NZ carbon prices rise on strong demand at auction


NZ carbon prices rise on strong demand at auction


The New Zealand Government held on Wednesday its second carbon allowance auction for the year, auctioning 4.825 million tonnes of carbon credits on the NZX-EEX platform. Due to the strong demand, the prices went up to 76 New Zealand dollars per tonne, up from NZ$70 at the previous auction in March.

Bids outnumbered available units, excluding those in the cost containment reserve, by a factor of two. The 4.825 million units on offer, as well as the 1.3 million units in reserve, were all taken.

The quarterly auctions of the Emissions Trading Scheme (ETS) are the Government’s primary mechanism for meeting local and international climate change targets. Each unit enables the polluter to emit one tonne of carbon dioxide.

Under New Zealand’s carbon trading program, the government sells carbon allowances for a price, which is known as the primary market. These credits then change hands in the secondary market, in which entities can make transactions. Following the auction on Wednesday, prices in the secondary carbon market rose.

Nigel Brunel, Jarden’s head of commodities, remarked that the result is considerably better than their expectation, and the spot market is NZ$1.20 higher at NZ$77.20 a unit.

This year, there will be two more 4.8 million-unit auctions. However, there are no units left in reserve for this year after the auction, which might further push up the demand for carbon allowances. “I believe prices will rise,” Brunel added. “I don’t believe there is a lot of downside momentum.”

The country’s carbon allowances were initially issued by free allocation to emitters until auctions of units commenced in 2020, when the units were only NZ$25. After the government started to hold auctions, prices have then significantly risen.

Yet, high carbon prices have incentivized the planting of Pinus radiata in permanent plantations, which has caused worry in rural areas where productive pastoral land has been lost to trees.

According to research, a hectare of Pinus radiata can sequester 488 tonnes of carbon dioxide on average. In addition, it grows significantly faster in New Zealand, around seven times faster than in the United States and 20 times faster than in Canada. Pinus radiata is thus considered a key to New Zealand’s climate pledge and account for roughly 90% of the country’s planted forest. 

To strike a balance between indigenous plants and exotic ones, the government this year proposed measures to improve carbon farming management, which might exclude future permanent plantings of exotics like Pinus radiata from the ETS.

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