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Auctions, permanent forests, added to ETS

Thursday 13th December 2018

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The government’s adoption of auctions for the emissions trading scheme will leave in place the $25 fixed-price option for next year.

Acting Climate Change Minister Julie Anne Genter said the move to auctions, signalled in an August consultation paper, will help put a cap on the number of emission units available over time. Annual announcements, looking forward five years, will help provide certainty for scheme participants, she said.

A cost-containment reserve, to operate as part of the auction scheme, will replace the current $25 price ceiling, or fixed-price option, once it is ready.

“The fixed price option for surrenders due in 2019 will continue to remain at $25 in order to maintain regulatory predictability,” Genter said in a statement.

“We want the ETS reforms to be well-managed and well-signalled and this means keeping the FPO in place while those reforms go through,” she said.

Spot NZ units last traded at $25.85. April 2019 contracts were at $26.25, rising to $29 for the April 2022 contract.

In August the Labour-led coalition proposed a range of amendments aimed at improving the price signals provided by the emissions trading scheme and simplifying its processes for foresters.

Among the key recommendations was the introduction of auctions, the ending of the current $25 a tonne cap and a proposal to phase down the allocation of free credits to trade-exposed industrial processors by 1 to 3 percent annually.

The forestry-specific measures included plans to integrate credits from permanent forests more explicitly in the ETS, to recognise the carbon stored in solid wood products and to simplify the accounting treatment of credits. At the time, Forestry Minister Shane Jones said the changes could double to 340 million the trees that would be planted during the coming decade.

Today’s announcement provided little detail on any of the changes.

The introduction of auctions was part of a strategy to provide greater certainty of pricing by controlling the volume of units available and keeping prices consistent with those in other international markets.

From 2020 participants were also be able to use high-integrity international credits for some of their obligations, but what percentage that should be set at, and whether some sectors should have more access than others, was up for discussion.

Today the government didn't provide any additional detail. Genter said no decision had been made on when participants would be able to use international units.

“At this stage, they would not be a first choice,” she said.

“If, in future, the government decided to allow international units, we would ensure that the units were of high environmental integrity.”

The government is going to consider further the option of setting a price floor, she said.

Today Jones said the addition of permanent forests to the ETS will provide more incentives for landowners to integrate trees into their landscapes, and enable them to diversify their income while also providing long-term environmental benefits.

“We’re making good on our promise to encourage more forestry and make better use of land, especially on erosion-prone land," he said.

“By establishing a permanent forest, with indigenous or exotic species, landowners will be able to better optimise their non-productive agricultural land and enjoy income from the sale of New Zealand units, while also increasing biodiversity and reducing erosion.”

(BusinessDesk)

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