Investors eye carbon credits

Wednesday 13 Oct 2021

Retail investors are becoming increasingly interested in carbon funds, trend driven by the rising carbon price and growing interest in ethical investing.

Salt Funds Management runs the only NZX-listed carbon fund, an investment vehicle to give investors exposure to the price of carbon mainly through New Zealand Units (NZUs) used in the Emissions Trading Scheme (ETS).

Salt managing director Paul Harrison said interest in carbon credits is accelerating, which is helping drive the market capitalisation of the fund from roughly $20 million at the start of the year to about $65m. Units in the fund were recently trading at about $1.97 on the NZX, up 60% on a year ago.

Retail investors had been encouraged by news of the carbon price potentially doubling in the next five years. There's widespread awareness that the carbon price in NZ has been too low, Harrison said. Looking to more mature markets like Europe, it's clear there will have to be further increases here to effectively drive behaviour change.

To reduce emissions, the government plans to release fewer NZUs into the market over time and gradually cut back the number allocated freely to trade-exposed industries.

There are also growing community pressures, here and abroad, for governments to do more to tackle emissions, Harrison said.

“There are a lot of positive influences that would make the cost of carbon continue to rise and drive change, which is a good thing,” he said.

The government this year released new guidance setting the NZU price threshold at which cost containment reserves, used to smooth price increases, would be released at future auctions.

In 2022, the threshold rises to $70. In 2026, it goes to $110, more than double the $50 trigger point which was breached at auction in Sept. The spot price for NZUs was recently about $64.50 on the secondary market.

Third auction - The Sept auction, only the third of its kind, was notable because all seven million units in the cost containment reserve were exhausted, as well as the original 4.75m allotment, meaning the final 2021 auction in Dec will have no restrictions.

NZUs sold for a clearance price of $53.85 at auction in Sept, netting the government $632.7m.

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Source: BusinessDesk

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