1. An update on the New Zealand Carbon Market
Presented by Nigel Brunel
Director – Financial Markets

2. Who is OMF? Members of the NZX
An active carbon broker in New Zealand & Australia
Operates CommTrade -
Trade Carbon – Power – Dairy – Global Derivatives
FX Delivery – Dealing for Importers/Exporters – Superior FX rates
Locally owned and operated

3. Agenda The latest………an update on “now” Demand & supply to 2021
Price history
Buyers & sellers thinking
Beyond 2021
Forwards & Options ideas

4. Carbon now

5. The latest………… NZUs now at $18 – doubled in 6 months
1 for 2 to be phased out starting in January 2017 ending 2019
The $25 CAP remains
The government wants 140mn stockpile down to 50mn by 2021
Announcement about “ETS - Beyond 2020” soon

6. Demand basis phase out of the 1 for 2
2016 – 20 MT
2017 – 27 MT – an extra 600K per month on 2016
2018 – 33 MT – an extra 1 MT per month on 2016
2019 – 40 MT – an extra 1.6 MT per month on 2016
2020 – 40 MT – 3.3 MT per month average demand
That’s 160 MT of demand until 2021

7. Current supply until 2021 Currently 140 MT – estimated made up of;
20 MT held for future hedging
40 MT held for forestry harvest
80 MT held obligation-free
A further 60 MT added until 2021 through forestry and EITE
Total 200 MT less 160 MT demand leaving 40 MT carry over

8. Price of NZUs – last two years

9. Price of NZUs – beginning of time

10. What’s driving forest owners thinking?

11. What’s driving emitters thinking?
Still mainly a procurement exercise
Fuel – low margin/high volume business – buy as needed
Power – small impact on electricity curve
Landfill – buy a year in advance
Other gasses - buy as importing

12. The Net Present Value of the $25 CAP

13. 2021 and beyond

14. Beyond 2020 – Paris until 2030
Ministry of Environment Chart

15. Beyond 2020 – Paris until 2030
Forestry will only provide a partial solution
Auctioning will start at some point
International markets will restart post 2021
International linkages will occur post 2021

16. Forwards & Options

17. Selling Forward NZUs
Basis spot at $18 at 5% 1 year – NZ$ year – NZ$19.80 OMF is counterparty Lodge NZUs as security with OMF NZUs lodged in trust - remains client property
Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance.

18. Writing Call Options on NZUs
$20 Strike – basis spot at $18.00 – indicative pricing 1 year – NZ$1.00 per tonne 2 year – NZ$1.60 per tonne Premium paid up front OMF is counterparty Lodge NZUs as security with OMF NZUs lodged in trust - remains client property
Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance.

19. Summary We don’t expect further Kyoto ETS changes
Demand versus supply looks better balanced
Auctioning and other post 2021 changes announced later this year
Understand the NPV of the $25 CAP from an emitters perspective
There is demand for forwards
Options provide opportunities to exit at a premium
Disclaimer: Investment in derivatives or leveraged financial products involves significant risk and is not suitable for all investors. Past performance of financial products is no assurance of future performance.

20. Thank you – Questions?

21. Let’s get underway with a little background…