New Zealand Emissions Trading Scheme EPA facts and figures

August 19, 2014

The EPA released 3 reports on the NZETS recently http://www.epa.govt.nz/e-m-t/reports/ets_reports/annual/Pages/default.aspx

Of 45.5 million tonnes or emissions units surrendered for the 2013 compliance year, only 227,000 were NZUs. The balance were UN offsets predominantly ERUs. As of 1 July 2014 there were some 140 million NZUs sitting in private accounts.

The surrender of 45.5 million in 2013 was dominated by the forestry sector with foresters opting out of the NZETS and deforestation accounting for nearly 27m of the 45.5m.

In 2014 the picture is likely to change with a budget rule outlawing the use of non NZU for forest owners to exit the scheme or deforest. Forest-owner have correspondingly become unwilling to part with their NZU when they are now required  to replace like with like. For May 2015 total surrender will also be a lot lower – perhaps < 20 million. Emitters retain the right to use ERU (and CER) right up until mid 2015.

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Permanent Forst Sinks Initiative PFSI – scheme review

May 18, 2013

We attended a consultation round on the PFSI this week – Sustainable Forestry Bulletin Issue 44 – May 2013

If you are a participant in the PFSI as a forest owner or purchaser of PFSI AAU we strongly suggest you attend the consultation.

Given the recent changes at DOHA and the New Zealand Government’s decision to opt out of CP2 and join nations in a group outside the Kyoto Protocol the Government triggered a notice period to allow PFSI participants to opt out. Notice of opting out must be completed on the correct form by the 30th June 2013

The opting out of CP2 means that in 2012 the Government will not be able to issue AAU to PFSI participants. The reason why AAU were issued in the first place is the PFSI was a revision of the Forest Act 1949 and preceded the NZETS legislation that created NZU units and the ETS to comply with the Kyoto Protocol CP1.

The Government wishes to continue the PFSI post 2015 and will therefore have to issue a different type of credits – but which type? Or should a new type be created?

The consultation meeting in Christchurch was interesting in the facts and opinions offered:

The facts:

  • 88 Projects approved in CP1, 20,000ha under covenant and 1.2m AAU issued
  • Significant co benefits of the PFSI including biodiversity, erosion control, water quality improvement, flood mitigation and cultural benefits
  • Most applications occurred in 2011-2013
  • Indigenous forest dominated in later years comprising 90% of the applications by area

Opinions

There were various discussions on the value of AAU with international units in the cents. However sellers reported PFSI AAU being seen has having integrity and achieving prices above those of an NZU or other kyoto units (CER 0.40, ERU 0.14)

Discussion focused on how these high quality offsets could be differentiated? Discussion covered revisions to the NZEUR and traceability of projects to allow purchasers to see the projects that resulted in the credits being created.

Opinion was divided on what unit should be issued, given all units are supposed to be fungible but this in practice has been rarely correct. A PFSI unit was preferred ahead of issuing NZU on the basis buyers could distinguish the quality at a glance – gold standard CER was raised as an example of this.

EITG view is that irrespective of the unit issued purchasers will need to be educated – whether is a gold NZU or a PFSI unit neither will be immediately understood. This of course is a common theme in New Zealand’s marketing of any product – compare with the ‘kiwifruit’ and then the gold version of the same

PFSI participants need to move quick to get submissions in for 5th June to allow Ministers to receive advice and create policy. Those opting out need to move before the 30th June.


Doha Decisions on Kyoto Surplus Explained by Carbon Market Watch

March 25, 2013

At COP 18 in Doha at the end of 2012, Parties decided how to deal with the large surplus of Assigned Amount Units (AAUs) from the first Kyoto commitment period (CP1) and how to prevent the accumulation of new surplus in the second commitment period (CP2) of the Kyoto Protocol.

Carbon Market Watch just released a policy brief that explains the decisions that were taken in Doha and examines their implications. You candownload the Carbon Market Watch policy brief here. For a shorter article that explains the issue to people not as familiar with the topic, see theCarbon Market Watch newsletter article from March 2013.

The compromise adopted in Doha has two main elements relating to surpluses from the first and second commitment period.

1.    The decision does not limit the carry-over of surplus AAUs from CP1 but puts limits on their use in CP2. It also makes it impossible for countries without a reduction target in CP2 to sell their surplus to countries with a reduction target. In other words, Russia and other countries with surplus that do not join CP2 will not be able to sell units to CP2 countries. To underline their climate commitments, several countries made political declarations that they will not buy AAU surplus from CP1 in CP2.

2.    Countries also decided to restrict the initial assigned amount (the number of AAUs a country initially receives for CP2) in order to avoid the build-up of new surplus. This amendment makes it impossible for countries to accumulate new surplus AAUs. This amendment may set an important precedent for future decisions on target setting.

The decisions on use restrictions of AAU surplus that were taken in Doha are complex. The newCarbon Market Watch policy brief  tries to explain the issues in a balanced way and discusses the impacts of the Doha surplus decisions on the second commitment period and beyond.

