NZ companies gun-shy of carbon markets
The recession and uncertainty over the ETS will delay New Zealand companies actively trading on carbon markets.
Levels of trading are likely to be low, with businesses taking a fairly conservative approach, according to Business New Zealand manager for energy, environment and infrastructure John Carnegie.
While New Zealand companies had a greater understanding of emissions trading, there would be elements of the early situation in the EU, where many businesses, allocated permits, put them in the drawer because commodities trading was not their first line of business, he said.
During the EU ETS compliance period, permits then flooded the market.
In New Zealand, it was hard to know how many firms had an obligation, other than large industrials and the energy sector, he said. “It’s a small domestic market, so there will be discreet trades.”
Many companies would “dip their toes in the water” to find out who else was trading.
Political uncertainty over the allocation of free units was key, he said.
The recession and cash flow volatility was another reason for companies to “stick to their knitting”, said Frazer Lindstrom director Stuart Frazer.
Major power and energy supply companies would be better positioned (as well as obliged) to trade, but even they would take a balanced portfolio approach, he predicted.
Significant trades would step up in 2013, as the country climbed out of the recession and as price caps were removed.
Companies can trade NZUs, or common currencies across various schemes, including CERs, ERUs or RMUs.
Genesis Energy, which operates the largest single emitter of CO2 in the country, (Huntly power station) had taken a proactive approach, assuming it would be obliged to enter the ETS in January 2010.
But it had been stifled by political reviews and uncertainty, wholesale market manager Peter Kimber said.
Mr Kimber is one of three people in its carbon trading team.
While the ETS has not yet been amended, all the signals were that the company could relax and slow down its activity, Richard Gordon, the company’s public affairs manager said.
Under the existing scheme, Genesis would be liable from January 2010 for one unit ($25) per tonne of CO2 emitted, but under the proposed scheme, it would be obliged to enter in July 2010 with a liability for half of its tonnage (effectively $12 per tonne) in a transition period.
Genesis had a fairly large obligation to meet under its emissions profile but it was hard to predict carbon emissions from year to year, which depended partly on the hydrology of the country [in times of low hydro generation, there is more electricity demand from power stations including Huntly].
Companies outside the large industrials will tread cautiously.
Fletcher building would need emissions units to offset emissions from its cement and steel operations (Pacific Steel Group) and would receive free allocations, said health, safety and environment manager Hans Buwalda.
But it would be taking a conservative approach to cover its obligations.
“We will not be in the business of playing the carbon markets.”
Internationally, banks, brokers and commodities traders are increasingly pessimistic about the global market - touted to reach $126 billion after 2012 - as US negotiations on greenhouse gas emissions stall.