Thursday, March 28, 2024

Carbon auction primed by post-$50 surge

Avatar photo
Expectations among carbon traders are that New Zealand’s carbon unit prices will continue to push upwards in next week’s auction, having already cut through the $50 mark. Latest carbon trading data has the price at $50.45, with forward contract prices into April set at $51.40, and over $56 by 2025.
Reading Time: 3 minutes

Expectations among carbon traders are that New Zealand’s carbon unit prices will continue to push upwards in next week’s auction, having already cut through the $50 mark.

Latest carbon trading data has the price at $50.45, with forward contract prices into April set at $51.40, and over $56 by 2025. 

Carbon Match director Lizzie Chambers says with the trades now firmly in the $50 territory, interest is strong in the next carbon unit auction with the Government moving early on a previously signalled decision to lift the upper carbon price from $50 to $70, effective next year. 

The move comes after recommendations from the Climate Change Commission to shrink the bulk offerings of carbon units available for purchase, pushing up the price and prompting emitters to switch to lower or zero-emitting options, effectively vacating the market. 

The commission recommended the price then increase every year by 10% plus inflation.

“We cannot be sure it will go to $70 at auction yet, but we can be sure this auction will be one that pushes the cost containment reserve (CCR),” Chambers said.

The CCR is the reserve of NZ carbon units available for sale when a trigger price is reached at the auction.

Carbon prices have been on a steady upward march for a year now, sitting at only $31.30 12 months ago.

Should demand outstrip the 4.75m units on offer next week, more units will be released from the CCR.

But Chambers raised concerns about the Government’s plans around carbon market governance. This includes limiting the number of units traders could buy and limiting what institutions could buy, with units limited largely to emitters only.

“But this will have an impact on the market’s flexibility and ability of institutions to offer smaller emitters smaller packets of carbon credits,” she said.

She says at the last auction in June there were 4.75m units offered, and half were bid for by one party.

“There was quite a lot of interest in that auction and quite a lot of interest from non-emitting interests, the Government would call that speculative,” she said.

But removing the ability of institutions to buy large amounts to dispense among smaller emitters did little to improve market flexibility and would only stifle trading.

“It may reduce the options for the agricultural sector to secure units to offset emissions. For example, those wanting to lock in their carbon price now for the next few years. Right now, they could, but if they were limited it will become a much more hand to mouth market,” she said.

She says consultation was still open on this aspect of carbon trading until mid-September.

Forest Management Group director David Janett says there appeared to be a focus by the Government on tightening up the entire carbon market trading system.

“There is a sense everyone is just piling into this market, it is a compliance and monitoring thing,” Janett said.

This includes the possibility of having a single, unified carbon market trading base in NZ. At present, three identities are trading in carbon, including Chambers’ Carbon Match platform.

She says the single platform idea appeared to be born out of a desire to prevent any risk of non-payment or reneging.

“But in the past 11 years, with thousands of carbon trades, we have never had anyone not pay. There are multiple layers of checks and safeguards built in and it’s not necessary to centralise trade to avoid this,” she said.

Janett expected that if the restrictions on volumes and outlets did come into play, they may dampen the rise in carbon prices, rather than depress the price.

He says this could also play into the viability of carbon forestry, an area also under investigation by Forestry Minister Stuart Nash, amid concerns about growth in this forest type.

Total
0
Shares
People are also reading