Trading Act.
This is of significant concern as to the faulty advice given in the market. We wrote about ‘Carbon Cowboys’ in 2007 and it seems there are still a few out there on the range.
Many have forgotten the so called broker that went out trying to sell credits on the voluntary market using the NZETS standard, cheques were promised credits were placed in a registry and nothing was heard after that.
Some ‘carbon advisors’ are promoting the planting more forest and purchasing more land to deal with the harvest liability is.
In CM January 2010 we discussed the so called ‘reservoir approach’ noting that the costs of establishing the forestry when including land purchase effectively used all the income from credits, and when tax is taken into account the approach results in potential negative returns.
EU Price Update
Allowance prices had a reasonable month with significant firming in the market with prices of EUA over 16 Euro. Prices in Euro terms dropped over the month at the NZ to Euro rate climber to 0.544.
2012 CER prices suggest NZU prices of around $25.57 at the current exchange rate of 0.54.
Post 2012 pricing firmed above 16.64 Euro or $30.54 NZ for an EUA.
AAU Trades Announced
Reuters reported trades or Assigned Amount Units in the Eastern European block this week saying Austria bought 1.4 million Kyoto Protocol sovereign emissions rights from Estonia last week for some 13 million euros ($17.5 million), Estonia’s environment ministry announced.
“I can confirm that we now have a signed agreement with the Austrians for the sale of 1.4 million carbon quota units. We received notification of the signing by the Austrian environment minister last Thursday,” said Estonian environment ministry spokesman Mart Soonik.
“The value of the deal is around 13 million euros. Austria will not pay cash for the units rather it will finance environmental projects in Estonia. Tenders have yet to be called for these projects.”
Soonik said Estonia has been in AAU talks with 10 countries, and is still in negotiations with Japan and Spain.
These so called ‘hot air’ deals are not favoured by environmentalists as they represent ‘windfall’ credits from the collapse of industry in Eastern Europe and the former Soviet Union.
‘Greening’ the process to ensure the sale yields environmental benefits, means AAU buyers like Austria insist that the revenues be transparently invested in renewable energy or energy efficiency projects.
This places a price of around Euro 9.28 for an AAU or around $17NZD at current exchange rates (NZD 0.544 Euro).
The issue is that the units are ‘hot air’ and arguably not admissible in the NZETS.
In spite of this the trade puts downward pressure on the New Zealand forest AAU units that are for sale in the market.
The article does note the money is to be used for green energy projects in Estonia and these projects are to be tendered meaning the price may vary from that quoted.