Don't count your credits
The Waikato Regional Council deserved plaudits two years ago, when it was developing a regional carbon strategy aimed at improving the economic returns from marginal land and enhancing water and soil health. The idea was to support forestry plantings and natural bush reversion on marginal farm land.
In March last year, under this strategy, the council wrote to owners of marginal pastoral land, reminding them to consider forestry conversion to cash in on carbon credits under the emissions trading scheme. Those who registered their forests by the end of the month would qualify for New Zealand units (NZUs) under the first five-year sequestration period of the Kyoto Protocol. Council spokesman John Simmons enthused about the opportunities for wealth generation, "The Government has stated the emissions trading scheme is here to stay - it is a good time to plant and there are a number of options to be considered."
But some important aspects of the trading platform remain troublingly uncertain. First, the Government is considering several trading options through to 2020, when a comprehensive international agreement becomes operational, and it is still developing a programme for auctioning the NZUs. Second, the cost of international carbon credits collapsed late last month to just 14 cents a tonne, far below the $25/tonne forecast when the ETS was created.
Now we learn from Carbon News that New Zealand is to be barred from trading internationally in almost all Kyoto credits generated under the second commitment period. That's the penalty we are paying for the Government's refusal to sign up for a second commitment period under the Kyoto Protocol. Instead, our climate-change efforts were aligned to the United Nations Convention Framework.
International credits generated under the first commitment period can be traded until 2015, but for now it is very much a buyer's market. In the domestic market, weighing up supply-and-demand factors to set a price is much more challenging because there is no cap on New Zealand's carbon emissions to limit supplies of units and the Government is prone to queer the pitch by giving away NZUs. Unit-holders shouldn't count on making a fortune from selling their carbon credits any time soon.