EU draft rules threaten NZ carbon credit cash

By BRIAN FALLOW

Draft rules for the European Union's carbon credits market would exclude New Zealand's forest sink credits.

The rules proposed by the European Commission, and now adopted with some amendments by the European Parliament's environment committee, would shut out from the European emissions trading system credits arising from Kyoto forests - those planted since 1990 on land not previously forested - because "they do not achieve permanent emission reduction from sources".

The credits were expected to more than cover growth in New Zealand's emissions of greenhouse gases from 1990 levels (its target under the protocol), leaving an estimated excess of about 50 million tonnes to sell.

Meridian Energy recently sold some credits, which it had received as a subsidy for its Te Apiti wind farm, to the Dutch Government for just over $10 a tonne.

Federated Farmers president Tom Lambie said the Government had long trumpeted the sale of forest sink credits as New Zealand's reward for ratifying the protocol.

If New Zealand was unable to sell credits to the Europeans, it raised a question about whether New Zealand should remain a party to the protocol.

Murray Ward of climate change consultancy GtripleC spearheaded the inclusion of forest sinks in the treaty at Kyoto in 1997 while working as a Government official.

He gave three reasons for regarding Lambie's conclusion as premature:

* It is not yet clear that the exclusion of forest sink credits will survive to the final version of the European "linking directive", which connects the European trading system (ETS) with the rest of the Kyoto world.

* The ETS governs trading at the company level, not among Governments. European Governments could still buy sink credits.

* Even if forest sink credits are not sold into the market they still have a value to the Government, provided the Kyoto Protocol comes into force. The Government can put them towards the stock of credits it will need to show New Zealand has met its obligations under the protocol, when accounts are squared after 2012.

Hoarding the forest sink credits for that purpose would displace or free up for trading an equal number of assigned amount units (AAUs) - another, more liquid kind of carbon credit allocated to New Zealand on the basis of its 1990 emissions.