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

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.

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

  1. “So the question is what to do with the surplus NZU?”
    You actually mean “Kyoto units” here don’t you? I am sure you are aware that NZUs cannot be counted towards NZ’s Kyoto Protocol target.
    “Australian Government’s carbon tax is completely optional as no real internal action is required for Australia to meet its commitment to Kyoto.”
    What are you saying? Do you think the only valid reason to have a carbon tax/ETS is compliance with whatever results from the UNFCCC process?

  2. eitg says:

    Of course, the Government can use forest sinks to meet its Kyoto target, technically RMU. These cannot be banked across commitment periods so they will be used for compliance and surplus AAU banked.

    No there is no need for any internal action in Australia to comply with Kyoto. As it stands Australia complies with its treaty obligations. Perhaps the thinking is that ultimately there needs to be some sort of internal reduction of GHG and transformation of Australia’s energy sources

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