Supply and Demand of New Zealand Units

This note is designed to provide information, as requested, to the Leadership Forum on possible supply and demand of NZUs in the NZ ETS, split by year.[This note refers to NZU supply and demand only.  Supply and demand in the New Zealand market will not be limited to New Zealand shores; international linking is critical and international links are expected to provide much of the liquidity in the NZ ETS. ]  This is provided below (all figures in this note are rounded to the nearest million units).

Table 1: Estimated NZU Supply and Demand, 2008-2012.

 

 Estimated Supply (million units)

 

 2008 2009 2010 2011 2012 Total
Post 1989 forests (50% of post 1989 units available) - 8 8 8 8 32
Pre 1990 forests - 12 - - - 12
Liquid fossil fuels - - - - - -
Industry - - 15 15 15 45
Agriculture - - - - - -
Projects to Reduce emissions (50% available) - 4 - - - -
Total   24 23 23 23 93

 

Estimated Demand (million units)

 

 2008 2009 2010 2011 2012 Total
Post 1989 forests - - - - - -
Pre 1990 forests - - 1 1 1 3
Liquid fossil fuels - - 20 20 20 60
Industry - - - 19 19 38
Agriculture - - - - - -
Total - - 21 40 40 101

This analysis suggests that demand and supply are broadly in balance over the first commitment period (with demand being slightly greater than supply).  The table includes the timing of both allocation and surrender of units – units will be allocated at the start of a year but will not be surrendered until April of the following year (where obligations exist).[This is particularly relevant for the industrial sector.  Although units will be allocated in January 2010 (where relevant), those in the industrial sector with an obligation to surrender units for the 2010 year will not be required to surrender units for that year until April 2011.]  Supply could therefore be argued to be overstated in the table relative to demand because of the lag implicit in surrender dates. 

A number of assumptions have been made in the preparation of these figures which are relevant to the balance between demand and supply.  These are outlined below:

  • Of the total number of units available to post-1989 forests, 50% are taken up and made available to the market[Post-1989 foresters could opt not to take up the units, or alternatively, those foresters could bank some (or all) of their units.];
  • Of the units allocated under the Projects to Reduce Emissions, 50% are available to the market;
  • Only a small amount of deforestation occurs once the ETS is operational;
  • Forestry units are not actually allocated until 2009;
  • Government does not enter the NZU market, either as a buyer or a seller;
  • There is no sale of units to either overseas buyers or to sectors with obligations (such as agriculture) beyond the first commitment period.

There was also a query as to the total level of free allocation / government responsibility for emissions, once all sectors are brought into the ETS in 2013 (pre phase-out).  This is shown below, using the same assumptions on allocation to different sectors as were used in Table 1.

Table 2: Estimated Total Government Responsibility for Emissions in 2013

Sector Million units
Pre 1990 forests 2
Liquid fossil fuels -
Industry 15
Agriculture 34
Other (de minimus etc) 1
Total government responsibility 52
New Zealand’s Kyoto allocation (CP1) 62
Kyoto allocation less 10% 56
Kyoto allocation less 20% 49

The table shows that the government will take responsibility for approximately 52 million tonnes of emissions in 2013.  This contrasts with a New Zealand Kyoto allocation of slightly under 62 million units per year.