Please do not hesitate to send us comments or questions.

Thank you!
Anja Kollmuss on behalf
ofCarbon Market Watch


Consultation on the application of carry-over for New Zealand Emission Trading Scheme Participants

March 4, 2013

The New Zealand Government is seeking feedback on the application of the international carry-over rules within the New Zealand Emissions Trading Scheme (ETS). These rules place a restriction on the number of certain types of units which can be carried over from the first Kyoto Protocol commitment period (CP1, 2008–2012) and be valid for use subsequently. This does not impact on NZUs.

International carry-over rules require units which are not carried over to be cancelled. We anticipate the carry-over of units will occur after the 31 May 2015 ETS surrender deadline. However the Government is consulting on this issue now to provide greater certainty to ETS participants and to allow them to plan their compliance purchasing and surrendering appropriately.

The Government must decide to what extent, if any, New Zealand’s 2.5 per cent international carry-over entitlement for Certified Emissions Reductions (CERs) and Emission Reduction Units (ERUs) is extended to individual account holders.

Information received through this consultation process will allow the Government to better assess the potential impacts on account holders of the various options set out in the consultation document. We recommend that any NZEUR account holder with Kyoto units in their account read through the consultation document. The consultation will be open from Monday 4 March to 5 pm Friday 29 March.

Further information

For information regarding Kyoto units and rules

For information regarding access to international units from 1 Jan 2013


Z Energy in Row over NZETS Charges

February 5, 2013

Confirming a long held belief that energy companies and power companies are charging more than it costs them to meet the NZETS, OceanaGold has refused to pay Z for its diesel citing the fact it is is being overcharged for the carbon content.

In Australia it was made clear by the regulator that it would not tolerate overcharging for carbon, the same sort of comment was made by the New Zealand Commerce Commission. However its been clear to commentators for some time that after the collapse of NZU prices the consumer is still paying much more for their emissions than the real cost of carbon credits. Someone therefore appears to be profiting from this. Is that wrong?

According to the New Zealand High Court, no. In the following release from Scoop http://www.scoop.co.nz/stories/BU1302/S00151/z-energy-in-stoush-over-cost-of-ets.htm the judge appears to see nothing wrong with Z action.

It seems that someone has missed the point that the energy suppliers justified price increases on the back of the NZETS, were warned not to profit, and are alleged to have done just that!

New Zealand consumers should be used to this sort of treatment though, the power companies have been repeatedly chastised for overcharging consumers for electricity. Any action? Not that we can see, and will it be the same in this case?


ETS foe pays $1.4 million premium

January 28, 2013

Monday, 28 January 2013, 11:35 am
Press Release: Carbon News
ETS foe pays $1.4 million premium

A company ideologically opposed to the Emissions Trading Scheme is thought to have paid $1.4 million more than it needed to to meet its carbon obligations last year, according to Carbon News.

The scheme allows emitters to either surrender a carbon credit or pay the Government $25 for every two tonnes of emissions.

With carbon prices at around $6 a tonne at the May 31 surrender time last year, the vast majority of emitters chose to surrender credits.

But latest figures on the Government’s Emissions Unit Register show 73,575 tonnes of emissions in the 2011 year were covered by the $25 payment.

Carbon News says that means that emitters paid more than $1.8 million for emissions that they could have covered with $440,000 worth of carbon credits.

It is understood that most, if not all, the 73,575 tonnes of emissions came from one company operating in the mining industry.

Sources say that the company is fundamentally opposed to the ETS, and has implemented a firm policy of not taking part in the carbon market


Carbon Monitor August/September 2012

September 8, 2012

Imported Credits Dominate NZETS

On August 3rd the EPA released ‘the NZ ETS 2011- Facts and Figures’ report which shows what we already knew. That foreign carbon was the credit of choice for emitters in 2011.

International credits comprised a whopping 71% of all units surrendered for compliance within the NZ ETS in 2011, up from 1.6% the previous year. In contrast NZUs from post 1989 forests only accounted for 13% of units surrendered down from 64% in 2010. NZ AAUs and other NZUs remained relatively unchanged.

Worryingly, the cheapest international units were used in abundance. ERUs and RMUs trade at a discount to CERs and accounted for over 44% of all units retired.

The NZ ETS is the only trading scheme in the world to accept RMUs and last year around 3.1 million RMUs were surrendered for compliance. So far only 3.9 million RMUs have been issued by Hungary and NZ looks to be the home for most of them

Source: NZ ETS 2011- Facts and Figures (EPA)

In our view the outlook for domestic carbon market will worsen unless the NZ Government intervenes to limit international units into the NZETS.

To read the full EPA report click here

Source permanent forests international

Australian Scheme Loses Floor and Links to EU Scheme

The Australian government announced that it will abandon its planned $15 carbon price floor and allow firms to meet up to 50% of their carbon liabilities using EU allowances from 2015. The move will align Australia’s price to the EU carbon price, with EU allowances meeting the marginal demand for Australian liable companies once the Australian emissions cap is exhausted. The forward price for December 2015 EUAs is currently EUR9.73 (AUD11.72) and Deutsche Bank’s EU carbon analysts central forecast is for EUAs to rise EUR11 (AUD13.25) in 2015.

