Govt bans suspect carbon units

The Government has moved to ban environmentally suspect carbon credits from the New Zealand emissions trading scheme.

As it foreshadowed in September's release of the Caygill review of the ETS, it has banned certified emission reduction units (CERs) generated by projects which destroy two industrial gases - hydrofluorocarbon-23 and nitrous oxide.

CERs are generated by projects in developing countries which cut emissions and have been approved by a United Nations agency.

The idea is that the atmosphere does not care where or how emissions are reduced. If it is cheaper for emitters in New Zealand, say, to fund via the CER market emissions reductions elsewhere more cheaply than they can reduce their own, that is fine.

But for HFC-23 the value of the CERs greatly exceeds the cost of producing the gas, leading to the accusation that countries, especially China, have been ramping up production of the gas to profit from then destroying it.

The Ministry for the Environment said such projects were estimated to account for two-thirds of the CERs issued so far.

The European Union will ban them from its ETS from 2013, and Australia from the scheme it will set up by 2015.

Climate Change Minister Nick Smith said it was important New Zealand did the same lest it become a dumping ground for units of questionable environmental benefit.

The change is not retrospective. Any units bought by New Zealand companies on forward contracts would be exempt until June 2103, provided the contracts were made before today.

Forest owners, who have seen the domestic price of carbon almost halve over the past year, have called for the change. But Business New Zealand is critical of the decision.

"Kiwi businesses will be forced to buy higher priced units, resulting in increased costs for both business and households at a time when they can least afford it," chief executive Phil O'Reilly said.

"Trade-exposed businesses, already at a disadvantage because their competitors do not face a similar price on carbon, will potentially have their international competitiveness further undermined."