The New Zealand Climate Change Minister, Paula Bennett, is currently taking advice on how to deal with a surplus of Kyoto credits held by the New Zealand Government. On national television this week, the Minister said that while it is not her current focus, she has not ruled out cancelling the estimated 122 million tons of international Kyoto units still held by New Zealand.

The Minister’s statement comes in the wake of a recent report, which criticizes the use of international credits stemming from the Kyoto flexible mechanisms in the New Zealand ETS (NZ ETS). Up until mid-2015, when the Kyoto units were banned from the NZ ETS, companies could use an unlimited amount of international credits to comply with their obligations under the NZ system. The bulk of international credits surrendered were Emissions Reductions Units (ERUs) sourced from Joint Implementation projects in the former Soviet bloc, where industrial collapse and assisted closures of plants arguably resulted in a large numbers of credits with limited climate change mitigation value. The NZ government has already surrendered 373 million ERUs to meet its targets as part of the Kyoto Protocol’s first compliance period (2008-2012). However, the report estimates that, together with the current stock of New Zealand Units (NZUs), there are still enough credits available to meet New Zealand’s 2020 obligations, with more than 90 million units left over to be counted towards New Zealand’s 2030 target.

Since international credits were excluded from the NZ ETS last May, the carbon market has seen robust price growth (currently around USD 10). The increase may also reflect expectations by market participants for a more stringent ETS policy framework later this year, after the current formal review of the NZ ETS has been completed. The Environment Minister has already signaled that transitional measures will be phased out in the review; particularly the ‘one-for-two’ measure that currently gives companies a 50% discount on their surrender obligations.