Councils will normally charge you an administration fee for considering your application, and they may also charge for ongoing monitoring.  Costs range from council to council, but generally non-notified consents cost between $500 and $3000 and notified consents cost between $3000 and $10,000.

From July 2010, if the council does not process an application on time and it is the council’s fault, the council must refund part of the application fee.

Further Information

If you require further help with understanding if you need a resource consent or help lodging a resource consent you can ask to meet council who can give assistance in lodging your consent or you can go to a consultancy where an environmental planner can put the application together and lodge the resource consent on your behalf.

Other people in the community that may be able to assist or provide advice include:

- Any staff at goodGround Real Estate Ltd office
- the citizens advice bureau
- environment and legal centres
- legal advisers
- the Ministry for the Environment website
- resource management consultants

Check your local community directory or the Yellow Pages to find out how to contact them.

However it is always a good idea to talk to your local city or district council first. Council staff can help you look through the relevant plans and work out whether you’ll need a resource consent.

The council can process your application for resource consent in one of three ways, depending on what the relevant plan says and the kind of activity you’re proposing.  The council may decide that the general public need not be involved; this is called a non-notified application.  In fact, most resource consent applications fall into this category, which means that there is no submission or hearings process.

Proposals are publicly notified if they will have or are likely to have an effect on the environment that is ‘more than minor’.   Alternatively, the council may decide there should be limited notification of your application.  This means the council notifies only those people who it considers might be affected by what you’re proposing.  Council staff will tell you whether or not your application will be limited or publicly notified.

Anyone can make a submission on applications that have been publicly notified.  The only exception is if you’re a trade competitor to someone else’s business and you want to oppose their application only for trade or business reasons.   A public hearing is usually held to give applicants and submitters a chance to speak, and informal pre-hearing meetings may also be held.  If you need consents from both a regional council and a district or city council, the two councils may decide to hear the applications together.

Councils can decide to either grant or decline a resource consent.  Some activities are ‘controlled activities’; applications to do these must be granted, except for a few exceptions.  Even so, when granting consent, the council usually puts some conditions on it.   Councils also decide how long to grant resource consent for.  Some consents, like subdivision, last forever, while others might last only for a couple of years, for example, a permit to take water from a river.

Councils are expected to process non-notified applications in roughly a month and notified applications in about four months.
You can help make sure your consent application is processed quickly by:

- talking to the council staff early on about what you want to do
- talking to people who you or the council thinks might be affected by your proposal
- giving the council a well-prepared assessment of environmental effects
- responding quickly to requests for further information as the council can decline applications if there is insufficient information to process it

Part 6: Costs and Further Information coming soon!

Assessment of Environmental Effects

If you need to obtain a resource consent, then the district/city or regional council should also explain how to go about preparing an assessment of environmental effects (AEE). Every application for a resource consent must include an assessment of environmental effects.

An AEE identifies all the environmental effects, positive and negative, of a proposed activity, and ways in which any negative effects can be prevented or reduced.  The amount of information the council requires will depend on the activity proposed and the kind of resource consent you need.  Therefore, if the application is for a large subdivision then a large details AEE is required where if you are carrying out a two lot subdivision a smaller application is required.

The RMA requires councils to create plans that help them manage the environment. These plans contain all sorts of rules and conditions for activities that might affect the environment.  District and regional plans are one of the most important aspects of the RMA.  The RMA says that councils have to prepare plans to help them manage the environment in their area.  It is these plans that tell you what you can or cannot do as of right, and there are several different types.

 Regional plans, (created by a regional council), tend to concentrate on particular parts of the environment, like the coast, soil, a river or the air. They set out how discharges or activities involving these resources will be managed to stop the resources being degraded or polluted, for example, the construction of jetties, and the discharge of wastewater from factories into waterways.

Development on a small lifestyle farm block is no different and also needs to be well thought through as there are many specific environmental issues that have the potential to impact on the productivity of your property and the broader communities’ environment.

The first thing to contemplate when purchasing or beginning on new developments in and around your property is what you are legally able to do. You need to check your certificate of title along with your Regional and District Plans to determine the zoning your property is located in and the specific rules and regulations that accompany that zone. The certificate of title may also have restrictions on your landuse in the form of covenants or conditions bought about through the resource consent process. Once you have an understanding of what you can and can’t do on your property you may want to consider carrying out various activities to enhance your current living environment.

When determining what activities are legally permitted on your property you also need to be aware of what services are available to your property. Depending on what services your property is provided for it may be necessary to install your own, for example, water, and sewage. It is essential to plan the layout of where and what system you need to put in place and to ensure there is enough resource to carry out the plans you are proposing. The location of your waste water and storm water runoff is critical for health reasons alone; you do not want to get any cross contamination and cause you, your family or any stock on your property health scares. There are many economic types of domestic sewerage disposal units available and many simply designed structures for farm runoff.

If you are not connected to your town supply for water you need to ensure a source and a plentiful supply to sustain your domestic requirements. You may also wish to have enough water to provide for irrigation to your property to improve pasture or horticulture production as well as providing drinking water for any stock on the property. Without a reliable supply of water to your property future developments become limited. It is beneficial to become familiar and understand these systems so the design best suited to you and your property can be implemented.

