NZ Market: NZU price dives as govt yet to make a decision on ETS price settings

Published 08:56 on December 2, 2022  /  Last updated at 08:56 on December 2, 2022  /  Asia Pacific, New Zealand  /  No Comments

The price for New Zealand carbon allowances closed lower on Friday, with the government yet having to announce which price settings it will adopt for the emissions trading scheme next year.

The price for New Zealand carbon allowances closed lower on Friday, with the government yet having to announce which price settings it will adopt for the emissions trading scheme next year.

Spot NZUs finished trading on CommTrade at NZ$81 ($51.90), falling 6.7% or NZ$5.20 compared to a week ago, and follows the all-time high price of NZ$88.50 it reached on Nov. 14.

Earlier this week in a note, brokers Jarden said the price correction was not surprising, and that “some have chosen to take profit”.

It also noted that “there seems to be a little bit of exasperation, waiting for the government to decide about the Climate Change Commission’s recommendations, especially as we head into the last auction of the year”.

Jarden noted that collateral of next week’s auction closed Wednesday, meaning most have calculated what they will pay based on the price earlier this week, which sat at NZ$86.20.

The final ETS auction for the year will be held on Dec. 7.

New Zealand’s parliament rises in mid-December, meaning that the government will make the announcement on the ETS settings “very soon”, Jarden wrote.

While the government has yet to announce the ETS settings, on Wednesday it unveiled plans that it would bring all “scientifically robust” forms of carbon sequestration, including native forests, into the ETS from 2025.

The backflip came after agricultural industry groups railed against the government’s split-gas farm level GHG pricing policy, arguing it would make their businesses unviable.

The announcement was welcomed Thursday by primary industry lobby group Beef + Lamb NZ Chairman Andrew Morrison, who said the government had listened to sheep and beef farmers.

“While there are details to work through, we understand there is a willingness to work on the basis of what was originally proposed by the agriculture sector on sequestration while the ETS expanded and improved, which we welcome,” he said.

One policy expert has noted however that the move could either be good or “absolutely dreadful”, and urged the government to provide more detail on its proposal.

Elsewhere, the country’s EPA released its supply projections for 2022-26.

The data showed that the forecast NZU stockpile is expected to fall, but at a lower rate than previously predicted.

The stockpile is expected to peak at 160.7 mln NZUs in 2022 in the latest forecast, compared to the previous forecast of 141.9 mln units, likely as a result of the flood of new entrants in the market thanks to high prices.

Significant falls in the stockpile are now not expected to come until 2025, where it will fall to 135 mln units from 148 mln in 2024.

The previous forecast expected the stockpile to reach 119.7 mln NZUs in 2025, however the updated predictions now see the historical NZU surplus falling to roughly that level only in 2026, when it’s expected to reach 122.7 mln units.

Forecast NZU demand is expected to be slightly higher than what was previously predicted, with demand anticipated to peak in 2025 at 49.4 mln NZUs.

In 2026 demand is expected to fall slightly to 47.5 mln units.

By Mark Tilly – mark@carbon-pulse.com