New Zealand eyeing position as regional carbon trading hub

WELLINGTON Thu Jul 7, 2011 3:18am EDT

WELLINGTON (Reuters) - New Zealand, the first nation outside Europe to set up a carbon-trading scheme, hopes to become a trading hub for the region as neighboring Australia and other countries move toward market-based schemes for cutting carbon emissions.

New Zealand has been running an expanded carbon market for more than a year, with polluters buying emission permits on an open exchange, and is now well ahead of its closest neighbor in gaining the skills and knowledge needed to manage such a complex market.

"There's a high level of interest internationally in the New Zealand scheme," New Zealand Climate Change Issues Minister Nick Smith told Reuters in a recent interview.

"Particularly around the model we've chosen and around the issue of dealing with trade-exposed industries, and dealing with the issue of intensity-based allocations."

The government had been promoting itself as a carbon-trading center, recently hosting a meeting of officials from countries that were working on climate change schemes, including Japan, China, South Korea, Australia and the United States.

Australian bank Westpac, which has been trading in New Zealand's scheme for more than a year, agrees that the small country, whose major sources of emissions are from cows and sheep, has a lot to teach Australia.

"New Zealand moved ahead of Australia and as such we now see companies trading out of New Zealand first, getting practical experience, building relationships and becoming more familiar with international carbon credits and counterparties," said Emma Herd, Director of Emissions and Environment at Westpac Bank.

Westpac plans to grow its New Zealand trading operation.

Herd stopped short of describing it as a regional hub in the making, noting that international carbon markets were still too few and fragmented, but said New Zealand would be important in supporting an eventual trading scheme in Australia.

"We would expect that these same trans-Tasman companies will look to import that knowledge into the Australian market once it is up and running," she added.

Interest in a trans-Tasman market is growing ahead of the announcement on Sunday of the details of Australia's controversial carbon tax, which Prime Minister Julia Gillard confirmed on Thursday would apply to 500 companies.

Under the Australian plan, the tax is expected to transition to a market-based system within three to five years.

Last month, New Zealand Prime Minister John Key floated the idea of aligning the two nations' schemes, raising the eventual prospect of a single carbon market.

And with Japan and China also edging toward instituting emissions schemes of their own, New Zealand could set itself as a regional center for expertise in market function.

"There's a degree of excitement that there might be some real trans-Tasman accord involving emissions trading," said Richard Hayes of consulting group EITG.

A lot of work would be required to align the features of the two schemes, Hayes said, but said the two neighbors had already shown a willingness to harmonize trade, investment and regulatory frameworks through their Closer Economic Relations agreement.

"Our emissions trading scheme platform is like any other commodity trading platform -- the key issue is what products evolve," he added.

Australia's scheme, deeply unpopular with voters and industry, plans to impose a price of A$23 ($24.60) per metric ton on emissions, a newspaper said on Thursday. That would compare with a price cap of NZ$25 ($20.66) under the New Zealand scheme.

"Building up a trading scheme with a common currency is possible, but there's a lot of water to go under the bridge," said Stuart Frazer of carbon consultants Frazer Lindstrom.

($1=NZ$1.21, A$0.93)

(Additional reporting and editing by Mark Bendeich)