Carbon market update: Carbon Match
Tuesday 5 Feb 2019
With the government standing by its fixed price option at a level of $25 until at
least
May, you could be forgiven for thinking that a rational compliance buyer might
be
unwilling to bid more than about $24.75.
But we all know that the picture is more complicated than that and so right now
NZUs
remain well bid to the $24.90/$24.95 mark on Carbon Match and we have
reasonable
volume offered for sale from $25.05. Forest owners and forestry consultants are
currently under way filing returns and as units are issued to post-89 foresters on
the
back of this perhaps we will see further volume come to market.
One issue to bear in mind is that this year's $25 FPO, all else held constant, will
have
spill over effects into next year's demand and prices. It's currently unclear whether
the
May 2020 surrender deadline will still involve an FPO of $25, some other number or
even be replaced by a new cost containment reserve by then - something officials
are
currently working on, but which also requires legislative change to take effect.
But what is clear now, at least in respect of compliance year 2018, is that emitters
have
the right to pay $25 - instead of surrendering the units they've acquired over the
last
year or more. For some, this will be a legitimate response to regulatory uncertainty.
This year's FPO could be next year's safety valve and the extent to which the FPO
drives banking this year will determine residual demand in coming compliance
periods.
This is the problem with price control generally, but we are where we are - snuggled
right around that arbitrary $25 fixed price option, with almost every party unsure of
the
best course of action.
Just out of interest, that's slightly above, say, current prices for California Carbon
Allowances of about US $15.50 / $22.50, but well below European Union
Allowances,
which finished up yesterday at €22.85, or about NZ$38.
Source: Carbon Match
.jpg)
|