NZ traders see carbon at $10 a tonne by Christmas, foresters hopeful

The New Zealand price of carbon is closing on $10 a tonne and could reach that level before the end of the year, says carbon trading house OMF, spurred by the global climate change agreement in Paris and signs the government will remove subsidies to major industrial emitters in next year's review of the emissions trading scheme.

New Zealand Units, equivalent to a tonne of carbon each, broke through $9 for the first time since October 2011 yesterday and were trading at $9.30 later in the day, having risen sharply since the announcement of the ETS review on November 24.

The price of NZUs plummeted from above $25 a tonne in early 2011 to trade at times below 50c  a tonne before the government banned the use of international carbon credits in the middle of this year. That made the New Zealand market for carbon "domestic only" and underpinned the local carbon price, although the government wants international carbon credits trading to help meet the country's emissions reduction target.

"Predictions are hard to make," said OMF's director of financial markets, Nigel Brunel. "I think we could see $10 [per tonne of carbon] by the end of the month and $15 [a tonne] by the middle of next year.

"This market has definitely turned," he said.

The rising carbon price potentially spells good news for New Zealand plantation forest owners, who have largely stopped planting trees for carbon farming since the carbon price plunge. Carbon of around $12 to $15 per tonne is seen as essential to make carbon farming break even.

However, NZ  Forest Owners' Association executive director David Rhodes said there was a long way to go to get global rules in place that secure the future for forestry plantations as a source of carbon mitigation and abatement.

The Paris deal "adequately recognises forestry and forestry benefits" in combatting climate change, Rhodes told BusinessDesk from Paris, where he has been attending the climate change talks.

"What we haven't got is all the rules that will achieve a new agreement."

The Paris talks ended in a historic new agreement covering more than 190 countries, who have made non-binding commitments to reduce carbon emissions and to try to prevent global temperatures from rising "well below" 2 degrees Celsius.

New Zealand has committed to cut carbon emissions by 30 percent from 2005 levels by 2030 - a goal seen as unambitious by environmental campaigners, but nonetheless difficult to meet because New Zealand's greenhouse gas emissions have been rising. Offshore carbon credits and carbon locked up, or 'sequestered', in the trees in plantation forests are key ways the country has been able to meet its goals to date.

Outgoing Climate Change Minister Tim Groser was reluctant to discuss the process for writing new land use and land use change and forestry (LULUCF) rules.

There would need to be "another full set of negotiations under one or other of the subsidiary bodies established" in Paris, said Groser. "It will take years."

However, Groser was confident there was sufficient consensus among signatories in Paris to ensure that internationally trading carbon markets would emerge, despite the opposition of some countries and environmental groups to allowing trading in carbon across borders.

"In the long term, we have to have a global price on carbon," said Groser, but it was likely to emerge "piece by piece rather than as one grand scheme."

(BusinessDesk)