Carbon Match update - Reserve trigger price
Wednesday 17 Feb 2021It's Not Hard - NZUs rose into the mid $39s last week - No doubt the recommendations in the recent draft advice from the Climate Change Commission played a strong part in this. Among a vast array of other issues, the Commission expressed concern that the current trigger price for the auction's cost containment reserve - currently set at $50 - is too low.
That trigger is the minimum price that would have to achieved at auction before the Government is allowed to release (limited!) additional volume into auction, with the aim, in theory, of easing prices. A safety valve. But NOT a backstop. But current spot prices, at $39 - $39.50 over the last week, are almost 80% of the way there. And the Commission says that maintaining current settings will lead to failure to meet emissions budgets.
So, their recommendation, which was noted as time critical, was that the cost containment reserve trigger price be increased to $70 as soon as practical and then every year by at least 10% plus inflation. To maintain continuity with recent prices, they also recommended a higher reserve price floor to the auction, up from the current $20 to a recommended $30 as soon as practical, followed by annual increases of 5% plus inflation per year.
In fact that latter aspect of the debate will probably move on. As Carbon News already reported last week, a new Bill has been introduced by Climate Minister James Shaw. Once passed, it will enable a confidential reserve price to be applied to the upcoming Government auctions of NZUs.
The intention is to prevent the Government selling NZUs significantly below the secondary market. Although the methodology and inputs will remain confidential, it's fair to say that given the current market around $39, the confidential reserve price is likely to be at some higher level than the existing "hard" auction price floor of $20.
Moreover, the Bill as put to Parliament today provides for the entire volume of an auction to be rolled forward to the next auction (as long as it is still within the same calendar year), should the auction "clear" at a price lower than the Confidential Reserve Price.
This means that there are scenarios where even the top bidder - someone willing to bid well above the CRP - will not get the volume they want at auction. We have said it before and we will say it again. Come, listen, live, the secondary market, where we can help and things are not complex. You will find sellers, with actual asking prices. You can haggle online. Or just pay them. Deal done. Sun Light. Price disclosed. Last Ten Trades Visible.
So, buyers, don't hide your light under a bushel. Put up a bid or pay the asking price. It's not getting easier, and if you haven't done so already you should get onto Carbon Match, get set up properly and begin trading carbon online, rather than phoning around hoping for miracles.
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