May 16 New Zealand has closed a loophole in its
emissions trading scheme that had allowed foresters to earn
several hundred million dollars in arbitrage opportunities by
trading their emission permits for cheaper U.N. offset credits.
The New Zealand market pioneered emissions trading in the
Asia-Pacific region when it launched in 2008, but has been
riddled with controversy as critics say its lax rules means it
does nothing to cut the country's greenhouse gas emissions.
Foresters who planted their trees after 1989 will no longer
be allowed to use U.N. offsets to meet their obligations under
the national carbon market, said a budget bill released on
"The purpose ... is to prevent reregistration arbitrage,
which was an unintended consequence ... and arose from
significant differences between the price of New Zealand units
and the price of certain Kyoto units," the bill said.
The move pushed New Zealand Unit (NZU) prices up 20 percent
in early trading on Friday as sellers retreated.
Landowners with forests planted after 1989 can voluntarily
join the emissions trading scheme (ETS). The government gives
them permits, called New Zealand Units (NZUs), for each tonne of
carbon dioxide stored in their trees.
They must hand permits back to the government when they
harvest the forest, or if they wish to leave the scheme.
But over the past four years, forest-owners have taken
advantage of scheme rules which allow participants to use offset
credits issued by the U.N. to meet their full obligation
requirements, a rule meant to keep costs down for utilities and
Credits from projects in Russia and Ukraine, known as
Emissions Reduction Units (ERUs), trade at a fraction of the NZU
price - one NZU is currently worth the same as 23 ERUs.
Post-1989 foresters have joined the ETS, received NZUs from
the government, sold them to emitters and bought cheaper ERUs
back, then handed those ERUs back to the government before
exiting the scheme. In the process they have made a huge profit
but not cut a single tonne of CO2.
Rules let the foresters reregister the following year and
repeat the procedure.
Government data shows that post-1989 foresters received over
50 million NZUs in the 2010 to 2012 period, the latest years for
which data is available.
Buyers have been able to keep those NZUs - enough to meet
all the obligations for all emitters in the scheme for three
full years - in their accounts for future use.
The new bill cutting post-1989 foresters off from U.N.
offsets came into force on Friday. The Forest Owners
Association (FOA) complained that no forewarning was given that
would allow them to prepare.
"Forest owners who have bought international units to meet
their obligations during the next 12 months will be forced to
sell them at a likely loss," said FOA President Paul Nicholls.
(Reporting by Stian Reklev in Beijing; Editing by Muralikumar