Australia on track for Kyoto Surplus – Is New Zealand in a similar position?

March 8, 2012

Figures released by the Australian Government and reported by Deutsche Bank indicate that Australia is on track for a surplus in the Kyoto period 2008-2012.

Originally negotiating a cap of 108% of 1990 levels Australia successfully argued that deforestation entitled them to an increase in 1990 level emissions. Shortly thereafter deforestation was curtailed by a series of internal measures.

 

Annual emissions are noted as around 591mt currently some 90mt below the Kyoto Cap. Deutsche Bank estimates a final surplus of some 125mt based on current trends.

 

Depending on the volume of NZU issued to post 1989 foresters that have opted into the NZETS the New Zealand Government would also be holding a surplus for the same period.

So the question is what to do with the surplus NZU?

Given the New Zealand Government has indemnified forest owners that have not opted into the ETS that it would cover their deemed emissions at harvest these NZU (effectively AAU) should arguably be ‘banked’ in expectation of that liability.

Australia however according to Deutsche Bank has a couple of options:

Option 1: Selling the surplus

Demand for assigned amount units (AAUs) is relatively weak and the units tend to trade at a discount to CERs, but Point Carbon reported that Japan bought 38 million AAUs in 2011, and Austria and other European countries have bought AAUs in recent years. At a price of between €2/t and €5/t, a surplus of 125 million AAUs could be worth A$300-770 million, though it is not clear whether there would be demand for that volume.

Option 2: Rolling over the surplus

Alternatively, Australia could hold on to its AAU surplus as a buffer against a future increase in emissions or a revision of historical emissions. During the first three years of Australia’s carbon price, there will be no quantity cap on emissions, and it would be prudent to hedge against emissions that turn out to be higher than anticipated. But there is no legal agreement governing emissions reductions after 2012, and the Durban talks decided that a new binding global framework will only apply after 2020, so it is not clear what formal obligations Australia’s AAU balance would be measured against.

The full research report is available on limited time download at http://pull.db-gmresearch.com/p/393-A9D7/13123244/0900b8c084c69a6c.pdf

Of course what this really means is the Australian Government’s carbon tax is completely optional as no real internal action is required for Australia to meet its commitment to Kyoto. With the lack of a treaty in place post 2012 the same applies to after 2012.


Paper Raises the Spectre of Limiting use of CER in the NZETS

March 8, 2012

The New Zealand Ministry for the Environment provided a cabinet paper in December 2011 that argued CER should be restricted in the NZETS to avoid a flood of cheap CER.

Released to the public in early February 2012 the paper is available here

The NZETS currently has no restrictions on how many CER can be surrendered in respect of any obligations under the scheme. Europe by comparison in the EUETS restricts the number of CER that can be used for complying with obligations.

This has resulted in a significant spread between the EUA price (the NZU equivalent in the EUETS) and the CER price. This is not the case in the NZETS.

The availability of cheap CER has been cited as a reason for the significant drop in the price of an NZU in recent times.

Prices however are on the rise as the EUETS recovers strongly. No one has asked the obvious question. Are New Zealanders paying $25 for an NZU equivalent in their fuel and electricity prices? If they are who is profiting when the price of an NZU is $8?


Potentially Misleading Carbon Credit Advice Exposed

March 8, 2012

Consumer Affairs program Fair Go screened in New Zealand targeting potentially incomplete or misleading advice given on carbon credits by real estate agents

http://tvnz.co.nz/fair-go/carbon-copy-video-4738017

Unfortunately the item did not clarify that if pre 1990 forest was replanted then there was no carbon credit liability. Instead an impression was given that up to 800 NZU units per ha would have to be purchased at harvest.

The article also quoted prices of $10 per NZU when recent prices have been somewhat less.

Overall however, with input from long time CM reader Garth Cumberland, the article did identify some of the risks and more importantly established that the real estate agents involved were not able to give the advice required. It is understood the Real Estate Agents Authority along with prominent agency networks moved to warn licensed agents of their obligations after the item was aired.

In essence the message was proper professional advice is essential when getting involved with the NZETS.