A year’s worth of carbon credits will be erased and the Government will miss out on $900 million of revenue after the final Emissions Trading Scheme (ETS) auction of 2023 failed on Wednesday.
Fifteen million New Zealand emission units were made available in 2023 but have remained unsold in successive quarterly auctions. Units are rolled over to the next auction but not into the next year.
The unsold units would be worth $900m at the floor price of $60, or about $1.3 billion at the market price of $75.25 at the time of the auction.
Auctions have a confidential reserve price based on recent secondary market prices higher than the floor price.
Bids above the reserve price must be made for all units for the auction to clear. This has made each auction less likely to be a success, as buyers must bid for more units each time.
The New Zealand Stock Exchange, which operates the auctions, said the December auction was declined because the clearing price did not meet the minimum price settings.
Nigel Brunel, head of commodities at Jarden, said the auction being declined wasn’t a surprise and would help to reduce the large stockpile of units already in the system.
The Climate Change Commission has estimated there is an excess of up to 49 million units in the registry relative to future emissions targets.
“The failed auction, and therefore the 15 million tonnes not coming to the market this year, starts to rebalance the market,” Brunel said.
He said the scheme was functioning well, despite the declined auctions, and was one of the best carbon markets in the world.
“It’s had a torrid year, to be fair, because of what Labour did last year, but it seems to be starting to come right”.
The carbon trader said he would like auctions to be more frequent and allow them to clear any bids above the reserve price. This would prevent the huge build up of units like in 2023.
Regulatory risk
ETS units traded at more than $80 late last year but fell sharply after a December decision by the Labour Government to ignore policy settings recommended by the Climate Change Commission.
This decision was later challenged in court, on the basis that it did not align with emissions targets and considered extraneous factors such as the cost of living, and was overturned.
Prices recovered in July after Cabinet remade the decision, with higher reserve prices and less overall units on offer. The auction floor price rose from $33 to $60.
Still, market uncertainty has lingered after the Government announced it would look into setting different prices for gross and sequestered emissions.
This could mean units generated by forestry were worth less than Government issued units, which spooked some investors, and would better incentivise actual emission reductions.
The newly-elected National-led Government has signaled it wants to bring stability to the ETS settings, likely scrapping the review, and let the carbon price rise as the market sees fit.
However, it has also promised not to let too much productive farmland be converted into permanent carbon forests. But that could be achieved through land-use regulations, rather than ETS price settings.
National also plans to use the revenue earned from the scheme to contribute to the cost of its income and property tax cuts. Missing out on the revenue from 2023 will worsen the fiscal starting position of the new coalition Government.
Oversupply
Susan Kilsby, an economist at ANZ, said buyers only bid for about 3.6 million units out of the 15 million required for the auction to clear.
“The carbon markets have been oversupplied for some time, so the fact that no additional units were taken up by the market this year will help address the oversupply situation”.
Businesses eligible for free units still would have received them and any units created by new forests would still have added to supply in the market.
“Planting of trees for carbon credits did slow this year due to the uncertainty brought about by the ETS review which will also reduce the number of units in circulation in the future”.
She said the new Government will halt the ongoing review of ETS settings which has caused uncertainty.
“However, simply stopping the review doesn’t necessarily provide all the answers the market is looking for,” she said.
A total of 14.1 million units will be offered In 2024, excluding the cost containment reserves which are triggered if the carbon price climbs above $173 and $216, respectively.
67 Comments
It was an attempt by a species in overshoot, to avoid said overshoot by sleight-of-hand.
We will indeed kill off our grandchildren's chances of survival, if we burn the last (and worst) half of the fossil stock. But trading above-ground carbon stocks - which during all of human existence, have been static - to alleviate the introduction/addition of below-ground carbon to the above-ground arena, was indeed a scam.
Can you outline the benefits you see in a carbon tax on emissions, vs the current situation where you have to buy permits to emit?
Both result in a direct cost to all emissions, this system works from a fixed emissions budget in line with our promised reductions and allows the price to float. The alternative is the Government having to figure out the right price to make the emissions match our promises.
Do you have more faith in the Government running an auction system, or accurately predicting the exact balance between price of carbon and future emissions?
Complexity and loopholes. The current system does not address the problem. Pine forests are useless for preventing fossil carbon from adding to the Carbon cycle, the Pine trees do not put that Carbon back in the ground. The government also does not put the correct burdens on the correct industries with the ETS. It's inaccurate and inconsistent.
A Carbon tax on all Carbon fossil sources would help make the renewable solutions more viable and competitive. And reduce the amount of Carbon that we pull out of the Earth and put into the Carbon cycle.
hahahaha. Our emissions are going up not down last time I saw the stats. What this implies is that 'free passes' and BAU are the order of the day - and the gaming with the intent to only ever profit continues.
