Of the 30 plus Emissions Trading Schemes currently operating around the world, New Zealand’s ETS is leading the way with its close integration to the forestry sector. The NZ forestry estate is critical for New Zealand to meet its emissions targets, under the Kyoto Protocol.

While it’s still early days, two recent studies, the Greenhouse Gas Inventory Position Report and the Projected Net Position Report, both showed improvements to New Zealand’s ability to meet its Kyoto commitments.

"These reports show the ETS working effectively in the forestry sector with deforestation ending when the scheme took effect in 2008. New plantings of 1900 hectares were achieved in 2008, 4000 hectares in 2009, 6000 hectares in 2010, with projections of 8000 in 2011 and 10,000 in 2012," Climate Change Minister Nick Smith recently.

"The future challenge is to increase economic growth while continuing this positive reduction in emissions. It is encouraging that in the first two years of the ETS, the emissions efficiency of the economy is being improved”, Dr Smith said.

Without emission reductions, climate change could contribute as much as 10% to investment portfolio risk over the next 20 years. Mercer’s report, Climate Change Scenarios – Implications for Strategic Asset Allocation, has identified key climate change risks to business and has suggested that investors would benefit from increased allocation to areas like infrastructure, agriculture land, timberland and sustainable assets.

New Zealand’s ETS, which sets a carbon price based on supply and demand of carbon credits, is an important market mechanism in providing real incentives for businesses to reduce their carbon emissions.

Nigel Brunel, Head of Carbon and Energy Futures at OMFinancial recently commented that economic incentives are the best way to encourage behavioural change and that the ETS gives us an opportunity to create a system that fosters low-carbon development while protecting trade-exposed industries.

While Australia is still debating how they will bring in their version of an Emissions Trading Scheme, New Zealand is not going it alone. Henry Derwent, CEO of the International Emissions Trading Association based in Geneva, said, “It seems pretty plain now that a single global climate and pricing system is not going to be imposed by the UN. That means the way forward lies in individual regional, national and state systems over the world reaching out to each other over time.”

Climate Change Minister Nick Smith, Henry Derwent from the International Emissions Trading Association and OMFinancial’s Nigel Brunel will all be presenting at Carbon Forestry 2011. Being held in Auckland on the 13-14 July, this conference will provide New Zealand’s first major forum on carbon forestry for forestry and landowners, financial institutions, investment advisers, prospective purchasers of carbon credits and investors to meet. Information about this event can be found on www.carbonforestryevents.com.

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