Westpac Targets NZ Foresters In Carbon Trade
Author: David Fogarty and Adrian Bathgate
Australia's Westpac bank has begun buying carbon offsets from New Zealand forest owners with the aim of selling them to big polluting firms as part of the country's emissions trading scheme, the bank said on Tuesday.
The bank has approached about 600 foresters to pool carbon offsets issued to them to sell in large lots to firms such as refiners and cement makers that will have to meet carbon costs under the scheme.
New Zealand's emissions trading scheme (ETS), only the second national scheme outside Europe, ramps up from July 1 with the entry of power generators, transport and steel and cement makers, which emit about half of the nation's greenhouse gas pollution.
"We've done some deals," said Lloyd Cartwright, head of New Zealand financial markets for Westpac Institutional Bank. He declined to give specific details, but added: "You can see the deals in the market and nothing is going through near NZ$25 ($18.2)," Cartwright said by telephone in an interview, referring to the scheme's initial capped price.
He pointed to the price and regulatory risks of entering the fledging ETS, particularly since it faces a mandatory government review in 2011.
Neighboring Australia last week further delayed its ETS and a climate bill in the United States does not yet have enough backing to pass the Senate. Some New Zealand firms have called for the government to further water down or delay the scheme, something the government has refused to do.
The ETS centers on trading New Zealand Units (NZUs), which represent a tonne of carbon dioxide equivalent. Polluting firms will have to surrender these to the government annually, while foresters can receive them for free as reward for growing trees, which soak up planet-warming carbon dioxide as they grow.
The catch for foresters is the liability they face when they harvest trees or if their plantations are wiped out by fire.
Cartwright said foresters needed to understand the risks of cashing up all their credits now and not banking any for possible future liabilities to the government.
Under the scheme, between July 1, 2010 and Jan 1, 2013, emitters have the option of paying a fixed price of NZ$25 ($17.6) per tonne of carbon, or going to market and sourcing cheaper NZUs from foresters.
Polluters also will only have to surrender one unit for every two units of emissions.
Critics have said the ETS is too weak and will only result in muted trade in the initial years because of a large amount of free NZUs that will be allocated to energy-intensive firms that export their goods. This will cut demand for NZUs.
Brokers and other market players have reported only a small number of deals to date and don't expect the market to take off in a major way, at least in the first year.
Some deals have gone through covering the conversion of NZUs into sovereign Assigned Amount Units, or AAUs, under the Kyoto Protocol with buyers in Japan and Europe in the range of 6 to 10 euros ($7.9 to $13.1) a tonne.
Cartwright said the bank was initially focused on catering to New Zealand polluters but was also looking at the AAU trade.
"Possibly yes, we've done some work on that," he said.
He said the bank was trying to distinguish itself from brokers by taking on price risk.
He said he believed firms that were already aggregating or pooling forestry credits weren't taking principal risk.
"They are not prepared to put any balance sheet at risk whereas we are prepared to put balance sheet at risk."
"We are prepared to sponsor both sides of the market to try to facilitate a marketplace," he said, adding: "There isn't a market yet. There's an element of broking deals but I wouldn't call that a market just yet."
(Editing by Clarence Fernandez)