Yes, the man in the street in not interested in the CO2 scam. Where voluntary CO2 markets exist noone uses them.
"Less than half of the world's major airlines are giving passengers the opportunity to offset the carbon dioxide produced from their flights, BBC research found.
When airlines do offer such a scheme, generally fewer than 1% of flyers are choosing to spend more."
Yep. The general public are less and less interested in the climate scam as time goes on. Soon it will be referred to as a fad. When hardly any airlines offer the ‘offset’ any more and of those that do, less than 1% take it up you have really lost the room. When, 100,000 people travel to COP28 at a carbon cost of NZ steel burning coal for an entire year, not only do you look like idiots, you are confirming the increasing suspicion that many people now have.
jeremyr,
Yep. The general public are less and less interested in the climate scam as time goes on.
Would you care to back that up with evidence? You know, a peer reviewed paper or two. As a self confessed denier, give me an explanation for melting glaciers globally. I await your detailed reply eagerly.
Unless the new government go out of their way to screw things up, our emissions will go down. It's baked in to the cap and trade scheme.
A fast increasing population just means even steeper reductions per capita, which will happen one way or another if the government holds firm.
So glad that neo-Muldoonist loser govt is gone. Whatever climate policies they ran alongside the (caped) ETS are voided by it. And by messing with the cap, they were just increasing emissions and vandalising the only effective climate policy we have. To address cost of living, they should’ve paid out the revenue to the public as a dividend (not just raid it for revenue, like National is doing). That way it’s essentially a progressive tax.
I'm literally made of questions on the Carbon ETS.
Why there such systemic market imbalance, are we creating more units via pine forests than we need? If so, how are we funding these, is it via petrol tax? I appreciate som of the larger emitters are being phased into the scheme.
One thing I can say with certainty is that there is no real carbon "market". There is no visible exchange or trading. It's completely opaque. Maybe there are some price-makers running books.
The carbon market seems to have lost all it's momentum and if it wasn't "untouchable", it would be left to die.
Firstly, New Zealand is handing out too many carbon units for free to high emitters like Tiwai, Bluescope Steel, PanPac, OJI, Golden Bay, Methanex and so on to prevent so called carbon leakage. Secondly, we are not planting enough trees to honour the first stage of the National Determined Contribution in 2030 and the assumption is Treasury has to spend between 3 and 30 Billion $$ to fill the gap with buying overseas carbon units.
The whole thing is one giant con job. People need to take individual responsibility and cut down on wasteful living from food waste to "must haves" like the latest phone to jumping on a plane so you can sit on a beach when you have one already down the road. Its one giant consumerism society gone mad.
I saw those published figures on the attendance and couldn't quite believe it.
Then again, my family member whose nebulous job in 'climate policy' appears to consist of nothing more than telling everybody on LinkedIn and Instagram not to travel, while travelling every 2-3 weeks herself, jetted off there so I shouldn't have been so surprised (business class, of course - it's hard to "raise awareness" when you're tired after a long trip down the back of the bus).
Allowing the people who are supposed to set the policy, direction, goals etc around climate change to "take the piss" in such an absurd manner will do nothing to get buy in from the general public.
You need to be less obvious.
Self-justified inactivity via shooting the messenger, would be my diagnosis.
That said, the Green New Deal mob are almost as blind as the neoliberal one - this way of life was courtesy of the carbon pulse, no amount of woking will change that.
People need to take individual responsibility and cut down on wasteful living from food waste to "must haves" like the latest phone to jumping on a plane so you can sit on a beach when you have one already down the road.
While personal responsibility is one thing, in terms of human psychology and behaviour this simply isn't feasible. Perhaps you could try telling those in Malawi or Chad or Nigeria that because the climate crisis is here, they aren't allowed to make their lives easier if they can afford it to buy a washing machine, or they can;t buy bottled water for the pollution factor so it is back to the filthy river of old. We have been sold personal responsibility by large corporates such as plastic producers as an excuse to offload responsibility. If the real cost of pollution and emissions was priced in by force then behaviours would change accordingly by means of necessity. Leaving large scale behavioural change as a choice never works.
The problem is very simple (but still probably beyond this lot).
You ration fossil energy. And screw down the ration, over time. So much easier to control, and has the entirely desired effect.
Trying to trade what comes out the exhaust-pipe was a messy way dreamed up by folk in thrall of economic growth, who wanted to virtue-signal while partying on.
The party's over...
But that's not what is happening, because:
1. Many companies are given free units
2. Units can be generated by, for example, planting trees, which 'allows' more fossil fuels to be burned.
This approach is not actually rationing the amount of fossil fuels that can be burned. It is (poorly) attaching an additional price to burning them. Not the same thing.
Point 1 - whether the units are auctioned or allocated for free, the cap is still in place so I don't think this changes the argument although it is certainly sub-optimal.
