Alternatives for Forest Landowners in the Emissions Trading Scheme

This week I have spent most of my waking hours working on my research. I did take one break to attend a panel discussion on forestry in the Emissions Trading Scheme (ETS) hosted by New Zealand Institute of Forestry (NZIF) and the New Zealand Farm Forestry Association (NZFFA).    There were five speakers from various backgrounds and each one focused on different advantages for forest landowners under the ETS.

Richard Hayes from EITG

Nigel Brunel of OMFinancial talked about impact of the government cap on the carbon price and links to the global economy. The New Zealand government currently allows a $25 fixed price option whereby emitters can satisfy obligations by paying $25 per unit. Units are often referred to as a carbon credit. In New Zealand the main unit is the New Zealand Unit (NZU) and one unit is equal to one metric tonne of carbon dioxide or other greenhouse gases. There are other units such as the assigned amount unit (AAU) which were credits given to New Zealand under Kyoto, emission reduction units (ERUs), and certified emissions reductions (CERs). With the fixed price option an emitter will pay the market price for an NZU if the present value of the credit is less than $25. Currently carbon is trading around $18.45/NZU. It reached a low of $16/NZU in mid-June. The global price of carbon is around $23.50/tonne. Nigel pointed out that one of the drivers for the global price of carbon is growth. As the economy expands it will lead to more emissions and an increased demand and price for carbon.

Bridget Beals, a senior banker with Westpac, explained their role as the first major financial institution to be actively involved in the ETS. In April 2010, Westpac started buying NZUs from landowners and packaged them up to be resold to companies with large liabilities. They buy as few as 100 NZUs to more than 200,000 NZUs. The greatest risk for Westpac is not the price of carbon changing but the risk of a change in government policy. Richard Hayes of Environmental Intermediaries and Trading Group (EITG) examined the option for landowners to pool credits to reduce their risk from wind, fire or other losses. One of the main risks for landowners in the ETS is that they will lose their trees mid-rotation to abiotic factors such as wind or fire and there will be a carbon liability. Pooling credits would help eliminate this risk.

Peter Weir discusses his attempts to sell his carbon credits on TradeMe

Mark Wilton focused on a completely different aspect of the ETS and discussed the role of permanent forest sink initiative (PFSI). The main advantage of PFSI is that participants automatically get AAUs which can be traded internationally and therefore often command a higher price in the market. Unfortunately, 80% of the carbon market is in the European Union and they do not currently allow AAUs. But other buyers in Norway have purchased AAUs from stands registered under the PFSI. The final speaker was Peter Weir who offered a light-hearted look at the ETS. In order to help raise awareness of the ETS, he has been offering carbon credits for sale on TradeMe. His first trade got hundreds of comments and questions on the ETS and he took time to answer every single question.  He described himself as a “lightning rod for the ETS”. Overall it was a great night with a lot of different perspectives on forestry in the ETS. Special thanks to Dr. David Evison, a senior lecturer at the NZ School of Forestry, for organising the event.

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