If you have existing streams running through your property and are able to draw on the water (your Regional and/or District Council will be able to tell you this) it is to your advantage to ensure the water quality is maintained or that you are aware of improvements that can be carried out if necessary. There are several easy ways to improve water quality on a lifestyle block. The main two factors that influence the state of streams in New Zealand are erosion and temperature. Erosion is often caused by the stream banks collapsing into the stream bed, an example of how this could happen is when stock accesses the stream to drink, or cross and disturb the stream bank resulting in soil falling into the stream bed. Once sediment is in the stream it covers the stream bed smothering the habitat for macro-invertebrates (insects) which live and feed off the stream bed. Fluctuations of stream temperature can be caused by a lack of shade over the stream and can result in a lack of oxygen in the stream, which produces a build up of green slime. The green slime uses the remaining oxygen left in the stream to reproduce, taking away the dissolved oxygen for existing stream biota to thrive. Where there is a combination of sediment and high temperatures stream quality is often low.

Two easy ways to increase stream quality are to plant trees along the stream boundary creating a riparian zone or buffer. These trees can be strategically planted for aesthetics, shelter from the weather, traffic, privacy, and for your animals or for investment reasons with the intention of harvesting the trees in the future. There are many different tree species to choose from when planting up riparian zones and this should be researched to ensure the appropriate tress species is planted to complement the soil, planting location and the desired purpose. For more information on this see the goodGround SPECIAL report on Lifestyle Block Trees. By planting trees and or shrubs along stream edges you will also support the stream banks and reduce the amount of soil entering the stream. Another, but often a more expensive option is to fence the streams off so no animals can enter the area and therefore will not disturb the stream banks. You should also check with you Regional Council as many councils provide subsidies for fencing off streams and planting stream bank areas.

If you are interested in trees or growing fruit trees it may be beneficial to protect your investment with pest and weed control. There are numerous types and methods of controls for managing or eradicating either weeds or pests from your property. Depending on your way of life, traps can be set to capture pests and kill them immediately, which would mean that you would have to remove the dead animal and reset, to bait laying by yourself or by using a contractor. When controlling or eradicating weeds there is a range of herbicides available or there are methods which are less detrimental to the environment, for example, companion planting.

Any activities that you carry out on your property should be completed to industry best practice standards. Most operations carried out, whether it is fencing or tree planting, or installing an irrigation system, have regulations which must be met. These standards are easily obtainable through your local Regional or District Council or from the Ministry of the Environment.

The wide-open spaces of the country side are truly something to care for. You can do many things to maintain the quality of your life by taking responsibility to sustain the land, water and other natural resources. Get started by properly caring for your water supply, waste disposal systems, streams, and soil on your property. GoodGround is here to help you achieve this!

The N.Z. Government has enacted legislation to create an Emissions Trading Scheme (E.T.S.). This is set against a background of climate change and the world’s efforts to reduce the amount of carbon being emitted into the atmosphere. The United Nations is at the centre of co-ordinating this initiative. Forestry is a key sector from a climate change perspective. As trees grow they absorb carbon dioxide from the atmosphere and convert and lock it up as wood. The NZETS is a mechanism to encourage emitters to change their behaviour by finding better or different technologies.

Measurement

Under the new legislation you (if planted post 31 Dec 1989) forest will “officially” start absorbing carbon the 1^st January 2008. This carbon is able to be measured. As a rough guide one hectare of Pinus Radiata will absorb about 33 tonnes of carbon dioxide per annum.

What’s it worth?

The government has set a capped price of $25 per tonne

(1 tonne = 1NZU (New Zealand Unit) = 1 carbon credit – $25 cap)

The approximate carbon absorption per annum per hectare in your forest could be worth around $500 – $1000 per annum per hectare depending on age and price of N.Z.U

What are the Options?

1. You may decide to do nothing and not register entry into the N.Z.E.T.S. If this option is taken the credits will default to the Government.
2. You may decide to apply to enter the E.T.S. Joining the scheme will mean a cost to measure the carbon in the forest and an administration cost to register with the administration agency (A department set up under M.A.F knows as the New Zealand Emissions Unit Registry).

What are the Obligations?

Once in the scheme you will receive annual N.Z units. The tree owner would also be liable for emissions at harvest. Continuing planting of your forests will see continuing units paid to the owner. However if you harvest the trees you will be responsible for any harvest emissions liabilities.

The legislation states that you will never have to surrender more NZU than you have gained.

Other Options

The credits can be “saved” and not used or they can be sold and traded. It is almost certain that co-operative pools will be created to facilitate trading because of the large amounts of credits that buyers (such as energy companies) will need to purchase. Co-operative pools will also give a degree of risk mitigation to the forest owner

There is a compliance period of two years (ending 31 Dec 2012) for you to opt in to the first emissions return period of the E.T.S.

Various commentators have suggested that there is an advantage by opting in early and joining a co-operative pool and thereby having the opportunity to take advantage of the higher international carbon price.

