Only in December the price had been sitting at €30. The surge comes as estimates are that carbon prices will need to reach $200/t (€117) to have the desired effect of achieving tough European targets of 55% carbon reductions by 2030.
In the meantime, NZ’s carbon market has enjoyed a run of its own, coming off a peak of $39.20 last month to its latest spot price of $36.55.
The surge in EU prices has been partially attributed to speculative investment, but has also been welcomed by environmental groups as hastening the development of genuinely cleaner technology as a result.
Jarden director of institutional commodities Nigel Brunel says the United Kingdom, now decoupled from the EU, is also experiencing a surge in carbon values.
The UK had its first post-Brexit carbon market auction on May 19, exceeding £50/t ($98), making the cost of polluting there even greater than in the EU.
“Some of this is speculative, but there is also a view that carbon prices need to be higher to achieve the emissions reductions being sought,” Brunel said.
If $200 a unit is a benchmark for tipping into new technologies, the upside from the present $84 value is significant.
But Brunel pointed out that not all carbon markets around the world are as high as the UK and EU.
Californian carbon units are priced at US$17/t, and Australia’s units at AU$23.
“If you look at NZ and Australia, they do look too cheap,” he said.
NZ’s price has been partly held back by last year’s emissions being at $35 a unit and emitters holding onto units.
He says while there may be an element of speculative purchasing by non-emitters on the NZ market, it was likely to be well under 50% of trade.
“We have the NZX exchange traded fund the CO2 Carbon Fund as an example,” he said.
The CO2 fund is trading at $1.33 a unit, up from 90c a unit pre-lockdown.
NZ has had its first government-sponsored carbon trading auction in March, with the next one scheduled for June 23. The last one cleared $2 a unit below the market price, but Brunel was uncertain how the next would shape up.
Beyond Carbon director Lizzie Chambers says call options to buy units by year’s end at €100 suggested investors could see significantly more upside in that market.
“There are some big targets being set and big reforms occurring in that market to drive it,” Chambers said.
She says changes next year to NZ’s unit auction prices where the floor price and trigger prices were lifted from $20 to $30/unit and $50 to $70/unit respectively, would only raise the corridor that NZ unit prices would move into over time.
The EU is also considering a carbon border tax to ensure imported goods from countries without an equivalent carbon price would not put EU manufacturers at a disadvantage.
Brunel says under Article 6 of the Paris Accord there were plans to link individual carbon markets globally, which would result in prices converging, but this was still several years away at best.
Forest Owners Association president Phil Taylor says an overhang of NZ units in the national register will mitigate some of the likely price increases.
“But if you look at most established cap and trade schemes, such as the EU, you would expect NZ to move in the same direction. The difference will only be when, and how quickly,” he said.
He says the prospects for farmers wanting to participate in the carbon market are highly positive, with integrated farm-forestry looking like an appealing option.
“If you look back at the integrated farm-forestry work done back in the late-80s on South Otago drystock farms, those farms are now among the most profitable sheep and beef units in the country, and that was done before carbon was an income factor,” he said.
