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Government protectionism over carbon credits raising market

Government protectionism over carbon credits raising market fears
Media Release
14 October 2011

Government moves to reign in the sale of industrial certified emission reduction units (CERs) risk introducing protectionism to the New Zealand carbon credits market, according to an article in the latest edition of the Southern Hemisphere Forest Industry Journal.

The article “Dodgy deals and government isolationism as foresters dig in over carbon price” stems from plans by the New Zealand Government to ban the trade in industrial CERS following concerns that a flood of cheap CERS may flood the market and undermine the price for NZ Units.

The article quotes Richard Hayes of Environmental Intermediaries & Trading Group Ltd as saying that a flood of industrial CERs could pose quite a high risk to the market. However, he does raise concerns that artificially managing the market with a ban on industrial CERs raises the spectre of government control.

The industrial CERs come from the Clean Development Mechanism of the Kyoto Protocol, under which developed countries can sponsor a project in a developing country so there is an emission reduction activity. If that emissions activity (“business as usual”) did not occur, the owner receives CERs.

Some large-scale projects have been launched overseas on the basis of generating industrial CERs at a greatly inflated profit for the companies involved, leading the European Union to clamp down on the trade.

“So there’s a lot of concern in the New Zealand market that we might become a dumping ground for very cheap CERs and, therefore, undermine the fundamental construction of the NZ ETS,” says Hayes. The NZ ETS is based on the fact the government wants the price of carbon in the marketplace to change emitters’ behaviour, so reducing New Zealand’s emissions, and not necessarily reducing emissions elsewhere.

Hayes warned about the risks involved in placing an artificial barrier in an effort to maintain the price of NZ Units.

“I think you’ve also got to look at the fact that this is a functioning market, and just because the international price of carbon has dropped, to suddenly try to cut the New Zealand price of carbon from the international price is probably a short-term fix. It is probably from a long-term perspective a little questionable.”

One of Hayes’s clients has raised concerns about a proposal in the New Zealand ETS revision proposal to have a compulsory pooling of forest-based carbon credits of about 5, so that for every 100 NZUs that foresters are issued, five are held back by the government as an insurance pool.

“Clients are saying ‘hold on a minute – we can go and buy that insurance on the commercial market for less than half the price the government is going to pay’. So they characterise it along the same lines the supplementary pricing schemes and other instruments we were more familiar with in the late 1970s and early 1980s,” Hayes said.

To view this and other articles, go to the Southern Hemisphere Forest Industry Journal online at:

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