For more information you may wish to look at www.goodground.com and click on Forests

Martin Albrecht

GA Group and EITG in 250mw China Biomass CDM Project

The global financial services organisation held by GA GROUP (ASIA) Limited in the Isle of Man – has been appointed lead manager to China‟s Shenzhen based Hanyuan Green Energy Co. for a major capital raising for a China-based biomass energy enterprise venture. GA Group will collaborate with EITG. With the aim of raising USD30-100 million, GA GROUP will be responsible for exploring all market options – whether public or private – for raising the target capital and EITG will manage the associated carbon credit business surrounding the venture with the subsequent value integrated into the deal. EITG has commenced the steps necessary to register the project under the Clean Development Mechanism of the United Nations Kyoto Protocol, selling the resulting Certified Emissions Reductions to its European Clients.

“This is an incredibly dynamic project for GA GROUP and is a total vote of confidence in New Zealand‟s ability to lead the global pathway in the challenging field of renewable energy and UN compliant carbon credits,” said Tim Munro-Keene, Executive Chair, GA GROUP.

“We set a mandate at launch that we would actively pursue socially responsible finance for climate change

as part of our business ethos and strategy. It is rewarding to partner with fellow New Zealanders, EITG, to guide this innovative project to market and pave the way for new models of renewable energy financial services across the Asia Pacific.”

Based in China, the biomass energy enterprise venture is a scalable project designed to utilize waste agriculture biomass to produce electricity in the Shandong Province. Five power stations each producing 50 megawatts are to be built. The project has a social responsibility perspective as local farmers will be able to increase their earnings from the sale of otherwise discarded material.

Field Measurement Approach Creates Substantial Risks for Forest Owners

The New Zealand Ministry for Agriculture and Forestry (MAF) Sustainable forestry bulletin issue 25 confirms Cabinet has approved the drafting of the regulations for the Field Measurement Approach (FMA). First mentioned in the Carbon Monitor in November 2010 volume 15 issue 10 these regulations cover post 1989 forest of 100ha or more.

The 100ha threshold relates to the total forest holding of one participant. Participant includes all associated parties as defined in the Act. The Act definition of Associated Parties is wide ranging so those with small forests can unwittingly be dragged into the FMA regime due to the aggregation of smaller holdings to exceed 100ha.

Of significant concern is the requirement for the final emission return for the First Commitment Period 2008-2012. This must be carried out using participant specific look up tables that are created from MAF specified sample plot locations on the participant‟s forest(s).

Meantime, that is at least from 2008-2011 participants are required to use the standard regional look up

tables. The tables are acknowledged to in „some‟ cases specify more the issue of more NZU units than there is C02 removed from the atmosphere by a given forest. Simplistically, some forest owners may have received more NZU than they should have for their forest in each of the last 3 years 2008-2010.

Changing to participant specific look up tables in 2011/2012 those forest owners may find that they receive significantly less NZU with these tables than the standard tables they used in the first 3 years. In the emissions return for 2008-2012 foresters may have to surrender the over allocation in 2008-2010 using NZU issued in 2011 and 2012. For those with patchy forest or lower than expected site indexes there may be a surprise in store and a reduction in NZU income due to the change in tables to forest specific tables. Add the costs of the field measurements for the FMA and some forest owners may be in for significant cost.

Japan Crisis Drives European Market Upwards

Recent developments with the disaster in Japan placed focus on the future of low carbon nuclear energy sources in Europe. Germany reportedly placed under review decisions on a number of its reactors in response to the devastation

A corresponding jump in prices of emissions units resulted in EUA up to 17.22 up 2.23 and CER units up to 13.12 up 1.62. CER were reported as trading above the $25NZD the cap for the NZETS. Since CER dominated the NZETS market in late 2010 there has been a scramble for those emitters who purchased units to sell at a substantial profit. The flow on effect is reported NZU sales over $21NZD up 1.90 this in March.

Reader Posses the Question?

Peter Ann, a Carbon Monitor reader sent us his thoughts on selling forest based NZU for post 1989 forests. He writes: So…… we sell our NZU’s and they are taxed in the year of income. Lets assume a 400ha forest of 10 years age, 10,000 units at $20… could be around $60,000 tax. $140,000 to invest someplace else, say a 2.5 million dollar building in the city, complete with 20 year mortgage leveraged against rental and the income from more sales of NZU’s…..

The rough guide for returns of commercial property is equal to inflation over a long period (60 years to 1989)….

Onwards 20 years and the forest now has a liability of surrendering the units sold by that “silly fool” who sold them all, against all advice from every forest person he talked to ever.

The question is will his building now be worth the balance between surrender value of his units plus his

log harvest less the residue units or “free units” as in forestry jargon. Historically forestry had a 3% above inflation

compared to -3% for dry stock farming return for the 60 years (share market in NZ was 7% for the curious) preceding the 1989 article the writer read and made the decision to invest in forestry when he could.

At harvest the logs should return more dollars than the NZU that have to be surrendered. If not the prudent forest owner will leave the trees growing…. until they are. Just look at the turnaround in the last 3 years from doom and gloom to the highest log prices since the 1991 spike. Trees don’t mind being 33 years old! However the building is now freehold and available for sale at capital gain….

