FOUR FAST FACTS ON: CARBON CREDITS FEBRUARY 2024
How are NZUs created and used?
What are carbon credits/NZUs?
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Carbon dioxide and other greenhouse gas (GHG) emissions, which occur both naturally and by individual, domestic, commercial and industrial activities, are a major contributor to climate change. The New Zealand Emissions Trading Scheme (NZ ETS) is the cornerstone of New Zealand’s climate change regulation created under the Climate Change Response Act. It is the primary regulatory mechanism for transitioning New Zealand to a lower-carbon economy.
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NZUs are supplied into the NZ ETS through free allocations granted to emissions-intensive, trade-exposed businesses, Crown auctioning, or by being awarded to participants who remove emissions from the atmosphere (mainly foresters). NZUs are traded amongst such parties, and can be bought and sold on secondary markets. NZUs are surrendered to the Crown by registered NZ ETS participants to account for their emissions in any given emissions return period.
New Zealand Units (or NZUs) are the primary units of trade in the NZ ETS. NZUs represent either one metric tonne of carbon dioxide, or the equivalent of any other GHG.
The Environmental Protection Agency manages a register of ‘holding accounts’ which records holdings of NZUs.
Taking security
Where to from here
As tradeable assets, it is possible to take security over NZUs, but there are some unique considerations:
With increased global focus on climate change and the factors and entities contributing to it, NZUs are becoming more and more prevalent in financial markets.
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To obtain the best level of protection under the Personal Property Securities Act, secured parties will need to place an ‘account lock’ on the relevant holding account. The owner of NZUs in a holding account that is subject to an account lock can’t transfer the NZUs out of that account without the secured party’s consent (or may transfer NZUs up to an agreed amount).
These requirements may not be commercially acceptable for some parties looking to grant security over NZUs.
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As their use and value rises, more credit providers will be looking to take security over NZUs. It is important to agree at the outset the level of control secured parties will have over holding accounts. For more information on how best to achieve this, please contact your usual Bell Gully Banking and Finance team adviser.
BANKING & FINANCE Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to its content.