Currently the price of international Kyoto units (called ERUs) are worth substantially less than NZUs, with ERUs priced at $0.34 compared to NZUs at $4 (pricing as at 17/10/2013). Under current ETS rules these ERUs are acceptable replacement units for forest owners wishing to withdraw from the ETS (or deforest Pre 1990 forest land).

Why Exit?

As a participant in the ETS and claiming NZU for growth from 1 January 2008, there is an on-going liability to surrender units when the trees are harvested. For forests planted before 1998 that amounts to the same volume of units earned – where there is no ‘safe’ carbon. Given it’s impossible to predict the carbon price in 10-15 years’ time this liability is difficult to quantify. Combined with the relative low price of NZUs (compared to the highs back in 2008-10) makes it unattractive to sell any NZUs for cash flow, risking having to surrender an NZU worth $10, $20 or more at harvest; thus totally defeating the purpose of being in the ETS. For some Post 1989 forest owners harvesting is also fast approaching given the relatively good log prices and trees as young as 19-20 years being harvested in some areas.

Benefits of Exiting

Essentially the current rules give forest owners the opportunity to remove the future harvesting liability by exiting the ETS at minimal administration costs and surrendering the cheap ERUs to zero your emissions account. NZUs can either be retained awaiting the inevitable lift in value or pocket the difference between the NZU and the ERU price now (currently $3.66 at 17/10/2013 pricing). For those of you who sold NZUs above current price this opportunity provides for a significant windfall.

Why Exit Now and Not Wait Until Harvest?

Current ETS rules and ERU pricing give rise to this opportunity now. However, as we have seen in the past, rules change, and from May 2015 New Zealand will lose access to these International ERUs; and it may be closed off sooner. Also, the price of the ERU may increase. Obtaining ERUs now eliminates the risk.

What Happens After I Exit

Once exited from the scheme you are free to harvest and replant – or not – as and when you want, with no carbon liability. Its worthy to note that foresters can also re-join the scheme at any time in the future with their Post 1989 forest; having previous cancelled liabilities and therefore eligible to earn NZUs going forward.

Practical Example

Mr and Mrs Jones have 24.6 hectares registered in the ETS. The trees are radiata pine planted in 1991 and 1992 so the forest contains no safe carbon and no credits have been sold to date. For the 2008-2012 period the forest earned 4,396 NZUs and they have these units in their NZEUR account and will receive another 817 NZUs early 2014 for the 2013 year via way of a voluntary emissions return for a total of 5,213 NZUs. Given its only two months to the end of the year it makes sense to stay in the ETS under early next year and receive the 2013 worth of credits. If you exiting before the end of the year you are not entitled to receive them.

Mr and Mrs Jones decide they will exit the ETS early 2014 (surrendering ERUs) once they have claimed the 2013 NZUs. However given the current low ERU price the Jones’s decide to purchase the total replacement liability now (including the 2013 year) in ERUs being 5,213 units for $1,772.42 (@ $0.34) to wipe the future harvest liability. The Jones’s have three options when doing this, either:

  1. Cash in the 2008-12 NZU entitlement of 4,396 units, purchase 5,213 ERUs and pocket the difference – $15.811.76.
  2. Sell only enough NZUs to cover the ERU purchase – 444 NZUs, or
  3. Purchase the ERUs upfront holding onto the NZUs and waiting until receiving the 2013 year entitlement and then look to sell all 5,213 NZUs at once at a price, at (or hopefully above) $4 per NZU.

Using option 1. and given total ETS administration costs to enter the ETS, complete the emissions returns, carbon trading and de-register, of approximately $3,500 that results in a profit of over $12,000. Plus the 2013 NZU entitlement can still be sold once received, for another $3,000 + (@ $4 per unit).


Figure One: Example of Using ERUs to Exit the ETS


The trees can now be harvested, even converted to pasture, with no liability. At any time the Jones’s could re-join the ETS either with the current crop, or in the future the next rotation. If they re-joined before the end of 2017 they would be eligible to claim the NZUs entitlement back to 2013.

If you would like further information on how to exit the ETS and zero your harvest liability please contact Sarah Pitcher-Campbell via email: or phone: 0274, 468 946.