Carbon Match market update

Wednesday 3 Jul 2019

Carbon Match Weekly Market Update - Last week saw bigger volumes of NZUs change hands, trading a range from $22.50 to $23.10. Many buyers have little urgency to add to their spot holdings. Some who exercised the fixed price option at $25 feel like that decision could yet be questioned.

It might help to think about two things:
First, the politics of climate change in New Zealand haven't been here before - we have never seen such consensus on the need to act and mitigate. We look set to bring our commitments into legislation via the Zero Carbon bill, which will set up an independent Climate Change Commission and legislate not only that audacious goal but also see the production of a series of stepping stone budgets that should create a credible path to get us there.

The dialogue has changed. Sure, there is plenty of debate about definitions and fairness. But gone, or least very quiet, are the deniers. While the support of National does not appear to be required in order to get the Bill through, it seems to be desired - both by the Government and the Nats.

Yes, the issue of agriculture remains difficult to say the least, but against myriad real world reminders - from sweeping European heatwaves to two metre deep hailstorms in an otherwise 30 degree Guadalajara in Mexico - few NZ politicians are any longer willing to put their hands up as sceptics.

And the last ten years of political history demonstrates ongoing support for the ETS as a key policy tool from almost all quarters. This is not Australia, the ETS is not going away and whether you fall in the camp of green optimist or realistic reluctant, your ambition to act / resignation that we will have to, can only be increasing.

Which takes us to our second point: when you look around and say "yes, we have to do this", where do you think the domestic action is going to come from?

Where exactly is the low hanging fruit in the transition and how significant is it against the 200 million overshoot New Zealand looks likely to have on our Paris Budget of about 600 million tonnes for the period 2021 - 2030?

Forestry is trucking along, and while the story is not necessarily as simple as it has been (catch up on the recent positions of the 50 Shades of Green group and listen to MPI's response ) it might, all going well, perhaps make up for as much as a quarter of the 200 million overshoot. But what about the rest of it? Forest sequestration only buys time and recent newsroom debate has highlighted that not everbody is happy about forestry being New Zealand's climate change technology of preference.

New Zealand's response needs to be much more diversified than it has been to date. While $20 - $25 might drive afforestation, much higher carbon prices are needed in order for actual abatement, as opposed to just forest sink-creation, to take place.

The Productivity Commission has said that Huntly coal could be retired at an emissions price of around NZ $40 a tonne of CO2e and the Taranaki gas CCGT at a price of around $60 a tonne of CO2e.

Speaking more generally they find that to reach a target of 25 megatonnes of CO2e by 2050 (around 60% below 1990 levels) will likely require emissions prices to rise to between $75 and $152 a tonne by 2050.

The Commission says that the bigger goal of net zero emissions will require a carbon price of up to $157 a tonne of CO2e by 2050, even with rapid technology change. With slower technology change prices may need to rise up to $250 a tonne by 2050.

Today, our (almost) single source, slow grown, non-vintaged, non-expiring NZUs are bid $23.05 and offered $23.25, with forward agreements perhaps worth exploring off this lower base - do get in touch if we can assist.

Source: Carbon Match - every weekday from 1-5pm.

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