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Download Nigel Brunel - New Zealand Institute of Forestry
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An update on the New Zealand Carbon Market Presented by Nigel Brunel Director – Financial Markets Who is OMF? • Members of the NZX • An active carbon broker in New Zealand & Australia • Operates CommTrade - www.commtrade.co.nz • Trade Carbon – Power – Dairy – Global Derivatives • FX Delivery – Dealing for Importers/Exporters – Superior FX rates • Locally owned and operated Agenda • The latest………an update on “now” • Demand & supply to 2021 • Price history • Buyers & sellers thinking • Beyond 2021 • Forwards & Options ideas Carbon now The latest………… • NZUs now at $18 – doubled in 6 months • 1 for 2 to be phased out starting in January 2017 ending 2019 • The $25 CAP remains • The government wants 140mn stockpile down to 50mn by 2021 • Announcement about “ETS - Beyond 2020” soon Demand basis phase out of the 1 for 2 • 2016 – 20 MT • 2017 – 27 MT – an extra 600K per month on 2016 • 2018 – 33 MT – an extra 1 MT per month on 2016 • 2019 – 40 MT – an extra 1.6 MT per month on 2016 • 2020 – 40 MT – 3.3 MT per month average demand • That’s 160 MT of demand until 2021 Current supply until 2021 • Currently 140 MT – estimated made up of; • 20 MT held for future hedging • 40 MT held for forestry harvest • 80 MT held obligation-free • A further 60 MT added until 2021 through forestry and EITE • Total 200 MT less 160 MT demand leaving 40 MT carry over Price of NZUs – last two years www.commtrade.co.nz Price of NZUs – beginning of time What’s driving forest owners thinking? What’s driving emitters thinking? • Still mainly a procurement exercise • Fuel – low margin/high volume business – buy as needed • Power – small impact on electricity curve • Landfill – buy a year in advance • Other gasses - buy as importing The Net Present Value of the $25 CAP 2021 and beyond Beyond 2020 – Paris until 2030 Ministry of Environment Chart Beyond 2020 – Paris until 2030 • Forestry will only provide a partial solution • Auctioning will start at some point • International markets will restart post 2021 • International linkages will occur post 2021 Forwards & Options Selling Forward NZUs Basis spot at $18 at 5% 1 year – NZ$18.90 2 year – NZ$19.80 OMF is counterparty Lodge NZUs as security with OMF NZUs lodged in trust - remains client property Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance. Writing Call Options on NZUs $20 Strike – basis spot at $18.00 – indicative pricing 1 year – NZ$1.00 per tonne 2 year – NZ$1.60 per tonne Premium paid up front OMF is counterparty Lodge NZUs as security with OMF NZUs lodged in trust - remains client property Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance. Summary • • • • • • We don’t expect further Kyoto ETS changes Demand versus supply looks better balanced Auctioning and other post 2021 changes announced later this year Understand the NPV of the $25 CAP from an emitters perspective There is demand for forwards Options provide opportunities to exit at a premium Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance. Thank you – Questions?
