NZU investors driving carbon prices
Friday 28 Jan 2022As I write this in late January 2022, the carbon price in the open market is $75, with this measured per tonne of carbon dioxide equivalent (CO2e). That is an increase of just over 10 percent since the last auction of units by the NZ Government less than two months ago in December 2021. It is also 95 percent higher than the price of carbon this time last year.
The most recent 10 percent increase may not sound much. But the fact that the market price has now breached $70 is significant. It means that there is a developing consensus among players in the carbon market that, at the next auction on 16 March, the Government’s seven million NZU cost-containment reserve for all of 2022 will be exhausted.
If the reserve is exhausted in March, it is likely to be onwards and upwards from there for the carbon price, with three further auctions in 2022 unconstrained by any cost-containment reserve.
To understand what is likely to happen and the implications thereof, it is necessary to understand something about the Emission Trading Scheme (ETS). It is also necessary to understand something about new direct investors in New Zealand Units (NZUs) and the effects these people are having.
Author: Keith Woodford. Keith was a Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd.
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