CO2 - Carbon Fund units

[gbogo]

Anyone looking at these? My understanding is that the fund issues new units each week and backs them by actually purchasing carbon units on the open market. So the CO2 roughly reflects the spot Carbon price in NZ (approx $48 at the moment). Seems to me that a 40%+ increase is almost guaranteed within the next 6-9 months.... (or maybe I've misunderstood everything..)

Shaw Says No Wiggle Room As Carbon Price Nears Cap | Newsroom (https://www.newsroom.co.nz/shaw-says-no-wiggle-room-as-carbon-price-nears-cap)

"The Climate Change Commission had previously recommended that the ETS settings be adjusted as soon as possible to allow for a much higher carbon price. The cap would rise to $70 from 2022, in the commission's outline, and then jump "at least" 10 percent plus inflation each year thereafter."

[Beagle]

Anyone looking at these? My understanding is that the fund issues new units each week and backs them by actually purchasing carbon units on the open market. So the CO2 roughly reflects the spot Carbon price in NZ (approx $48 at the moment). Seems to me that a 40%+ increase is almost guaranteed within the next 6-9 months.... (or maybe I've misunderstood everything..)

Shaw Says No Wiggle Room As Carbon Price Nears Cap | Newsroom (https://www.newsroom.co.nz/shaw-says-no-wiggle-room-as-carbon-price-nears-cap)

"The Climate Change Commission had previously recommended that the ETS settings be adjusted as soon as possible to allow for a much higher carbon price. The cap would rise to $70 from 2022, in the commission's outline, and then jump "at least" 10 percent plus inflation each year thereafter."




Former well respected poster Moose brought these to my attention a couple of weeks back. Don't look too shabby but its a real minnow in terms of market cap and the price of carbon has enjoyed a VERY strong run in recent weeks. I am sitting on my paws and seeing what happens with this one, (AKA doing a possum struck in the headlights).

[gbogo]

Thanks Big dog. The market cap seems less relevant here because my understanding is that the fund just buys as much carbon as is needed to back as many units as are bought. In terms of exiting a position, I believe that institutional players would prevent any significant arb opening up. Disc: I am long but looking at buying significantly more.

[Beagle]

Where I got too was I am hoping one day all this carbon madness will end but alas, I am pretty sure it won't so I suppose one day I should get some as a hedge against the ever increasing level's of eco madness that invade our lives.

[JeffW]

I'm not quite sure of the point of it. Anyone can open an ETS Account and trade carbon units without the overhead of the fund structure

[haewai]

I'm not quite sure of the point of it. Anyone can open an ETS Account and trade carbon units without the overhead of the fund structure

You'll find the other market ways of buying and selling units have higher transaction costs, especially in small parcels. Cheapest would be to buy NZX:CO2 via Sharseies. But yes anyone in NZ can open an account at https://www.eur.govt.nz/

[STr]

Sharesies sells NZX:CO2?

[tommy_d]

I'm not quite sure of the point of it. Anyone can open an ETS Account and trade carbon units without the overhead of the fund structure
try buying or selling unit blocks of less than 1,000 units and see how that goes for you...
There have been posts on here about this fund before, not sure where - e.g. someone highlighting the carbon match emails, that sort of thing

[GTM 3442]

I bought some of these last week, so I imagine that the price has now peaked for a while.

Why these and why now?

Carbon is currently fashionable, and won't be going away any time soon.
Carbon is becoming embedded in the global economic order - https://www.economist.com/finance-and-economics/2021/07/15/the-eu-proposes-a-carbon-tariff-on-some-imports
Salt aren't fools.

[Sideshow Bob]

Sharesies sells NZX:CO2?

Yes, can buy through Sharsies

[Beagle]

Me ol mate Moosie wanted me to share these gems. I think he could be on to something here but its not for me. (Any investment that does not return me a dividend no longer meets my investment criteria)

https://i.stuff.co.nz/environment/climate-news/126019260/for-jacinda-arderns-labour-the-future-of-climate-change-must-be-now

I see all futures prices are above the $50 reserve ceiling and Spot is about to tip over. Very interesting going into 1 September auction, as it puts immense buy pressure on everyone and releases the 7.5M reserve units on top of the 4.75M for the auction. If everything gets bought (coverage ratio was 1:1 last auction, including reserves...) then there is going to be a large imbalance between supply and demand for the next few auctions...

I see that someone has finally created a CO2 thread on ST. There are a few pointers I can give that may help out those doing their research.

