Carbon Trading

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Carbon Trading
Karen Price
New Zealand Law Librarian Seminar
8 November 2007, Auckland
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Summary

• NZ ETS
• Phasing
• Allocation
• Sectors and Point of Obligation
• Trading
• Unit types
• International trading
• Capacity to trade issues

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NZ Emissions Trading Scheme

• All sectors and all greenhouse gases
• Phasing in from 2008

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Towards a Carbon Neutral NZ
Ref NZ Govt NZ ETS Presentation, Oct 07
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NZ ETS Objective

• An emissions trading scheme will support and
  encourage global efforts to reduce greenhouse gas
  emissions by
• reducing New Zealand's net emissions below
  business-as-usual levels
• complying with our international obligations,
  including our Kyoto Protocol obligations
• While maintaining economic flexibility, equity
  and environmental integrity at least cost in the
  long term.

Ref NZ Govt NZ ETS Presentation, Oct 07
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NZ ETS - Forestry

• Obligations (who and
• when)
• Pre-1990 and post-1989
• forestry obligations
• Allocation
• MAF website
• http//www.maf.govt.nz/climatechange/

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NZ ETS Forestry Units

• Key Participants
• Potential Sellers
• Potential Buyers

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Liquid Fossil Fuels and Transport

• No free allocation
• (pass through of relative NZ ETS obligation
• costs to consumer)

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Stationary Energy

• Obligations
• Key ETS participants
• Coal, gas, geothermal
• Allocation

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Industrial Processes (non-energy)

• Point of obligation
• Activities covered
• non-energy emissions
• (fertiliser, steel, aluminium,
• cement, lime).
• Govt to assist industry (through reduction in
  obligations or free allocation).

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Electricity Pricing

• core to many businesses
• contractual documentation may be important
• NZ renewable energy profile
• ETS point of obligation means pass-through
• windfall gains to electricity generators?

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Industrial Production

• Industrial producers, excluding electricity
  generators.
• Direct/indirect emissions from stationary energy
  and industrial process emissions.
• Allocation not yet determined.

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Agriculture

• Entry to NZ ETS in 2013
• Point of Obligation likely to be at
  company/processor level
• Govt to engage with stakeholders on
• Administrative and technical feasibility for
  point of obligation
• Ensuring effectiveness of incentives to reduce
  emissions.

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Waste

• Landfill Operators will be likely point of
  obligation for the Waste Sector
• Estimated 60 participants
• Entry to NZ ETS in 2013

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New Zealand Unit (NZU)

• Primary unit of trade in NZ ETS.
• Can be banked for future
• compliance periods.
• Each NZ ETS allowance NZU 1 tCO2e
• Pricing will be influenced by international
  markets.

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Trading Obligations

• At end of trading period
• Account for own emissions
• Penalty and make good provision.

• Where to get allowances?
• Initial free allocation from Govt
• Trade with other NZ ETS participants
• Trade internationally
• Projects based
• Regulated ETS

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Types of Emission Units
Regime
Kyoto Forestry Units
Some exceptions on unit types apply
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International Kyoto Markets

• AAUs - Assigned Amount Units
• Units are assigned to governments under the Kyoto
  Protocol in accordance with specific binding
  emissions targets.
• Not great deal of individual trading occurring
  internationally.
• Supply may come from former Soviet Union (Eastern
  European) countries.
• Pricing generally cheaper than other Kyoto units.
• Unacceptable in EU ETS.
• Reputation issues may exist.

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International Kyoto Markets

• RMUs ReMoval Units
• Units are held by Kyoto governments, a large
  number of which are likely to hold these until
  the end of 2012.
• Not a lot of individual trading occurring
  internationally.
• Unacceptable in EU ETS.

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International Kyoto Markets

• ERUs Emissions Reduction Units
• Units generated internationally by Joint
  Implementation projects.
• May be generated in NZ under the previous
  Government policy on Projects to Reduce
  Emissions.
• Can be sold internationally but significant
  volumes not yet traded.
• Now accepted in EU ETS (from 2008).

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International Kyoto Markets

• CERs - Certified Emissions Reductions
• Units generated by Clean Development Mechanism
  projects.
• Significant international trading.
• Accepted in EU ETS
• Delivery factors drive prices

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Voluntary Emissions Market

• VERs Voluntary Emissions Reductions
• Verification requirements and standards.
• Need to ensure verification and retirement of
  units.
• International pricing and projects.

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Standard Physical Contracts

• Clauses cover
• Confidentiality
• Volumes ( or specific volume)
• Units (type and vintage)
• Pricing/payment structure
• Delivery how trade is effected
• Transfer of Units
• Default/penalties (possible market damages)

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NZ Websites

• Government information/documents
• www.climatechange.govt.nz
• www.climatechange.govt.nz/files/emissions-trading-
  scheme-complete.pdf
• (Framework for New Zealand Emissions Trading
  Scheme)
• www.climatechange.govt.nz/files/NZ-Climate-Change-
  Solutions.pdf
• (Overview of NZ climate change solutions)
• New Zealand Carbon Exchange Glossary of Terms
• www.nzcx.com/glossary.htm

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International Websites

• www.unfccc.int/kyoto_protocol/items/2830.php
• (Kyoto Protocol background, emissions trading
  mechanisms, registry, reporting, compliance).
• www.ieta.org (International Emissions Trading
  Association)
• www.chicagoclimatex.com (Chicago Climate
  Exchange)
• www.rggi.org (Regional Greenhouse Gas Initiative
  USA Eastern States)

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International Websites contd.

• www.ec.europa.eu/environment/climat/emission.htm
• (EU ETS - European Commission on Climate
  Change)
• www.defra.gov.uk/Environment/climatechange/trading
  /index.htm
• (UK Department for Environment Food and Rural
  Affairs)
• www.cantorco2e.com (Cantor CO2e)