3 News TV item on NZ ETS Loophole closing but only for forestry, and not emitters. Ollie Belton for Carbon Forest Services interviewed and points out the hypocrisy. You can see the news item here.

More than 12 months after the Government was first alerted to post-1989 forest arbitrage, the loop hole has finally been closed. However many forest owners have already exploited the loop hole and much damage has already been done, both to the integrity of the NZ ETS and also to the market fundamentals.

One has to ask why has it taken so long for the Government to act? Ministry of Primary Industries officials were first alerted in early 2013 to the arbitrage, and the huge reputational and fiscal risk it presented. Yet it took Government a year to stamp it out. In the interim period nearly 25% of post-1989 ETS Participants de-registered in 2013, and at least another 5% have de-registered in 2014. As a result millions of forestry NZUs have become unencumbered meaning they are not linked to harvest liabilities so are more likely to be sold into a low priced carbon market for profit taking. The number of these unencumbered NZUs could number as many as 15 million units and add to a struggling domestic carbon market estimated as already oversupplied to the tune of 110 million NZUs.

"Why does the National Party hate the forestry sector" That was the question posed in Parliament on Friday by Labour's Moana Mackay, Spokesperson for Climate Change Issues. She was speaking during the first reading of the Budget Measures (Miscellaneous Fiscal Matters) Bill which sneaks in an amendment which prohibits forest owners from using Kyoto Units when they remove forest registered under the NZ Emissions Trading Scheme (NZ ETS) and prevents 'reregistration arbitrage'.

In a surprise move the Government has banned post-1989 forest owners from using Kyoto units when they de-register from the NZ ETS. The change was part of the Budget Measures (Miscellaneous Fiscal Matters) Bill and was implemented to prevent 'reregistraton arbritrage' and close a loophole allowing forest owners to exit the NZ ETS and subsequently re-join.

Under the NZ ETS, post-1989 Forest Owners can voluntarily exit and de-register from the scheme. Upon de-registration the forest owner is required to repay to Government the equivalent number of units they have been issued. Prior to the recent law change the units acceptable included cheap Kyoto units such as Emission Reduction Units (ERUs) which have traded for as low as 17 cents in recent weeks. The new law prohibits these Kyoto units from being used.

The Law change has major consequences for post-1989 forest owners which are outlined below in a series of Q&As.