NZSU auctions occur quarterly, with 4.75M on offer below the ceiling price ($50.00) When that ceiling is breached, a "reserve" of 7.0M units can be thrown into the auction. The latest auction result shows that there was a high amount of demand (10.8M shares) with a clearing price that was above the spot price at the time. Cover ratio nearly a solid 1.0 including the reserve units. (See: https://www.etsauctions.govt.nz/public/auction_noticeboard/14)

Now, if we look at the current spot price, well, my oh my, that ceiling price is now well breached for futures prices - spot is not far behind either... (see: www.commtrade.co.nz)

We also have a big buyer about to come into the market to make up for units they just gave up. GNE needs to buy up 1.6M credits over the next 2-3 years - not an insignificant amount when there are only 26M credits being created this year (see: https://i.stuff.co.nz/business/125937389/carbon-credit-ruling-set-to-cost-genesis-more-than-100m--analyst)

It also pays to see the final advice the Climate Commission gave to the Government. A ruling is expected from the Labour Government in December of this year about pricing in the ETS. The current advice is to raise the ceiling to $70 and tack on 10%+ per annum to account for inflation (and to squeeze carbon producers...). (See: https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/inaia-tonu-nei-a-low-emissions-future-for-aotearoa/)

Finally, it pays to keep track of overseas carbon futures prices. These are much, much higher than ours currently (see: https://m.investing.com/commodities/carbon-emissions). 55 Euros = $93 NZD.

I'm surprised more people haven't cottoned on to the fact this is a license to print money. Still plenty of room to move for a few years yet!

Feel free to post on ST. ��

[Newman]

Carbon unit price cap will be lifted from 2020.
https://environment.govt.nz/news/release-of-updates-to-nz-ets-regulation...

[Newman]

Here is the correct link: https://environment.govt.nz/news/release-of-updates-to-nz-ets-regulations-and-sgg-levy/

[Beagle]

Former poster Moosie wants me to share this with you and sent me lots of cute pictures of his Golden Retriever so I couldn't say no. He did mention however in an important previous email his new baby was a major carbon and methane emitter...perhaps that's why he is so keen on this one lol


Very interesting to see the ceiling price on CO2 will be raised from $50 to $70 from 2022. Of even more interest is that the government is now committing to ~10% rises of said ceiling per annum to keep the pressure on polluters.

Tables of changes are here: https://environment.govt.nz/news/release-of-updates-to-nz-ets-regulations-and-sgg-levy/

And wow, some are now saying it needs to be $250 per unit! I had originally calculated about $110 for the ETS to start being a game changer and for industry to change as the cost-benefit model for status quo starts to flip.

Https://i.stuff.co.nz/environment/climate-news/125965410/government-gives-emissions-trading-scheme-a-longer-rein-in-2022

Once again, Euro futures heading to new ATHs and our price is still very undervalued. This train keeps chugging and I keep buying - everyone should while the government is guaranteeing great returns and a James Shaw Put to boot!

[tommy_d]

Carbon unit price cap will be lifted from 2020.
https://environment.govt.nz/news/release-of-updates-to-nz-ets-regulation...

close enough. The Cost Containment Reserve Trigger Price and auction price floor are going up.
NZX do a reasonable job of explaining how the cost containment reserve works in ets auctions of NZUs, scroll down to the cost containment reserve heading here:
https://www.etsauctions.govt.nz/public/training/participate

[kiora]

Seems OTT all these suits to do what?
Buy some CC 's
How difficult is that?
So saying CC price will go up but dependent on govt policies
https://www.carbonfund.co.nz/team-members

[Sideshow Bob]

Seems OTT all these suits to do what?
Buy some CC 's
How difficult is that?
So saying CC price will go up but dependent on govt policies
https://www.carbonfund.co.nz/team-members

Part of Salt, who have other funds. Team | Salt Funds Management | Auckland (https://www.saltfunds.co.nz/team)

[Davexl]

Especially like these bits...

"The Fund’s aim is to provide investors with a total return exposure to the price of carbon credits. The Fund has the ability to buy carbon credits in emissions trading schemes in New Zealand and offshore."

The overseas exposure is where the real value lies as carbon markets link up over time eg NZ & Euro...

Here's the earlier trading site from years back now https://www.carbonmatch.co.nz/

nb. NZ Credits only on this site, companies only...but newsletter interesting...

