NZ carbon market update

Friday 23 Feb 2018

“The carbon price is retreating from all-time highs as we head into the 2018 emission year – down to $21.20 from $21.55 last week. However – we remain positive about prices long term” says Nigel Brunel, Director - Institutional Commodities, OMF. “Domestic ETS settings have moved one step closer to full emissions (ex-agriculture) with 33 million tonnes of surrender due this year and 40 million tonnes from 2019”.

Even though the government has signalled the ETS will stay “as is” until the end of 2019 - there is a lot going on domestically and internationally. The government intends to install a UK style Climate Commission as well as consult on proposed changes to the ETS which will include raising the $25 cap and considering the inclusion of agriculture. Internationally it will also be busy. The recent COP talks in Bonn in December were all about detail. Detail on the Paris rule book and detail on Article 6 which concerns international markets. Both are expected to be complete or very close to completion at the next COP meeting in Poland at the end of this year.

“Our view remains that New Zealand will have no choice but to seek most of its emission reductions from international markets to meet its Paris obligation. It is too late in reality to make any meaningful dent in our Paris requirement domestically by planting more trees. What New Zealand has to do is get itself in a position to be net zero by 2050. This would involve planting trees everywhere, finding the cure for methane in agriculture and investing in domestic emission reductions,” says Mr Brunel.

Long term – the price of carbon is heading north – nothing is more certain in our view short of a GFC II. If you back solve the Paris commitment of keeping temperatures to 2 degrees above pre-industrial levels and ideally only 1.5% - many noted people and organisations (Stiglitz, Stern, WEO, IPCC and the World Bank) say carbon prices have to be closer to USD 100 per tonne by 2030.

“Buy the dip, stay long carbon, grow trees”.

Source: OMF

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