This change splits the allowance to meet carbon liabilities post 2015 into two, with companies permitted to meet 12.5% of their liabilities with international units from the clean development mechanism or CDM. Certified emissions reductions from the CDM currently trade below the EUA allowance prices. CER are similarly limited in their use in the EUETS.

The currently oversupply of allowances in the EU emissions trading scheme for the next EU-ETS phase (2013-2020) has been the subject of focus for policy makers for several months now. The first step a ‘set aside’ which attempted to restrict allowances issued by some 1bn has struggled to get support. The set aside is a precursor to the EU introducing a 2020 target of 30% below the 1990 levels as opposed to the current 20% target. If implemented this was expected to produce a carbon price of 20-25 Euro per EU allowance, a level cited to encourage investment in carbon reduction technologies.

Australia’s carbon scheme has been strongly criticised by the opposition stating it is out of touch with international carbon markets. The opposition has created significant uncertainty by pledging to repeal the scheme if they win the next election. Aligning the Australian price with EU market is an attempt to negate this argument. However it does significantly reduce the potential revenue streams for Australian carbon project developers under the CFI.

The Government indicated that Australia could import as many as 350 million international units between 2015 and 2020. Firms will be able to use Kyoto certified emission reductions (CERs) to meet up to 12.5% of their compliance liabilities, and if CERs remain cheaper than EUAs, firms would be expected to use their full CER quota of around 250 million units over 2015-2020. Firms could import as many as 100 million EUAs over 2015-2020 to meet their residual demand.

This policy change does not affect the first three years of the carbon price and does not materially change the short-term carbon price impact for Australian firms. Beyond 2015, European policymakers will arguably determine the Australian carbon price level, though cost pass-through and assistance arrangements will continue to insulate most large listed emitters from the full impact of the price.

Carbon Match Update on the NZETS

Pricing of NZUs Down, Volumes Up

Carbon Match has had good volume recently, perhaps reflecting the greater level of certainty that has existed since MFE’s most recent announcements on the ETS on 2 July.  Since then, volumes have increased but prices have fallen from $7.05 to the Carbon Match low last week of $4.92  and have traded lower than that elsewhere this week.

EU Plans Unlikely to Change Prices Dramatically….

As more details about the way in which the European Commission might seek to intervene in the carbon market have emerged, a new report by Barclays Commodities Research has suggested that prices for European Union allowances could average just €6.50 across the period from 2013 – 2020 if the number of credits temporarily withheld from the scheme is at the lower level suggested. Yesterday, analysts from Point Carbon suggested that without intervention EUA prices could sink as low as €4 next year.

A fortnight ago the Commission released a proposal which was accompanied by 3 scenarios; specifically the withholding in 2013-2015 of either 400m, 900m or 1.2 billion credits, which would then be re-released to the market in the last few years of the phase. Many commentators note that political appetite for the upper end of this range appears to be weak.

… And NZ ETS Prices Only About Half of EU Prices Anyway

What’s important for us to note here in New Zealand is that, even if the upper end of 1.2 billion were withdrawn and prices of EUAs were to rise to the €13.50 suggested by Barclays, this would not translate to similar prices in the NZ ETS.

Current prices of eligible units in the NZ scheme (CERs and ERUs) are less than half the cost of European Union Allowances, making EUAs an incorrect reference point for those who are trying to pinpoint the likely cost of our scheme over the next few years.

The spread between CERs and EUAs has widened steadily this year as record issuance of offsets (CERs/ERUs) has occurred and as it has become clear that limited demand for these will exist in the EU ETS post 2015.

With emerging emissions trading schemes such as the Korean scheme unlikely to result in demand for CERs before 2020, New Zealand and Australia, assuming it stays on track, provide a beacon to CER portfolio owners and project developers.

New Zealand is particularly attractive as unlike any other scheme, no limits on the use of imports apply. (There is no requirement that any of the emissions reductions New Zealand pays for will actually have to take place within New Zealand.)

Russian and Ukrainian ERUs Pose Ongoing Risk to NZ Carbon Farming…  

ERU supply has also increased dramatically this year, with most new supply coming from Russia and the Ukraine.  While CERs from industrial gas projects were banned in the NZ scheme in December

2011, no such ban is proposed from arguably questionable ERUs from similar projects; an apparent oversight whose full effect on the NZ scheme will be felt in the next 2 years.

Against this backdrop, we think the outlook for carbon forestry in New Zealand remains poor, and that this will reflect in lower levels of planting next year, as a lag applies given the time taken to option up land and grow seedlings.

But Now Could Be The Time to Convert to Dairy

However, for landowners with specific opportunities around dairy conversions or other land use change, the low prices of eligible international offsets present an opportunity to put your plans into action.  Call us if you would like help with this.

www.carbonmatch.co.nz