The large surrender value of 20 years of sales of NZU is fully tax deductible expense, just as the harvest cost is deductible. 260,000 * 30% residue – =182,000 units to be surrendered at say $70 $1,274,000 remember the

tax deduction against income Who among you followers of forestry are prepared to do the numbers and stop suggesting and advising forest owners with one age class to plant more forest to offset liability. how many eggs do you put in one basket?

Commentary

Peter raises some very good points. In a past issue of the CM we shared the use of Land Expectation Value put forward by the University of Canterbury school of Forestry as a way of modelling the potential income and liability of participation in the NZETS. Interestingly a 5% increase in the price of an NZU over each of 10 years showed little impact on the LEV as a metric.

However if as Peter says an NZU is $70 who would bother to harvest? Income of over $2000 per ha would be hard to beat with money in the bank from harvest yielding less than 5% in interest. The problem is that no one knows the price of an NZU 10 or 20 years out and not managing this risk is as Peter puts it creates a „silly fool‟

The next emerging issue appears to be the Banks have realised the sale of the NZU units potentially creates a liability that ranks ahead of a mortgage security. When a forest is sold any buyer would factor in the cost of surrendering NZU units when calculating a purchase price.

Forest Carbon Insurance Update

For an update on the New Zealand insurance scene for carbon forestry insurance, we asked Geoff Manks, managing director NZ Carbon Insurance (a division of Sage Partners Ltd). NZ Carbon Insurance has been active in the area of carbon credit insurance and lead the market offering specialist solutions for forest owners. Geoff claims to be the only insurer in Australasia actually having written policies for this type of cover. He reports:

In the last 4 weeks we have had a noticeable lift in enquiries from forest owners, large & small, from around NZ seeking advice on insuring their forests. Presumably this is a direct result from carbon credit returns being filed with MAF and growers then considering trading options, or trades having already being recently concluded.

However there clearly remains a lack of appreciation by some growers as to their contingent liabilities, and therefore what insurable value to attach to their forest. What is apparent, from the insurance programmes we have reviewed, is those who have traded their credits and are already insured under a traditional forest model, likely have an insurance programme which does not reflect their position. In particular post 1 April 2011 where the contingent liability values accrue. One area we spend most time with clients on is helping them understand how to establish an appropriate insurance value for their forest. This generally differs between each forest but is based around our unique model from which clients then select the option they feel comfortable with.

Insurance capacity in NZ remains limited with insurers still shy about providing limits in some regions for wind, earthquake, landslip etc. However premium rates remain competitive with carbon forest insurance programmes generally priced at similar levels to traditional timber insurance. We are likely to see the entry of another insurer into the NZ market in the near future capable of accepting carbon forest business. The incumbent, NZI, still have a stated position of not insuring carbon. What this exactly means is not entirely clear, however without further definition or a more flexible model for covering perils or establishing insured values, we still have concerns about their suitability for carbon forestry.

Whether for Silviculture, ETS registration, Filing returns, Measurement or Trading credits, getting sound advice is critical forest owners. Insurance is not the sole answer to growers as not all events are insured against. However forest owners must understand the manageable and non-negotiable consequences, of a loss to an ETS/PFSI entered forest and are prepared to accept these or take steps to mitigate the risk.

United Nations Publishes Radio Broadcasts on the CDM

The Clean Development Mechanism of the Kyoto Protocol allows the creation of projects in developing countries that would not otherwise go ahead (business as usual) to receive credits called Certified Emissions Reductions or CER.

CER can be used in the main emissions trading schemes and are permitted in the NZETS and EUETS. The UNFCCC secretariat has produced five „broadcast-ready‟ radio stories for dissemination to radio stations in Africa. These stories are meant to make the Clean Development Mechanism of the Kyoto Protocol understandable and accessible to a broad audience, including community stakeholders, potential project participants and policy makers They are available at http://bit.ly/cdmstories

Technological Solutions for Coal Fired Stations move Closer to Reality

Two new patented sorbents used for carbon dioxide (CO2) capture from coal-based power plants have moved closer to commercialization as a result of a licensing agreement between the Office of Fossil Energy’s (FE) National Energy Technology Laboratory (NETL) and ADA Environmental Solutions (ADA-ES).

The nonexclusive agreement facilitates negotiations on intellectual property rights, protects proprietary information, and grants non-exclusive licensing of the new technology. Under federal regulations, NETL is authorized to obtain, maintain, and own patent protection for its inventions, including those funded through collaborative agreements. By granting a commercial license for these sorbents, NETL can now convey and control the right to make, use, and sell the products and services claimed in the patent, thereby assuring strategic commercialization throughout the coal-fired power plant industry. CO2 capture is an important component of carbon capture and storage (CCS) technology, viewed by many experts as an integral part of a portfolio strategy (including increased use of renewable and nuclear energy, and greater efficiencies) for confronting increasing atmospheric carbon dioxide emissions and potential climate change. Coal-based power and industrial plants are essential to U.S. energy production and are projected in many forecasts to remain so for the foreseeable future. But they are also among the most carbon-intensive energy sources.

