New Zealand carbon price reaches 9-month high as policy certainty boosts confidence

New Zealand carbon price rose to a near nine-month high on Nov. 28 on improved market confidence following the new government's decision to halt the ongoing review of the emissions trading scheme.

Platts, part of S&P Global Commodity Insights, assessed the price of New Zealand Unit at NZ$73.90/mtCO2e ($45.06/mtCO2e) on Nov. 28, the highest since the assessment was launched on March 1.

The NZU price touched a record high of NZ$88.50/mtCO2e in November 2022, according to market sources, but has since fallen after the previous Labor government implemented weaker price settings for the ETS and launched several reviews(opens in a new tab) that shook market confidence.

However, the NZU volume and price started rising after the winning coalition in recent election led by the National Party committed(opens in a new tab) to halting the ongoing review of the ETS, according to documents published Nov. 24.

Under the coalition agreement, the National and the New Zealand First parties committed to "stop the current review of the ETS system to restore confidence and certainty to the carbon trading market."

"People [are] seeing the new government as supportive of carbon markets, but also not going to invest in emissions reductions," a carbon trader said.

The coalition parties have emphasized that carbon market should drive emissions reductions, and therefore the polluters will need to pay for the NZUs, the trader added.

"Market rumor was that NZU would trade higher leading into auction, so as to set a higher [confidential] reserve price," a second carbon trader said.

Under the quarterly NZU auctions, bids need to meet an undisclosed price, the confidential reserve price, set by the government to prevent the sale of units significantly below spot market prices.

Auction ahead

The New Zealand is set to hold the last quarterly auction of the NZUs for 2023 on Dec. 6, following the failure of all the three previous auctions.

Most of the market participants expect the December auction to fail due to not enough bids meeting the CRP.

The last auction of 2023 will offer a combined 15 million NZUs, with all the unsold units from previous auctions rolling over to the last quarter.

A failure in December will lead to cancellation of all the units from 2023 and is expected to create some tightness in supply in 2024, market sources said.

However, some participants cautioned that the new government could be motivated to influence the CRP to help clear the auction, in order to generate some revenue for other policy measures.

"With the prospect of a carbon dividend and the government needing to find money from some source, the expectation is that the carbon market will be where they get the money from," the first carbon trader said.

However, the second carbon trader said that the coalition parties have committed not to interfere with the ETS and hence the new government is unlikely to change the CRP to influence the auction.