Carbon Match market update

Wednesday 30 Oct 2019

This week we have extracted one section from the regular market update for 24 October from our friends at Carbon Match:

What's the Rub for the NZU Market? - It's the details that matter, and for those in many respects we are still waiting. But to capture again some themes, we have the following:

1) Industrial allocation is to be phased down from 2021

2) International units look likely to be used with constraint and if used will be subject to a volume limit.

3) The Government, as already announced, intends to launch auctions by the end of 2020. The ETS Amendment Bill is going to set out the tools that the Government will have to manage supply into the ETS.

4) Importantly, for both emitters and other NZU holders, auctions will see the end of the fixed price option ($25) as we know it, with that very blunt (but clear) safety valve to be replaced by a "Cost Containment Reserve".

We've said it before and we will say it again, as an entity with a compliance obligation, being able to simply pay a known fixed $ amount to atone for every tonne of CO2e for which you are responsible has been an incredibly valuable and simple safety valve.

The current price ceiling, the $25 fixed price option, will either be removed when auctioning begins or no later than 31 December 2022. It will be replaced with a cost containment reserve price ceiling.

What makes this slightly different is that there will be an overall cap on units supplied into the ETS, and the MfE have said that will set limits on the units available under the auctions, units available via the CCR and on the use of any future international units.

"The cost containment reserve will be incorporated into NZ ETS auctions. Units provided through the reserve will be backed by an equivalent tonne of removals. The volume of units available and the trigger price at which these units will be released will be set out in regulations. We expect to consult on these regulations later this year." says the MfE.

We have known for some time that the status quo is not sustainable and anything but consistent with New Zealand's Paris commitments or with our longer term commitments on the World stage.

Modelling used in the NZ Productivity Commission Low Emissions Inquiry suggests NZ carbon prices need to rise to $75 a tonne of carbon dioxide equivalent, and possibly over $200 a tonne, over the next three decades.

Today's announcements are another milestone on the road.

Carbon Match - every weekday from 1-5pm.

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