ETS loophole to halve cost for NZ's carbon emitters
ETS broker and commentator Lizzie Chambers said in her weekly Carbon Match newsletter that three types of carbon credit - known by the acronyms CER, ERU, and RMU - face restrictions in the EU ETS, but remain "good tender" in the New Zealand ETS.
The value of such credits has sunk on global carbon markets to around half the value of EU-compliant credits. These credits can "only be used in small proportions by emitters in the EU ETS," says Chambers. "The logical thing from an emitter's perspective is now to … switch into (such) units wherever possible."
Electricity generators, oil companies, and non-exporting energy-intensive industries are on the hook for the cost of negating one in every two tonnes of carbon emitted each year, with an upper limit price of $25 per tonne.
However, over-supply and dysfunction in the EU ETS have sent carbon prices available to New Zealand emitters plunging to around $8 a tonne late last year and as little as $5 a tonne late last week.
"The idea that we face a European carbon price here in New Zealand is not correct," says Chambers. "This year, it should be possible for emitters to achieve below half those levels. Know the rules, and work with what you've got," says Chambers who is critical of New Zealand's "lack of ambition" on actual climate change action.
Where other countries were creating opportunities to spend ETS funds on carbon-reducing projects, New Zealand was relying on foreign-derived carbon credits traded in the ETS.
Ollie Belton, of Christchurch-based Permanent Forests International, noted foreign carbon was already the "credit of choice" last year, as shown by the release of surrender information for the first calendar year of the scheme's operation.
"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."
Some 3.17million RMUs were surrendered under the ETS in 2011, around one-fifth of the total of 16.34 million units surrendered. RMUs, or Removal Units, are derived from a little-known carbon offset involving Russian and Hungarian forests called RMUs (Removal Units). That compared with no RMUs surrendered in 2010, when the scheme had only run for six months.
"The NZ ETS is the only trading scheme in the world to accept RMUs," said Belton. "So far only 3.9 million RMUs have been issued by Hungary and New Zealand looks to be the home for most of them."
Even greater was the contribution of 4.27 million ERUs (Emissions Reductions Units), from zero in 2010, which relate to offsets allowed in developed countries to underpin schemes that cut carbon emissions.
While New Zealand has followed the EU and banned CERs containing such gases from next April, it has not done the same with ERUs derived from the same banned gases.
These and other issues relating to options for carbon trading – and forestry’s future in New Zealand’s ETS will be at the forefront of discussions between finance and forestry industry leaders at next week’s Carbon Forestry 2012 event that runs in Auckland. For those still yet to register, full details on this region’s annual meeting can be found at www.carbonforestryevents.com
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