* Govt bans post-1989 foresters from using U.N.-issued
offsets for compliance
* Ban is effective immediately, leading to criticism fair
notice not given
* NZ carbon ends at 5-mth high, posts biggest 1-day gain
(Adds market response and trader's comments)
By Stian Reklev
May 16 Carbon permits in New Zealand's emissions
trading scheme (ETS) jumped 25 percent to close at a five-month
high of NZ$3.90 ($3.37) on Friday, as traders reacted to an
overnight rule change that is likely to tighten supply.
Spot New Zealand Units (NZUs) opened at NZ$3.10 but were
bought up as news spread that the government had banned
post-1989 foresters from using U.N.-issued offsets for
compliance with immediate effect, forcing them to use NZUs
Supply, especially from foresters, quickly dried up, and
emitters pushed the price up as they chased any NZUs they could
get. The contract traded as high as NZ$4 before settling at
NZ$3.90, the biggest intra-day price move since last August.
"There is not a forester in sight," said one market
participant about the group that has traditionally been the
biggest sellers of permits into the New Zealand market.
The rule change, entirely unexpected and buried deep in
government budget papers released Thursday night, was put in
place to close a controversial loophole in the scheme that had
let some foresters earn hundreds of millions of dollars in
arbitrage opportunities by trading their NZUs for cheaper U.N.
Landowners with forests planted after 1989 can voluntarily
join the ETS. The government gives them 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 24 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.
But while the market in general welcomed the move to end
this practice, there were complaints the rule came into effect
immediately, leaving foresters with no opportunity to prepare.
As late as December, the government said that everyone in
the market would be allowed to rely on U.N. offsets until May
Some foresters that have swapped their NZUs for this year
into ERUs will now be forced to return to the market to buy NZUs
at higher prices.
"The government changed the rule without giving fair
notice," one trader said.
(Reporting by Stian Reklev in Beijing; Editing by Muralikumar