Carbon Match: NZU Update

Wednesday 6 May 2020

Late yesterday the ETS Reform Bill was reported back by Select Committee, whose input saw it grow from a 225 page missive to a 432 page markup. It now awaits a second reading.

Navigating the amendment bill is like a choose-your-own-adventure novel - vaguely disorientating even to those who thought they had a handle on the plot. An update on the state of play has been provided by the Ministry itself here and the report of the Select Committee is here.

Refinements recommended by the Select Committee include:
  • introducing "activity-specific" reduction of the general phase-out rate, whereby the Minister would be able to reduce the phase-out rate for a specific eligible industrial activity deemed at risk of emissions leakage, while maintaining or increasing the set phase-out rates for other eligible industrial activities;

  • deferring the commencement of many of the forestry-related policy changes to 1 January 2022 because further work is needed on related forestry regulations;

  • extending the timeframe for participants to opt in to averaging accounting, before averaging becomes mandatory for post-1989 forests.

It's worth noting that the National party has opposed the progression of this bill for the next 12 months, saying that this is a "long, complex, multifaceted, administratively complicated bill that upon enactment will have widespread and costly implications for every sector of the New Zealand economy" and objecting to it being advanced during the COVID-19 adjournment of Parliament.

While the support of the Nats isn't required, the withholding of it does highlight afresh the need for NZ First to remain supportive, if this package of reforms is to become legislation this side of the election.

One of the aspects of keen interest to businesses with liabilities (and to NZU holders in general) was the proposal by the Ministry for Environment to ultimately remove the fixed price option and replace this with a cost containment reserve pegging off Government auctions that are expected to be launched next year. That proposal included was that a fixed price option remain in place for emissions produced in 2020, but at a higher rate of $35.

It’s not clear where this proposal now sits - the Select Committee report does not appear to contain any specific recommendation on raising the FPO, although further changes are still possible as the bill winds its way through the parliament.

At this point it's hard to get too excited one way or the other - the same uncertainties prevail and we will just have to stay tuned. NZUs last traded at $24.55 and remain bid and offered around that level as of writing this, but check back at 1pm for live pricing.

Source: Carbon Match Weekly

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