Carbon Farming/Trading
Tukia Group, in partnership with CO2 Australia and Carbon Energy Partners, have founded CO2 New Zealand in order to develop New Zealand’s premier carbon farming and reforestation company.
This partnership approach is consistent with Tukia’s philosophy to partner with complementary organisations that have skills and experience not possessed by Tukia and its shareholders. In the case of CO2 New Zealand, the technical and international carbon markets experience of CO2 Group, coupled with the trading and local market experience of Carbon & Energy Partners, complement the strategic, risk management and landowner engagement skills of Tukia perfectly.
Core concepts
A number of key principles underpin Tukia’s carbon strategy via its CO2 New Zealand vehicle. The dynamics of the New Zealand carbon market are such that we believe CO2 NZ is the only carbon business set up to succeed in this space.
1. The monetization of carbon from forests is a complex, evidence-based job
For a traditional business like forestry, the evidence of performance can be assessed without debate at a weighbridge.
Within carbon markets, like other compliance markets, the evidence of performance is largely paper based. That is, it is based upon carbon inventory models and systems, independent carbon audits and strong science that underpins the wider carbon market (not unlike the the FSC approval process in forestry or the ISO 9000 framework in other industries). A failure to demonstrate compliance with detailed carbon rules will completely undermine the value of any carbon units created.
Carbon forestry requires a unique management, technical and commercial approach that is generally not well developed in traditional forestry managers, who are typically more strongly focused on wood production rather than optimisation of carbon outcomes. They keys to compliance success are quality data administration, measurement models and verification systems.
2. The Crown is a key player, and the ultimate arbiter of value
The carbon market is somewhat unique in that it serves two masters – the traditional customer and the Governments that have set the international rules for compliance.
A failure to understand, manage and optimise both constituencies will lead to a considerable leakage of value and in some cases the destruction of all value. It is Governments that monitor compliance and determine performance of carbon forests, and Governments that set the carbon prices.
3. The key buyers of NZUs are large, hugely sophisticated companies
- Buyers are seeking large-scale, long-term deals that hedge against carbon price volatility.
- They demand credibility and track record at the supply/sink development end of the value chain.
- They demand credibility and track record at the carbon liability end of the value chain.
- They require suppliers to be fluent in their financial, risk management and commodity market language.
The three concepts we have canvassed so far mean that a successful carbon player must have integrated expertise across the value chain. We believe no other player in the New Zealand market has that integrated expertise, and it was in order to attain it that we sought out partners to form CO2 New Zealand.
The unique competitive position of CO2 New Zealand as the only fully integrated player in the New Zealand carbon market is illustrated by the following diagram:
