Carbon prices recover post-auction
Wednesday 28 Apr 2021
The first carbon auction on March 17 under the emissions trading scheme saw prices fall by about $1.50 a tonne, with a recent recovery signalling the beginning of a rebound, according to Jarden’s head of institutional commodities, Nigel Brunel.
“The auction clearance rate pulled the market down - not with much volume being traded, I might add - but now it’s starting to edge back up again,” said Brunel. “It feels like the market is breaking the shackles of what might be considered a disappointing clearance price, and one which took the wind out of the market’s sails.”
Looking to the next quarterly auction, on June 23, Carbon Match’s Lizzie Chambers said the recent gentle firming in prices "seems fairly well supported above that level. Buyers know they have another opportunity at the next auction which isn’t far away, and sellers aren’t keen to sell it down,” she added. “It is healthy, but it is not going crazy.”
Will history repeat? – The long-awaited first auction under the ETS was a key test of the new market and includes a confidential 'floor' price the government sets before each auction to ensure there is no price collapse.
Historically, the price of NZUs has tended to stagnate in the first half of the year and rise in the second, but history didn’t have a carbon auction. “What happens at the next auction is the 64,000-dollar question,” said Brunel. “Over the last eight years, the market has gone up by an average of 34% between May and December as most trading activity happens in the latter half of the year.” “It will be interesting to see if we get a repeat of those second half returns because of the changes to the scheme. We haven’t had an ETS with auctions before. If the market can shake off the next five million tonne auction, we will know history can repeat.”
Image credit: Washington Forest Protection Association
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