Spot NZUs gained another 5.6% this week, closing Friday at NZ$9.40 ($6.33) as sellers eyed double-digit prices for the first time in over four years.

Buoyed by the successful outcome of the Paris climate talks, the NZUs opened the week at NZ$9.25 – 35 NZ cents above last Friday’s close – and remained firm throughout the week despite modest volumes changing hands.

By Friday closing time, the best offer listed on CommTrade was NZ$10, a level not seen in the market since Dec. 6, 2011.

“The price is up because there are still buyers but almost nobody selling. And those who are, are asking way above market and holding their ground,” one market participant said.

The market remains bullish in regards to the outcome of the ETS review, and brokers OM Financial said in an emailed note to clients on Thursday that “it’s becoming abundantly clear there are not enough NZUs to satisfy demand between here and the end of 2020”.

“The 2 for 1 will go at some point, most likely phased out over three years or so. That would allow an orderly adjustment by emitters and most likely a price rise that is not too severe. There is liquidity in this market – prices just have to move higher to find it,” it said.

In the ETS review paper released last month, the government estimated the market would be saddled by a surplus of 100 million NZUs in 2020 if the market continues with current settings, but that this could be reduced to 45 million if the 2-for-1 rule is abolished.

Much of the surplus is held by forest-owners who prefer to hold on to them as they wait for higher prices, or who will need them when they harvest their forests in the future, and so won’t easily be available for buyers in the market.

By Stian Reklev – stian@carbon-pulse.com

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