FE‟s comprehensive CCS research includes developing new materials that can capture and release CO2 at reasonable energy and operating costs. Traditional solvent-based systems consume too much energy, either in operation or during regeneration of the solvents. So FE is developing and testing a wide range of approaches.

A promising solution for affordable CO2 capture is “dry scrubbing” or chemical absorption of CO2 using a solid regenerable sorbent. The most important advantage of solid sorbents is the potential to significantly reduce the amount of energy required to capture and release CO2. These range from alkaline earth metal oxides or hydroxides that can absorb CO2 at temperatures that typically range from about 100— 300 °C to impregnating a porous substrate with one of the liquid solvents. In all of these, the sorbent can be regenerated in a subsequent step, after the CO2 is removed. The efficiencies of these processes are highly dependent on the optimum temperature and pressure conditions at which absorption and regeneration are performed. In the case of high performance sorbents, both of these mechanistic steps occur with the lowest possible energetic and operational costs.

goodGround is please to announce its new service to ensure you benefit from the Scheme.

1. We now have the expertise to make your forest registration and mapping process easy.
2. Our proven method saves you time and gives you results.

Volume 15 Issue 11 December 2010

NZETS thin trading, Prices over $20NZD, CER Not an Option for Compliance?

Reports from Westpac and OM Financial have NZU units firming to around the mid $20NZD mark. Trading remains light with few sellers but one or two notable trades.

Another option for compliance in the NZETS has emerged as the international markets are forecasting potential oversupply of so called CER units or certified emissions reductions.

These units are issued to projects commenced in developing countries that do not have an emissions cap under the Kyoto Protocol.

The Clean Development Mechanism Executive Board (CDM-EB) on Monday 29th November issued 17.8 million CERs. This issuance of CERs (about 10% of annual issued volume) to eleven HFC projects which had been under review by the CDM-EB was unexpected by the market. Subsequently, CER prices have fallen by over 3% resulting in a closing price below the last traded NZU price.

However the latest spot CER price is around 13.43 Euro which at the current exchange rage of 0.57 results in an NZD price of $23.56 or at least $2.50 over the best NZU price.

It appears from reports large volumes are attracting better prices meaning aggregators are still making up to 5% on the spread between buy and sell. All the risk remains with the forest owner vendors. We think that is too much. Those forest owners who have sold for $17 on the advice of forest managers must be questioning the advice received. MAF Update on the NZETS

The New Zealand Ministry for Agriculture and Forestry issued is regular update on the New Zealand Emissions Trading Scheme. It states if post 1989 forest owners wish to claim the NZYU for 2008-2010 need to get their applications into MAF now. Last year there were significant delays from late applications meaning many forest owners missed receiving their NZU allocation.

Also in the news is the mapping system for pre 1990 allocations has been released and this time includes a žtutorialIt is not clear whether or not a play area will be included to allow foresters to experiment to learn how to operate the system before actually entering data. This was a flaw in the post 1989 mapping system.

Consultation and submission for the field measurement approach closed mid last month and there were a good number of useful submissions.

NZETS Facts and Figures

Given the expected oversupply of NZU units from forestry traders are interested in how many units have been allocated and what percentage of the potential units have registered.

Some 16mt of pre 1990 allocation is on the way albeit the market feedback is these units are not yet coming into the market.

MAF has now allocated more than 5.1 million NZUs to 585 post-1989 forest owners covering over 125,000 hectares. This means around 20% of the potential forest eligible by area has registered in the NZETS.

For pre-1990 forest land owners, MAF has made final determinations on 39 applications, allocating just under 750 000 NZUs for both commitment periods. This represents about 13 500 hectares of pre-1990 forest. A preliminary determination has been made for a further 84 applications (38 000 hectares). The allocation so far represents an average 57.6 units per ha with allocations being either 60, 39 and 18 units per ha depending on the ownership of the land on certain dates.

Overall therefore for the period to end of 2012 at 23 units per ha would result in some 300,000 units coming on the market by 2012. Adding the further 38,000 ha presuming a similar make up, a total of approximately 1.1m NZU would come to the market prior to 2012. This is only 7.5% of the potential amount to be issued.

It looks that to date the expected oversupply at the market level is unlikely to occur. The New Zealand Government however has no such issue as those forest owners who do not opt in automatically allow the Government to use their NZU to comply with the Kyoto limits from 2008-2012. In return the Government according to existing law indemnifies the forest owner by surrendering the same credits on the land owners behalf at harvest.

Given the wall of wood post 2020 looks to turn the forest industry from the source of NZU to the largest single emitting sector it is an interesting question as to whether the taxpayer will foot the bill. Is this a case of ignoring the future to deal with short term imperatives?

Are Forest Managers Financial Service Providers?

A person, business, or organisation providing financial services in or from New Zealand must be registered on the Financial Service Providers Register (FSPR) before 1 December 2010 (except for financial advisers who have until 31 March 2011 to be registered.)

Financial services range across consumer loans and credit, money management and investment advice, bank services, broking services, currency exchange and money transfers, insurance – the list goes on. If you deal with money or investments, you probably need to register.

There are a range of exemptions for providing such advice in the normal course of business, an area which is still quite gray. Real Estate agents who sell businesses are seeking clarification of the Act.

