New Zealand carbon price falls to near 2-year low on policy uncertainty

New Zealand's carbon price tumbled to a near two-year low on June 21 as initial bullishness after the failure of a carbon allowance auction was overtaken by uncertainty around government policy.

Platts assessed the New Zealand Unit, or NZU price at NZ$47/mtCO2e ($29.17/mtCO2e) on June 21, S&P Global Commodity Insights data showed.

This is the lowest price since the launch of the assessment on March 1, with the lowest assessed price earlier at NZ$50.50/mtCO2e on May 16.

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"Very very weak NZUs. [June 20] was shocking, they just completely fell out of bids, and they paused briefly at NZ$50, and it looks like this afternoon (June 21) they are below NZ$50 and at NZ$47," a carbon broker said.

The NZU price was last lower than NZ$47/mtCO2e in July 2021, according to market sources.

"[There is] a lot of panic selling in New Zealand [after] the release of the consultation paper and the role of forestry in the ETS," a carbon trader said.

New Zealand on June 19 opened consultations on new rules to increase the effectiveness of its emissions trading scheme in cutting pollution at source as well as to redesign the regulation for issuing carbon allowances to the forestry sector.

The consultations follow the announcement of the ETS review in March, based on concerns that current settings were diverting investments more into offsets through forestry rather than abatement at source.

However, the consultation has created more uncertainty ahead of the September elections when the ruling Labor coalition is expected to face a strong challenge from the opposition National party.

"There is too much uncertainty around potential changes to the system, and there is an oversupply still," the carbon broker said.

Temporary rise

The NZU price has been on a downward trend since December after the government implemented weak price settings for ETS.

This went against the advice from the country's national climate body, the Climate Change Commission, which had recommended higher price settings to drive emission reductions.

However, the price jumped a bit following the failure of the NZU quarterly auction on June 14 due to lower bid levels.

The NZU price was assessed at NZ$59.75/mtCO2e on June 14, 6.7% higher on the day.

However, the price has since been trending lower and registered a strong fall on June 20.

"I suspect NZUs are going to have a tough time over the next couple of months," the carbon broker said.