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Frequently Asked Questions- answers to some common queries
We need policy and/or legal advice. Can you help us?NZCX's role is as a broker and so we are not in a position to provide policy advice. If you are a corporate and need help in this areas, please contact our affiliates:
For questions on Forestry policy the Ministry of Agriculture and Forestry have set up a help line 0800 CLIMATE (254 628)
What is the Kyoto Protocol?In December 1997 in Kyoto, Japan, New Zealand and other countries signed an international agreement to reduce emissions of greenhouse gases. This has become known as the Kyoto Protocol. Under the Protocol, each signatory country has confirmed its commitment to reduce national emissions to a quantified level. Corresponding emission units will be received by each country. New Zealand has agreed to a target in the first commitment period of 2008-2012 to reduce emissions to levels recorded in 1990. The Protocol gives each government a degree of flexibility on how to ensure that emissions do not exceed its country’s total emission units. The Protocol also allows for domestic and international trading of emission units.
What is the time frame for Kyoto?
What are Kyoto mechanisms to reduce emissions?
How does emissions trading work?Emissions trading (or cap and trade) is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. In such a plan, a central authority (usually a government agency) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups that emit the pollutant are allocated (gratis or auctioned) credits or allowances, which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that pollute beyond their allowances must buy credits from those who pollute less than their allowances. This transfer is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. The more firms that need to buy credits, the higher the price of credits becomes – which makes reducing emissions cost-effective in comparison. The overall goal of an emissions trading scheme is to reduce pollution. In some cases, the cap may be lowered over time. In other systems a portion of all traded credits must be retired, causing a net reduction in emissions each time a trade occurs. In many cap and trade systems, organisations that do not pollute may also buy credits. Environmental groups that purchase and retire pollution credits reduce emissions and raise the price of the remaining credits as per the law of demand. Because emissions trading uses free markets to determine how to deal with the problem of pollution, it is often touted as an example of effective free market environmentalism. While the cap is usually set by a political process, individual companies are free to choose how or if they will reduce their emissions. Moreover, the government does not need to regulate how much each individual company emits, making cap and trade a very cost-effective method of controlling pollution on a large scale.
What is the role of a broker?A broker facilitates trades between buyers and sellers. A broker does not own the allowance being traded but brings together buyers and sellers providing independent transaction services. What’s the role of a broker compared to an exchange?Brokers and exchanges play a complementary role especially as markets evolve, with brokers providing transaction services for non-standardised contracts, such as project CERs and ERUs. As these markets and products become more liquid and standardised, then an exchange can provide an independent mechanism to facilitate trading and settlement of standardised contracts, with the broker providing transaction advice and trade execution services. What fees do I pay to a broker?A broker is traditionally paid a transaction fee based on the number or value of the contract traded. Within the emission markets a broker will usually receive a fee from the buyer and the seller with the timing of these payments split between transaction date and settlement date.
What verification requirements do I require?This depends on whether transacting Kyoto or non-Kyoto compliant contracts. Kyoto compliant contracts for CERs and ERUs will have a project design document (PDD) that outlines the emission reduction/capture process along with the verification requirements that will comply with UNFCCC verification requirements. Non-Kyoto compliant contracts may deal with units verified under various voluntary standards (the Voluntary Carbon Standard being one of the most robust and well-recognised internationally). How do I check additionality for voluntary market trades?There are voluntary market standards that are being developed by industry bodies, that outline the varying degrees of economic and environmental additionality requirements. What is the minimum size of parcel that I can trade?There is no minimum as NZCX can aggregate allowances and trade in packages. The bigger the package of allowances, the greater the interest from buyers and sellers due to reduced transaction costs per single allowance.
What is the relevant period for trading?The first Kyoto commitment period (CP1) is 2008 to 2012 for Kyoto compliant allowances, whilst Phase 1 of the EU ETS is 2005 to 2008 and, along with a number of voluntary trades, there are transactions under way now. How do I know if my project qualifies?Within New Zealand, Projects to Reduce Emissions approved allowances are Kyoto Compliant under the JI mechanism, and can be traded with Kyoto and non-Kyoto compliant buyers. However there are a number of projects that can be monetised that are non-Kyoto compliant and subject to additionality requirements. Why would I use you rather than trade myself?NZCX principals have expertise in emission trading markets and will negotiate to get the best deal available. We have the ability, through our CantorCO2e partnership and network, to access international buyers and sellers with over 70 brokers and advisers operating around the world specialising in emissions transaction services.
Are there alternative broking services in New Zealand?We understand there are some other organisations providing transaction services. However we believe the expertise and reputation of the NZCX principals is un-paralleled in New Zealand. This is complemented by our partnership with CantorCO2e, the world’s pre-eminent emissions broker. We are based in Australia. Can we use you?NZCX principals and CantorCO2e are already working with Australian companies that have operations in Kyoto compliant countries and we are assisting with their trading strategies. We are also working with Australian-based companies that wish to prepare for an emissions trading world, or have voluntary allowances to trade. |
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