Carbon Market Update

Wednesday 16 Sep 2020

Market Update

A quick note to NZU holders. NZUs hit a record high yesterday of $34.55 on Carbon Match, with a confluence of compliance buying activity.

We are actively seeking further supply so if that sort of level tickles your fancy please get in touch.

Even if you are convinced there's a further updraft pricewise, you could consider showing it on Carbon Match at whatever reserve price you have in mind. If buyers don't get there it won't sell but if you don't ask you won't get and you won't know.

With the market having firmed significantly over the last week we think showing your volume on our screen is a good way to reach a large number of buyers without having to pick up the phone.

Why is this happening?

In our view, there are a number of reasons:

- we are a closed domestic scheme currently without the safety valve that a formal link to international supply could provide;

- the market is keen to have news of progress on the auctions but it's been radio silence for a while now;

- to date the only other plan for NZU generation that could be scaled up significantly is forest sequestration but that's a slow process;

- forest owners have now endured a number of policy changes that not all have appreciated and to our mind, are engaging with ever-increasing caution in the ETS.

- uncertainty in the coming year for other sellers is tending to put the brakes on sales - they could be a useful buffer in the next year should the pandemic continue to cause prolonged disruption.

- Meanwhile buyers are on notice that the days of the fixed price option are numbered. The CCR will be an entirely different beast and is not directly comparable to the very simple sleep-easy-at-night FPO.

What goes up generally comes down - at some point

On the flipside, sellers need to keep real. This last quarter has been happy days for carbon sellers.

Confidence remains high because the direction of travel appears to be set in terms of our climate change response and ETS reforms.

While the election looms and anything can happen, the latest polls do point to a strong likelihood, at this stage, of another Labour-led Government.

But sellers. We have been in this game for over a decade. If things DO get too hard, history has shown us that there is always room for some kind of political response. Labour's Clean Energy Plan, released last week, was not short of interventionist ideas, and affordability of energy prices was right there as an unsurprising bottom line.

So while there is a general sense of optimism among NZU holders, it's certainly not silly to be a seller of something at some level. To those of you who think $34.55 is good enough - please get in touch.

Carbon Match - NEW OPENING HOURS - every weekday from 10am -5pm.

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