New Zealand’s first carbon auction of 2025 unlikely to clear amid competitive spot prices

New Zealand's first quarterly carbon allowance auction of 2025, scheduled for March 19, is expected to fail amid low spot prices in the secondary market and weak demand, market participants said.

The auction for carbon units under country's Emissions Trading Scheme will offer 1.5 million New Zealand Units at a floor price -- the minimum price at which NZUs can be sold in the auction -- of NZ$68/mtCO2e. An NZU represents one metric ton of carbon dioxide, or the equivalent of any other greenhouse gas, from industries covered by the New Zealand ETS.

Platts, part of S&P Global Commodity Insights, assessed NZUs at a three-month low of NZ$60.25/mtCO2e ($34.64/mtCO2e) on March 17, down by NZ$1.25 day over day. Platts NZU prices were last assessed lower at NZ$60/mtCO2e on Dec. 12, 2024.

Slow, rangebound market

Following the partial clearance of the final quarterly carbon allowance auction of 2024 on Dec. 4, the market has been subdued.

"NZUs have been very, very quiet for the past few months. There's minimal volatility, and prices are rangebound between NZ$60-64/mtCO2e. The upcoming auction has also contributed to slower market activity," a New Zealand based trader said.

"We were expecting it [NZUs market] to grind a little and pick up, but it's just really slow at the moment. It's not clear what direction it will take and how the demand will pick up amid the oversupply concerns. This market needs much more clarity to regain its confidence," the trader added.

Since the Dec. 4 auction, Platts NZU prices have slipped 5% and were assessed outside the NZ$60-64/mtCO2e range on only six days.

"I suspect this decline reflects the increased supply of units being issued via Forest-based Emissions returns. Farmers are generally keen on receiving the cash as soon as possible and NZ$60 is still a great price," a New-Zealand based forester and developer said, commenting on the decline in prices this year.

Widespread selling at the start of the new year by forest owners in NZ claiming their vintages from last year, with many choosing to sell these vintages immediately to generate cash flow, led to an increase in supply in the first quarter, which is generally considered off-season from a buying perspective.

An Australia-based trader dealing in NZUs said, "I am not really sure that the auction will even spur the market. I think it will just continue to trade at this level."

Lower volume for auction

On Aug. 20, 2024, the New Zealand government announced its decision to reduce the total ETS auction volume over the 2025-29 period from 45 million NZUs to 21 million, to address concerns about oversupply in the NZUs market and support prices.

"I think it [the NZUs price] will wax and wane like this through to the December auction. The auction volume is obviously not big and hence if there's demand, they may be all purchased in that final auction," a New Zealand based forest manager and developer said.

Under NZ-ETS, the volume not sold in a quarterly auction is shifted to the next auction, and will accumulate like this until the fourth auction where any unsold units will expire and hence be removed from the market.

The volume available for auction in 2025 is 6 million units, a reduction of 8.1 million units from the 14.1 million units of volume available for auction in 2024. The total volume available for auction in 2025 is 13.1 million units, including 7.1 million units in cost containment reserve.

In 2024, a total of 7.007 million units were sold in four quarterly auctions, leaving 14.793 million units unsold in total, according to government data.