Carbon market moves early in 2017

Friday 3 Feb 2017

The carbon market in New Zealand has started the 2017 year similar to where 2016 finished. Even though the market doubled in 2016 – the final quarter of last year was soft and subdued. This could be put down to two main factors. The first one being changes implemented by the government in May 2016 to strengthen the ETS by removing the “buy one – get one free” setting over the next three years starting this year. This will see demand increase from 20 million tonnes in 2016 to 40 million tonnes in 2019. This caused emitters to rush in to secure as much volume as they could and we believe many bought enough for the 2016 year and even some of the 2017 year. Hence the final quarter didn’t see the usual demand we have historically seen.

The second factor was the election of President Trump - a person who thinks man-made climate change is a hoax. He threatened to rip up the Paris Agreement but since his election – he has mellowed in the position. We are not so convinced that he can or will follow through - it would be deemed an extreme isolationist move. The USA is only 15% of global emissions and 127 countries of 197 have already ratified Paris. We still have four years of Kyoto left. Trump could be thrown out before Paris even begins. Risk management applies here – buy NZUs.

Source: Nigel Brunel, Director - Financial Markets, OMF

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