In the past 12 months New Zealand Units (NZU), the tradable carbon emission denomination, have almost doubled in value from their pre-lockdown low of $22.10 to current market price of $37.02 a unit.
In the past week prices have eased back slightly from a high point that briefly touched $40 a unit.
But Jarden institutional commodities trading director Nigel Brunel says he anticipates prices continuing to press upwards after this pause.
He points to an OECD report that identifies how member countries’ carbon pricing reflects their ability to capture carbon losses from energy production over different carbon unit prices.
The report ranks countries based on 2018 data and shows Switzerland, Luxembourg and Norway were the top achievers, scoring a carbon pricing score (CPS) of 70% at a “lower end” unit pricing of €60 (about $101).
Typically, the greater a country’s progress towards an emissions benchmark, the higher its CPS.
NZ’s score was 33%, ranking 26th out of 44 between Canada at 34% and Sweden at 32%.
“This suggests we have further to go, and the European units are valued at €42.5 ($71.5) a unit. Admittedly their ETS is not our ETS, but they are both trying to achieve the same thing, which suggests some upside for NZ,” Brunel said.
He says the next major piece of news likely to affect the market is the release of the final Climate Change Commission’s (CCC) report later this year.
Forward contracts support Brunel’s prediction, with April 2026 bids lodged on CommTrade at $42.30 a unit.
Carbon Match director Lizzie Chambers says the greatest clue for where prices may head lies in the CCC’s recommendation that the price cap on the emissions trading scheme be lifted to $70 “as soon as practical”, and adjusted annually until it gets to $140 by 2030.
“This would only be positive to prices. And carbon prices do have to go up anyway, for us to even remotely hit our goals,” Chambers said.
Forest Management Group director David Janett says some farmers have already taken the plunge into the carbon market, optimistic about what future returns will be.
“We have farms in north Canterbury who took up the One Billion Trees grants, anywhere from $500,000-$1 million a farm, to plant trees that will deliver forest and carbon returns to them,” Janett said.
Pressure on land prices has made purchasing land solely for carbon returns less than economic in most areas.
“Once it is over $9000 a hectare it does not work and requires carbon prices at $70-$100 a unit. Farmers are in the box seat now, they already own the land and carbon credits can be claimed from year one,” he said.
Those credits ramp up rapidly beyond year four, bringing in about $230/ha at a carbon value of $35 a unit after costs and pre-tax. They surge to a peak of $1556/ha by year nine, and hold at that until year 16.
At an average land value of $10,000/ha a farmer could expect a 6.9% return per hectare, allowing for carbon and timber values on harvesting at year 28.
“This allows farmers to deal with the ‘problem child’ of land area on their farm, taking the income to invest on the better parts of the farm that do make money from livestock,” Janett said.
“There are people enjoying these carbon prices already. The comment we get the most is ‘this is too good to be true’, or ‘what is the catch?’”
He acknowledges like any business decision there is a downside risk that carbon prices will fall.
“But even between $25-$50 a unit, returns are pretty good. But if we are going to take the Climate Commission seriously, we will see carbon in 10-15 years in the $150 a unit mark,” he said.
He says farmers can capitalise on what he describes as a massive wealth transfer from urban NZ where carbon is generated, to rural NZ where it can be sequestered in trees.