Whether a forest manager who brokers a sale of carbon credits is covered is not clear in the Act.

EU Price Update

CER prices softened towards the end of November spot prices were Euro 13.43 with December 2011 at Euro 12.85 EUA remained between 15 and 16 Euro. EUA for 2013 remained strong over 17.50 Euro.

We apologise not being able to provide a monthly trend graph this month.

Source: www.cantorco2e.com

CDM PIN Announced

EITG in conjunction with Delta projects has issued a PIN or project information note on a biomass power facility in the Pacific Islands. The project is projected to create some 40,000 Certified Emissions Reductions (CER) per annum from 2011 under the Clean Development Mechanism of the Kyoto Protocol (CDM)

The CDM is administered by the United Nations and issues carbon credits for emissions reductions that would not otherwise occur. The project is an excellent use of agricultural waste and avoids methane emissions when the waste is simply left to rot. The power generated will be fed into the national grid and displace diesel powered generation.

The PIN has been issued to attract bids for pCER units that are to be issued. Offers to purchase the units once issued or sCER will also be entertained. EITG has issued the PIN to a range selected trading houses and emitters and has interest from Europe and Japan. At this stage only year 1 credits are on offer. A strip sale could be concluded. The last strip sale on a project with EITG involvement achieved 17.50 Euro per CER at year 4.

Dumping Ground for Second Rate Carbon Credits

A recent report suggests New Zealand could become a dumping ground for second rate credits from the Clean Development Mechanism or CDM. IdeaCarbon wrote in its report, the recent decisions from both the Clean Development Mechanism Executive Board (CDM EB) and the European Commission (EC) on industrial gas CDM projects involving reductions of hydrofluorocarbon-23 (HFC- 23) and nitrous oxide (N2O) from adipic acid plants are set to radically reconfigure the global market for offsets. The effects of these decisions are far-reaching and could potentially have implications for the New Zealand Emissions Trading Scheme (NZ ETS).

The NZ ETS could be a major source of demand for these homeless CERs. Due to a lack of restrictions on the use of CERs for compliance, NZ ETS credits (termed New Zealand Units  NZUs) could be vulnerable to downward price pressure as industrial gas CERs seek out other markets.

Under the European Union Emissions Trading Scheme (EU ETS), companies can meet a part of their emission reduction obligations by purchasing costâ effective offset credits (CERs or Emission Reduction Units from Joint Implementation offset projects) under the UN approved flexible mechanisms. Offsetting can include credit origination from projects involving the destruction of HFC-23 and N2O industrial gases.

There are four problems with industrial gas reduction projects.

First, they’re extremely cheap to carry out. For example, it is estimated that the destruction of HFC-23 can be carried out at 0.171 per ton of CO2 equivalent. But when these CERs are issued they currently command a price of 12.00 seventy times more than it costs to destroy the gas.

Second, the cost effectiveness of these projects has created unintended perversities; HFC-23 CERs are so valuable they exceed the value of the primary gas (HCFC-22) by as much as five times, which has led to the widespread accusation that host countries are ramping up HCFC-22 output primarily to profit from CER revenue.

Third, the current incentives for HFC-23 destruction undermine attempts under the Montreal Protocol to phase out HCFC-22 production.

Fourth, the dominance of industrial gas has distorted the geographical distribution of projects under the CDM in favour of China and India. The EC has proposed a ban to come into force from January 1st 2013. The proposal is due to be discussed by a committee of member states before going to the European Parliament to be scrutinised, with a decision expected in three months.

The CDM EBs Methodologies Panel has recommended that the AM0001 methodology which governs the generation of CERs from HFC-23 reduction projects should be revised. According to a paper delivered to the EB at this weeks meeting, it is likely that emissions reductions could be overestimated, since there is no incentive to reduce the w-factor, referring to the ration of HFC-23 emitted by a plant producing HCFC-22 refrigerant gas.

There is currently no indication as to by how much an amended methodology would cut CER yield.

The CDM EB has decided to revise the AM0001 methodology, which will then be applied to each project as it reaches the end of its current crediting period. With the largest number of HFC-23 projects coming to the end of their first crediting period between 2012 and 2014, this means that CER yield could drop significantly thereafter. Industrial gases currently comprise 75% of CER output to date. With regulated entities within the NZ ETS being allowed virtually unlimited use of CERs to meet their compliance, these industrial gas CERs could soon overshadow the New Zealand market.

************************************

EITG develops, facilitates and engineers Carbon Mitigation projects and strategies.

EITG corporate advisory provides high-level briefings and advice on building robust responses to emerging regulatory structures.

EITG Carbon Pool provides forest owners with a robust platform to access local and international markets while dealing with harvest and other liabilities.

EITG provides trading platforms and strategies based on extensive mitigation and avoidance platforms under JI and CDM, with matched offset packages for emitters.

EITG is part of an international consortium with representation in Asia/Pacific, UK, Europe, USA and South Africa

Agriculture and Forestry  outlining a proposed Field Measurement Approach for the NZETS.

Volume 15 Issue 10

NZETS thin trading, Japanese Interest, CER an Option for Compliance?