[Davexl]

Price of Carbon crosses 60 Euros for first time (= NZD $100.50)

[jg8512]

why the big move in CO2 price today? monstrous ... not sure if it is linked to NZU price or not

[Davexl]

why the big move in CO2 price today? monstrous ... not sure if it is linked to NZU price or not

Not sure specifically, but there were a few CO2 orders between 20K to 50K volume today following the quarterly auction...
Bought mine at $1.69 so very pleased with the 9.4% move today. Price may settle back a bit next few days but clearly the demand was there for the auction itself...:)

[tommy_d]

Not sure specifically, but there were a few CO2 orders between 20K to 50K volume today following the quarterly auction...
Bought mine at $1.69 so very pleased with the 9.4% move today. Price may settle back a bit next few days but clearly the demand was there for the auction itself...:)

probably due to absolute basics, the secondary market price of NZUs, which the CO2 instrument effectively reflects, spiked from $51 to $59 this afternoon...
https://www.commtrade.co.nz/

[GTM 3442]

Maybe some relevance

https://www.stuff.co.nz/environment/climate-news/126250903/soaring-demand-to-pollute-blows-governments-first-limit-on-carbon-credits

[kiora]

"The Government said this additional pollution would be balanced out by cuts in future. It will reduce the number of units available in future years’ auctions."
https://www.stuff.co.nz/environment/climate-news/126250903/soaring-demand-to-pollute-blows-governments-first-limit-on-carbon-credits

Yeah right!

Supply & demand can only go one way.
What are holders going to do when unit price keeps going up?

[mfd]

"The Government said this additional pollution would be balanced out by cuts in future. It will reduce the number of units available in future years’ auctions."
https://www.stuff.co.nz/environment/climate-news/126250903/soaring-demand-to-pollute-blows-governments-first-limit-on-carbon-credits

Yeah right!

Supply & demand can only go one way.
What are holders going to do when unit price keeps going up?

Either pay more or reduce their emissions. Higher prices obviously increase the incentive to switch to lower carbon processes.

[gbogo]

massive demand. the government had to release more units once the auction price crossed $50, which I thought may cap the price but the Spot price had already been above $50 for some days. The demand at auction blew through the new supply and spiked to $59. This climate change stuff is getting real. The Carbon Units fund price roughly tracks the Spot market but is often trading at a 5-10% premium.

[tommy_d]

it feels like a co2 101 might be useful. Not much time sorry, but for now.. here are some key links.

if you want to track current market price for NZUs = the carbon credits in NZ that make up the bulk of the assets held by this fund, check the main market platforms, here is one, owned by Jarden - commtrade = part of OM Financial until they joined/amalgamated/whatever with Jarden - Nigel Brunel is the key player there:
https://www.commtrade.co.nz/

Carbon-match, another NZU trading platform, Lizzie Chambers is the key player - join their mailing list, you'd be silly not to:
https://www.carbonmatch.co.nz/

Note the daily NTA update and weekly-ish update on additional issuance of units into the Salt managed fund:
https://www.nzx.com/companies/CO2/announcements

Check the results of quarterly auctions of NZUs, they go live within minutes of auction close:
https://www.etsauctions.govt.nz/public/auction_noticeboard

Read the details of Salt's carbon fund (i.e. the CO2 instrument on NZX) here:
https://www.carbonfund.co.nz/

Particularly read their quarterly update, to note things like their asset mix at 30 June 2021 (87% NZUs, 5% Australian carbon assets, remainder cash - whoever mentioned european carbon allowances - head check unless they've bought them in the last two months. EU carbon speculation is harder to access than you might realise)
https://www.carbonfund.co.nz/quarterly-fund-update

Hope that's useful. Good luck to all holders.

[Meh]

Sorry for my ignorance - is the only way a retail investor can buy carbon credits is via salts Co2 NZX fund?

[STr]

Tommy_d - thanks. I have been trying to get my head around this also. To me, given it is unlikely many businesses can convert to green initiatives quickly (or will at all) - then the demand to buy CO2 offsets will just grow. And given the govt has stated they will limit supply (and then change their minds it seems ) but still, limit the supply. Doesn’t normal supply and demand mean that there is only one way this fund will go - up ? It has already increased by about 16% since I started investing in it 2 weeks ago. There has to be more to it than a one way gain? But, as I said, I am still trying to get my head around this one.

[tommy_d]

Sorry for my ignorance - is the only way a retail investor can buy carbon credits is via salts Co2 NZX fund?

anyone can open an account in the new zealand emissions trading register, and buy or sell NZUs. Difficulty is in cost, it's not that viable to buy or sell small parcels of NZUs (or even find a counter-party for a small trade), so it takes a lot of up-front capital. The fund allows exposure to NZUs without the capital outlay.

you might get lucky and trade small volumes on ems: https://www.transpower.co.nz/news/emstradepoint-ltd-welcomes-first-carbon-trade-its-platform

if you have an account and register for the auctions then you can buy small parcels, i think minimum bid size if 500 though?, @ $50 a unit that's still $25k, and then you'd probably face $500 commission minimum from platforms if you tried to sell, and if you could find a small lot buyer.

