The controversial emissions trading scheme (ETS) is
going pear-shaped, with carbon credits plunging from $20 per
tonne of emissions to $4.20 per unit last week. Senior business
reporter Simon Hartley talks to ETS supporters who are
highlighting the emerging anomalies and are alarmed over the
Government's proposed changes to the ETS legislation.
Proposed changes by the Government to the emissions trading
scheme have riled the Parliamentary Commissioner for the
Environment and the Forest Owners Association. Pictured:
City Forests' plantation at Three Mile Hill, near Dunedin.
Photo from ODT files.
The carbon price plunge is contributing to deforestation,
lack of incentive for new plantings and making it more
attractive to convert forests to dairying, tourism or
lifestyle blocks - all boding ill for New Zealand to meet its
2050 target of reducing carbon emissions by 50%.
Forest Owners Association chief executive David Rhodes and
Dunedin-based carbon broker Greg Fahey, of Venture Partners,
both support continuance of the ETS and are calling on the
Government not to let the ETS be weakened further. The
legislation is before a select committee at present and
facing major amendments.
Carbon credits started life around $20 in late-2010, but the
New Zealand carbon credit, known as an NZU, was selling last
week for $4.20 while eligible international credits were
under $3 - the low prices driven by an oversupply of credits
on the international market.
The Climate Change Response (Emissions Trading and Other
Matters) Amendment Bill is before a select committee now,
with proposals including extending the timeframe of giving
subsidies to big polluters; such as free credits, a
two-for-one provision and a $25 per tonne price cap.
In her submission on the Bill, Parliamentary Commissioner for
the Environment Jan Wright said the proposed changes would
further weaken the ETS.
"This is because the carbon market cannot operate without an
effective price signal to incentivise changes in behaviour,"
However, the low carbon price is seen by some as providing a
boon for pre-1990 forest owners, who can now buy cheap
credits to pay for conversion liabilities and fell forests
for conversion to other uses, such as dairying or tourism.
Mr Rhodes sees that scenario as counterproductive to the
forestry sector and overall ETS scheme and its aims, saying
for carbon forestry "to stack up as investment", a minimum
carbon price of between $15 to $20 tonne was needed.
Mr Fahey calculated that a pre-1990s forest had faced
penalties of $14,000 or more per hectare (when credits were
$20) if forests were cleared and not replanted within four
years, but last week's prices dragged that penalty charge to
below $2000 per hectare.
On the other hand, the low carbon prices were painful for
owners of forests planted since 1989 as they were eligible to
receive and sell carbon credits for carbon stored by their
trees as they grew, but at this week's prices it was not
attractive for forestry investors.
Mr Rhodes said, "With carbon prices hovering around $5 a
tonne, there is no incentive for emitters to invest in clean
technology when even that price is halved for them.
"Nor is there the incentive for landowners to plant trees to
store carbon," he said.
Mr Fahey said the return from carbon for the newer post-1989
plantings "just doesn't stack up" for forest investors at the
"This highlights that the emissions trading scheme isn't
working as planned," he said.
Mr Rhodes said the ETS remained the right mechanism to price
carbon and reduce emissions, but it had been "significantly
weakened" by previous Bill amendments, with more proposed
changes before a select committee which "will weaken the
Another concern to Dr Wright was that big polluters at
present had 90% of emissions subsidised, which was to be
phased out, but the present Bill would put the phase-out
indefinitely on hold, she said.
"This makes a farce of our response to climate change," Dr
The Government was also proposing that the agriculture
sector, accounting for 50% of emissions and presently set to
join the ETS in 2015, had its entry put on hold indefinitely.
"Backtracking on agriculture sends a negative signal to the
international community," Dr Wright said.
She recommended that an emitter should be restricted to
buying international credits to cover only up to 50% of its
liabilities; meaning the balance would have to be in the NZU
Mr Rhodes backed Dr Wright's suggestion that another option
for Government could be to separate the NZU credits from
international credits where carbon liabilities had to use
50:50 of each credit.
This would mean the NZU credit, making up the other 50%,
would appreciate in value "some way towards the desired level
[$15-$20]", he said.
Mr Rhodes said if the Government, through its proposed
changes, wanted to see no new plantings and deforestation,
then "that's its call".
"The Government has a right to change its mind, but in so
doing it must recognise the long-term nature of a forest
investment. This needs to be central to anything it asks of
the industry," he said.
"At present carbon prices, it is once again economic for
forest owners on suitable land to pay any conversion
liabilities and convert forests to dairying, tourism or
lifestyle blocks," Mr Rhodes said.
"The forest industry will not fade away and most existing
forests will be replanted at harvest, but new planting for
carbon will be virtually nonexistent and there will be
deforestation," he said.
Similarly, Mr Fahey said, "the [ETS] scheme was designed to
curb deforestation and encourage new planting.
Instead, we have the opposite happening," Mr Fahey said.
Mr Fahey said the Government had "policy levers" available
that would boost the carbon price, but they "clearly don't
see that as a priority at the moment".
He said setting a "floor price" on carbon credits was an
option, but noted it was very complex to set and administer,
and had been discarded from other trading schemes.
On policy levers, Mr Rhodes said the low carbon price was
essentially being "halved again" for emitters, as the
Government offered a subsidy through the ETS, where instead
of one credit per tonne, emitters were allowed to use one
credit to cover two tonnes.
He questioned whether those emitters were passing on that
gain when charging consumers.
Dr Wright said the proposed changes, such as locking in large
subsidies to polluters and making the review of these
subsidies optional, meant it was unlikely the ETS could
significantly reduce New Zealand's greenhouse gas emissions
and would "certainly not" reach the Government's 2050 target
of reducing carbon emissions 50%.
"While previous legislation has weakened the scheme, the
changes proposed in this Bill render it almost toothless," Dr