Reports from Westpac and OM Financial have NZU units firming to around the $20NZD mark. Trading remains light with few sellers. Sellers expected to flood the market with NZU units allocated to compensate for at risk sectors or the pre 1990 forest NZU have yet to materialise in the market. Meantime Carbon News reports a Japanese bank is in the market for AAU units. EITG has received approaches by Japanese Trading Houses for AAU units.

Another option for compliance in the NZETS has emerged as the international markets are forecasting potential oversupply of so called CER units or certified emissions reductions. These units are issued to projects commenced in developing countries that do not have an emissions cap under the Kyoto Protocol. Projects that would not other wise occur (those that would proceed without credits are termed business as usual or BAU) are granted CER credits for emissions reductions after exhaustive review by the UN. Projects can theoretically include aforestation and reforestation but in practice so called tCER and lCER issued from these are excluded from most established ETS schemes. Dominant projects include removing more potent greenhouse gases (GHG) such a HFC, SF6, nitrogen oxides and methane where each metric tonne of the gas can reduce GHG by between 30,000 and 21 tonnes depending on the gas involved.

Reports of holding back of CER issued from HFC projects in China had some two months ago caused fears of significantly less CER being issued. These concerns appear to have faded. The weakness of the Euro against the NZD and around a 10% drop in CER prices in the European market make these CER units at $23-24NZD potentially attractive to compliance buyers in the NZETS and an alternate to purchasing NZU or paying the $25 cap. Forward delivery contracts for CER are available reducing the impact of holding costs. There are two CER markets, primary CER and secondary CER. The later is a CER after it has been issued by the UN. A primary CER is in effect an option to purchase a CER once issued. These trade at a significant discount to the secondary CER and significantly cheaper than an NZU at around 6Euro.

If one could assess the risk of delivery, one could purchase pCER and save further in costs of reducing emissions. Volumes of CER available are significant in terms of the NZETS and any further drop in CER prices would in effect place downward pressure on the price of an NZU.

Voluntary Market Update

Worldwide, VER (voluntary emissions reductions) transaction volume is light and Tullet Prebon reports Voluntary Carbon Standard (VCS) credits for renewable energy ex-China bid at €2.50 per tonne of CO2e and offered at €3 in 2009/10 vintages. Forward VERs are bid at €3.10. Gold Standard VERs are bid at €6 and offered at €8 for 2009/10 vintages but up to €2 lower in the forwards.

In forestry, despite great interest in REDD credits for avoided deforestation, the market is yet to take off beyond a few forward transactions. Lack of firm supply is a key factor. But that may be about to change following the first issuance of REDD credits under the VCS from the Unchindille-Mapanda project in Tanzania and the believed imminent issuance of credits from the Rimba Raya project in Indonesia before the end of 2010.

Pontis says large parcels of 100,000 credits or more will hit the market from Rimba Raya with prices currently attracting bids of €5 a tonne and sellers offering at €7 in both the 2010 vintage and for forward delivery.

Another bright spot in the market appears to be in forestry VERs from New Zealand. Project developer and credit aggregator Permanent Forests International reports 250,000 high-integrity reforestation VERs have found European and North American buyers recently, at prices on a par with VCS credits. The credits are generated under New Zealand‟s domestic forest sinks programme, come with a government backed permanence covenant and are packaged for the international voluntary market.

Clarification on Voluntary Market Trade in New Zealand

In a recent edition we mentioned a trading involving voluntary carbon credits based on New Zealand forestry. The transaction was completed in conjunction with Permanent Forests International of Christchurch. Whilst we cannot disclose price similar units on the international market sell for around $3.5 USD per tonne.

The reference to $6-8 USD was referring 2009-2010 vintage Gold Standard VCS credits which differ from earlier vintage credits involved in this transaction. This raises a key point that differentiates the voluntary and a compliance market such as the NZETS, that is with all the vintages and standards it is sometimes confusing to compare prices whereas in the compliance market we are all talking about the same units and therefore price comparisons are potentially much more valid.

Of course there are several layers of compliance markets such as the UN compliance market which is governed by the Kyoto Protocol the currency being Assigned Amount Units or AAU, then the sovereign implementations such as the EUETS which permits EUA, ERU and CER credits but NOT AAU units.

With the NZETS compliance credits are NZU and CER units and AAU can be exported from the NZETS but generally not permitted to be brought into the NZETS. The laws of supply and demand and the ability to deliver and discover market price from liquidity all create a myriad of prices for these compliance credits.

The lesson is to understand the markets, the liquidity of the instrument that you hold or are seeking and find similar trades before establishing a view on price. Of course in an emerging market such as the NZETS it can be difficult to find comparable data. Discovering the value of an AAU remains even more challenging.