Point 2 - I'll give you that one. My preference would be for no credits available for pine plantations but perhaps for natives as there are such positive externalities to increasing our native forest cover (I am not picturing monoculture plantations here but forest restoration). Driving around the South Island the other week, pine trees are a scourge and it's insane that we are paying people to plant them.
My point number 1 was in reply to this claim of yours:
then auction the required permits to allocate them efficiently.
If significant entities who would otherwise participate in the auction are given units for free, then the auction cannot be said to allocate them efficiently.
Great result today
1. The oversupply is because governments keep handing out freebies - hopefully stopped now - this lot seems more rational on that front.
2. Trees have contributed nothing to oversupply compared to the Governments - The CCC still want 20 - 25,000 ha of exotic per annum and unlimited native (per comms with them) or else its going to get tough in the 2030s and 2040s. Take note farming groups and this admin is happy to have that as well going on their policies. In fact they have said you can plant trees on better land as well - just not put it into the ETS.
3. To do this you need land - who owns that? Wheres all this native land going to come from - I saw some group wanting 200,000 ha a year - they obviously have talked to all the "keen" farmers - what a joke.
4. Carbon Tax - do you trust a politician to set a price???
5. It will work if we let it work - BUT that means the cost of all fossil fuel goes up - No pain no change. Put the price up and things will change - has worked for a few thousand years.
6. This admin will limit the amount of forests to go into the ETS based upon their policies in line with CCC - I think the problem they will have is they wont have enough!!
7. We all need to all use less and travel less - cost will help do that but will we accept and vote for that?
8. We are one of the few countries in the world that between reducing emissions seriously and re foresting in native and exotic ( yes both forest types are needed - if you don't think they are you cant add or subtract simple numbers I'm afraid) can still have a great lifestyle albeit it different.
I wish I had your confidence in this govt, but i hope they prove me wrong . I can't see Winston first letting them do any of what you say they will do .
However , It wouldn't be unheard of for the Greens to vote with them on This, if it mean't a better deal for the environment. i'd love to know what Shaw really thinks of it all , maybe we will find out .
few bits
They said if you want to plant land and not register into the ETS anything can be planted.
https://assets.nationbuilder.com/nationalparty/pages/18426/attachments/…
see page 4
By contrast, National promises to take a more hands-off approach to the ETS, noting that the market needs certainty to maximise participation and to optimise price discovery. Rather than adjust ETS settings, they propose to manage the supply of forestry removals by controlling forestry registration in the ETS via the Land Use Classification (LUC) system.
Under National, they are proposing no limits on poorer quality Class 7 land being converted to forestry, of which there are circa 3 million hectares in New Zealand. Most of this land is steep hill country (though there is some sand country). A fraction of this land is suitable for forestry due to soil type, location, and access.
National has proposed a cap of 15,000 ha p.a. of Class 6 land (via whole farm conversions) for the next three years, of which there is circa 8 million ha in New Zealand. This forms the bulk of the forestry estate, and they propose to operate a licencing system, presumably much like the licencing of SunGold kiwifruit licences where licenses are bid on each year.
Outside of this, there is a proposed prohibition or moratorium on whole farm conversions that have class 1 to 5 soils, although existing farmers would be able to convert and register up to a quarter of their farm in the ETS.
How many people commenting actually know how the scheme works? Very few.
Clearly many think they know enough - so they make comments that only serve to identify the poster as a know-nothing.
Many need look up the Dunning-Kruger Effect.
(Have I mentioned that most Kiwis aren't that bright? I could also add too many are arrogant know-it-alls.)
I find this laughable. Along with NZ getting the fossil award at this COP meeting and the great NZ media whipping the collective back of NZers along with James Shaw saying how bad we are. Let's take a look at Guyana who a couple of yrs ago stumbled onto the largest oil reserves since the 70s 11 billion barrels yep that's 11 billion barrels worth (Remeber in 2008 James Shaw was espousing peak oil). Guyana with a population of just over 800 000 has literally stumbled into riches. Guess what do you think they are going to leave that oil in the ground along with the gas do you think they are concerned about Palau and Vanuatu PM saying how dare they. Nope they say we are thinking of our country. Do you think they are thinking of NZ decreasing their cattle population to save a bit of methane meanwhile driving up meat prices nope.
I guess it is hardly surprising they have oil reserves when they are right next door to Venezuela.
I see that Venezuela are massing forces on the border so it should be of no surprise to anyone when the neighbours invade. If it's not a dictator that takes over when oil is found, it's another country invading to get it for themselves.
The cynicism regarding this scheme will kill it.
I can think of no other pricing mechanism (government engineered or not) whose success depends ultimately on complete failure.
If fossil fuel consumption stops (success) - the carbon is worthless, and everyone who invested in it loses everything. If fossil fuel consumption persists (failure) then carbon keeps making big money into the future.
What a great idea.
Either way the rich folk win.
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