NZ carbon prices have weakened so far this year, against the international trend. Photo / File
NZ carbon prices have weakened so far this year, against the international trend. Photo / File
The Government’s first carbon auction for 2023 was “declined” for the first time since its inception in 2021 because bids for the available units were not high enough.
In a short statement, the Emissions Trade Scheme’s (ETS) auction operator said: “March 2023 auction has been declined because the clearing pricedid not meet the minimum price settings. As a result, there are no winning bids”.
The operator said all available units will be rolled over to the next auction, which run quarterly.
The unsuccessful auction has been linked to the Government’s announcement last year of auction volumes and price control settings that differed from those recommended by the Climate Change Commission (CCC), which has had the effect of depressing spot prices.
It means that those carbon emitters seeking units to offset their emissions will have to go to the secondary market, where there has already been an upward blip of NZ Unit (NZU) prices.
Under the ETS, businesses emitting carbon must surrender an emissions unit for every tonne of pollution they emit.
New Zealand participants purchase units through government auctions or on the secondary market.
The Climate Change Commission’s recommendation that 24.4 million NZ carbon units (NZU) be offered for auction next year was not accepted, with the Government instead approving the auction of 25.9 million units.
Cabinet also approved a trigger price for the cost containment reserve - a mechanism aimed at releasing more units - of about $80 a tonne instead of the commission’s proposal to set the initial trigger price at $171 a tonne.
Effectively, the decision increased the supply of NZUs - equivalent to a tonne of carbon in the NZ emissions trading scheme (ETS) - between 2023 and 2027, and made higher prices less likely.
New Zealand Carbon Farming sells forestry-based carbon credits. Photo / Stephen Russell
Salt Funds managing director Paul Harrison said all bids needed to clear at above the reserve price for the auction to be successful.
“It’s a quirk in the way that the thing has been set up, but it means that anybody who thought they were going to get units in the auction today have not got them, so if you are a big emitter, you need to secure units for the 2022 year.
“It appears that there are emitters that needed to buy NZUs in reasonable volume, so they are now coming into the secondary market,” Harrison said.
“This is the first time that we have had this, so this is probably a learning process for people.”
Harrison and others put the unsuccessful auction down to the Government’s decision last year to ignore the recommendations of the CCC.
Carbon prices have trended down this quarter after spending the final months of 2022 close to $90 per unit, contrary to the trend in offshore markets.
In Europe, carbon prices last month cracked €100 a tonne for the first time and have rallied by 19 per cent so far this year.
“There is no shortage of demand for carbon units in the world, but we have tinkered with ours a little, which has turned the market off a bit,” Harrison said.
New Zealand carbon prices have trended down this quarter after spending the final months of 2022 close to $90 per unit, contrary to the trend in offshore markets.