MAF Releases Forest Field Measurement Draft for NZETS

The New Zealand Ministry of Agriculture and Forestry has released a draft document outlining a proposed Field Measurement Approach for the NZETS http://www.maf.govt.nz/mafnet/consultation.htm

Highlights of the proposal include:

• Indigenous and Exotic categories both requiring permanent sample plots
• A threshold of 100ha per Participant (as opposed to forest – a participants total forest area is added to establish the threshold)
• Sub 100ha must use a look up table they cannot opt for measurement
• The sample plots are to be measured at least once every 5 year commitment period with the first measurement required before the end of 2012
• The number of plots ranges from 30 to 200 on a sliding scale for 100ha to 10,000ha and above respectively
• The methodology and measurements for each plot are specified. The resultant data is sent to MAF along with details of the silviculture regime.
• MAF provides each forest owner with customised look up tables at no charge, one table for growth and the other for harvest residues The forest owner uses these tables for an emissions return
• Costs are estimated at least $200 per plot to carry out the work. MAF recommend using a registered forestry consultant and is considering creating a list of accredited parties
• The sample plots are located from a grid the baseline from a random GPS coordinate in the forest.
• How CAA and the plots interact appears complex Plots that are located in areas not practical to measure may be relocated by permission of MAF Chief Executive for instance one on the edge of a cliff
• Refusing to complete a return will result in MAF making the measurements at the participants cost Records are to be kept for 20 years in line with the existing legislation

Time table is regulations in mid 2011 and the ability to lodge data and receive your own look up tables by September 2012 with a deadline for the first return of Q1 2013.

Commentary

The expected threshold was 50ha so it is gratifying that the number is 100ha. However given the total is by participant this does create significant potential issues with say 5x20ha forests – where are the 30 plots located and whether the objectives in that case would be met using the method suggested. The cost may be significant to those simply opting in to the ETS to preserve their rights. The silvicultural regime employed is key to the forming of the participants tables and it is a requirement to advise and re measure of the regime changes for any reason.

It could be argued with relatively few participants to date that these costs would discourage more participation from the forest sector. The negative is the risk of not opting in, the benefit to existing forest owners is reducing the NZU supply. Locating plots on a random basis with no regard to access or health and safety issues seems naïve but the waiver provisions would presumably be exercised with discretion. MAF approach to date with the ETS would indicate a common sense approach will prevail.  Comment is made to the „adverse events‟ that may affect a plot and an inference is made in the discussion document on page 16 that the modelling will cater for „natural mortality‟ and adverse events (for example fire and windthrow). It is not clear if the tables are to be discounted for such events. Nothing is mentioned as to what happens if one completes the measurements and finds out that there is less carbon than with existing look up tables and the participant has already sold the credits issued based on the look up tables. Perhaps because the carbon balance is for the 5 year commitment period and emissions returns are only mandatory once every 5 years a participant would not file another return until that showed a positive balance. Otherwise they would have to go to the market to surrender credits. Yet another reason to have not taken the early advice from self interested forest managers to have the credits issued and sell them immediately.

EU Price Update

CER prices softened towards the end of October. EUA remained between 15 and 16 Euro. EUA for 2013 remained strong over 17.50 Euro.

Assigned Amount Unit Prices Soften

According to IDEACarbon Polish Prime Minister Donald Tusk says Poland is in talks with Japan over a sale of AAUs, and that Japan has offered an “attractive price”. The size of the deal is understood to be relatively small however, compared with recent AAU deals. Point Carbon reports the value of the deal would be around €13 million. The World Bank recently indicated that it would be interested in buying AAUs at prices of around €7.50- €8.30. Given Tusk‟s comments and the fact that Japan is the most active buyer of AAUs, we could expect a price of €8.00-€9.00 for this deal. Poland, Ukraine, the Czech Republic and Russia have all announced plans to sell large volumes of AAUs this year but it is unlikely that the markets exists yet to buy up all that supply. In comparison with NZU prices in the NZETS sales of AAU units are becoming increasingly less attractive and off shore sales once the „darling‟ of the carbon market are looking increasingly unlikely.

First Australian AAU Sale Announced

Point Carbon News reported a sale of forest based AAU units from Australian forests at $16 AUD The price of $16 AUD or $20.60 NZD appears unusual given the state of the AAU market as reported in the item above.

The issue of AAU is on the back of the Australian Government Carbon Farming Initiative timed to be operational by December 2011 with crediting back dated to July 2010. In a joint press release Perenia Carbon purchased credits from developer Carbon Conscious. The transaction is based on 50,000 – 70,000 Eucalyptus planted on marginal western Australian land.

Commentary

Using the New Zealand MAF lookup tables and assuming say 500 stems per ha the plantation is a relatively small area of 140ha which in real terms would mean in the first five years some 26 AAU per ha would be issued if these trees were grown in New Zealand. Given the harsh climate of Western Australia one would surmise that the growth would be less. In essence the trade appears to be a very small volume being 140 times 26 or 3500 AAU units. The buyer has not been disclosed. Historically before the New Zealand market had emerged parties reported „trades‟ to get themselves publicity in the hope that buyers and sellers would contact them.

We would certainly caution against this transaction being used to establish a carbon price for Australian AAU units. Given the potential mortality rate of new plantings in WA we would again question that the transaction will take place until the trees are actually established.

Biogas VCS Credits Available

Some 140,000 VCS voluntary credits from a biogas project will be available shortly. These VCS credits are pre issued prior to the project approval under the CDM after which CER‟s will become available. These high quality voluntary credits will be listed with MarkIT. Purchasers can request a PIN by contacting EITG.