By Celsias team
Posted on June 14, 2010. Listed in:
The start of the Emissions Trading Scheme next month has seen doubts being raised over how the demand for carbon units will be met.
On July 1, participants in the liquid fossil fuel, stationary energy and industrial processes sectors will start being charged in ‘carbon units’ for the number of tonnes of CO2 emissions they generate.
How the market will perform is something of an unknown. Saturday’s New Zealand Herald called it a ‘work in progress’ saying a lot of uncertainty existed around the number of units (issued by the Government to projects/industry that offset CO2 emissions) that would be available from foresters to meet the demand, particularly from “Kyoto forests” planted on land not previously forested before 1989.
“How many of them will sell and how many will put them in the bottom drawer? And of those who want to sell, how many will sell to foreign Governments with Kyoto obligations rather than domestic emitters?”
The primary unit of trade in the New Zealand ETS is a New Zealand unit (NZU) issued by the Government. The Herald reported that this year nearly a quarter of units issued by the Ministry for Agriculture and Forestry were converted to a form which could be sold overseas.
Climate Change Minister Nick Smith told the paper that while he expected the market to take some time to settle down, his expectation was that the bulk of the obligations would be met domestically by buying units off New Zealand foresters.
The ETS is a difficult beast to get heads around but the Government has taken a stab with its Q & A on ETS basics which can be read here.
The carbon market will not be fully formed for another couple of years. During a “transition phase” (July 2010 to December 2012) one NZU will be required to cover every two metric tonnes of greenhouse gas emissions in a calendar year. After this, one emission unit will be equal to one tonne of emissions. Participants can also surrender a range of ‘Kyoto units’ which they can buy overseas.
After December 2012, the price of an NZU will be determined in the trading market and will tend to match the international price of emission units. Participants can sell NZUs internationally by exchanging them for Kyoto units, within the limits on international sales set by the Kyoto Protocol.
Image: Flickr - Josef Stuefer
