Spot NZUs fell 2.2% over the week to close Friday at NZ$6.75 ($4.37), its lowest levels since late June, as the bid side took a step back knowing emitters have no immediate need to buy.

The bid-offer spread was wider than for some time, with bids around NZ%6.60 and offers around NZ$7 for large parts of the week.

“Large sellers remain patient and as long as this remains the case, downside should be fairly limited. Further weakness in the New Zealand dollar only helps foresters and serves to limit selling pressure,” brokers OM Financial said.

Another week passed by without government clarification on the scope of the ETS review, meaning traders again had little incentive to take new positions.

But the scheme – long criticised for contributing little to emission reductions due to unlimited access to cheap Eastern European offsets – is likely to come under further scrutiny after a new report this week damned the Joint Implementation mechanism.

A study by the Stockholm Environment Institute concluded that around 75% of the offsets issued under JI may not have represented actual emission cuts and in some cases may even have contributed to emissions growth in Russia and Ukraine.

ERUs from those projects have accounted for the lion’s share of units used by NZ emitters for ETS compliance the past three years. For 2014, 74% of the units surrendered to the government were ERUs.

“The NZ ETS perversely became the world’s second largest hot air laundering pathway for Ukraine and Russian ERUs, while domestically it became a scheme which paid emitters for their pollution. The more they polluted the bigger the gain,” one observer told Carbon Pulse.

By Stian Reklev – stian@carbon-pulse.com

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