[tommy_d]

then the demand to buy CO2 offsets will just grow. And given the govt has stated they will limit supply (and then change their minds it seems ) but still, limit the supply. Doesn’t normal supply and demand mean that there is only one way this fund will go - up ? It has already increased by about 16% since I started investing in it 2 weeks ago. There has to be more to it than a one way gain? But, as I said, I am still trying to get my head around this one.
to be serious on this fund, you should learn the basics of how the emissions trading scheme operates. There are a couple of good sources. They should help you draw some conclusions.

This is a good starter: https://morganfoundation.org.nz/emissions-trading-scheme-ets-for-dummies/

motu research have some good articles and video https://www.motu.nz/resources/about-emissions-trading/ , this one is ok i think: https://www.youtube.com/watch?v=xrUZIbKZzbI

[gbogo]

good summary. ETS “out of control”. https://keithwoodford.wordpress.com/2021/09/02/institutional-investors-outgun-government-at-carbon-auction/

[GTM 3442]

Thanks tommy_d, and thanks gbogo, much appreciated.

I suppose we now have to keep an eye out for a bout of well-meaning and unforseen - yet strangely forseeable - unintended consequences.

[kiora]

good summary. ETS “out of control”. https://keithwoodford.wordpress.com/2021/09/02/institutional-investors-outgun-government-at-carbon-auction/

"Minister Shaw must now be squirming at the way he has lost control of the ETS steering levers."
How will the govt move to control the levers now?

[gbogo]

https://twitter.com/norightturnnz/status/1433203227965591556?s=21 interesting critique of the 7m release at the recent auction and ETS generally

[Davexl]

Hi,
Anyone got the gist of WHO is complaining about the increased Carbon prices in this mornings NBR? Sorry no subscription ATM...TIA...

"Pundits seek change to ‘dysfunctional’ ETS after carbon prices soar"

But James Shaw argues the scheme is working better than ever.
Commentators say tweaks to the emission trading scheme are needed to prevent a repeat of the transfer of wealth seen at Wednesday’s sale of domestic carbon units where the government’s...

[GTM 3442]

US Public Radio podcast on the Australian water market. There may be a few parallels to the New Zealand ETS here?

https://www.npr.org/2021/08/31/1032979418/liquid-markets

[KJMLimited]

I think Shaw is correct. The price of emitting carbon is measured by the cost of the product you have to pay to offset your emissions. The market has set that price at well above $50/tonne. So what if people who bought those credits didn't do so with the intention to offset emissions in NZ? In Europe the price is much higher, sooner or later the markets will be linked, today's buyers will be able to sell true market value, which is why the futures price in NZ is so high. The message for emitters is therefore reduce emissions, or pay the real price for the credits, and stop relying on the government to supply credits at below true market cost.

[Newman]

Carbon Fund collects fees of 1-2% on the fund. The larger the fund becomes the more the managers earn. The fund will use new investors' money to continuously buy carbon units but would be reluctant to sell any. Thus, the demand for carbon units is artificially raised, pushing carbon price higher. This game could continue until one day if China or the USA discontinues their commitments to Paris Agreement.

[Maxtrade]

to be serious on this fund, you should learn the basics of how the emissions trading scheme operates. There are a couple of good sources. They should help you draw some conclusions.

This is a good starter: https://morganfoundation.org.nz/emissions-trading-scheme-ets-for-dummies/

motu research have some good articles and video https://www.motu.nz/resources/about-emissions-trading/ , this one is ok i think: https://www.youtube.com/watch?v=xrUZIbKZzbI

The price has jumped up considerably since the auction. You seem to be quite knowledgeable on CO2. Where do you see a fair SP currently for this fund. $2 seems quite a leap from where it was recently sitting. Do you feel this rally will subside back to around 1.7- 1.8 again?

[Sideshow Bob]

Carbon Fund collects fees of 1-2% on the fund. The larger the fund becomes the more the managers earn. The fund will use new investors' money to continuously buy carbon units but would be reluctant to sell any.

So buying on market is only trading existing units.

But then presumably buying through Salt, new units are issued. And that would be at the market price? (Otherwise would be a great game paying last announced NTA of $1.82 vs today price of $1.99).

Does the difference between the market price get pocketed by Salt or go into the fund??

[Lizard]

So buying on market is only trading existing units.

But then presumably buying through Salt, new units are issued. And that would be at the market price? (Otherwise would be a great game paying last announced NTA of $1.82 vs today price of $1.99).

Does the difference between the market price get pocketed by Salt or go into the fund??

From PDS: "If you purchase units in the Fund they will be issued at the unit price. The unit price is calculated bydividing the Fund’s net asset value by the number of units on issue. Valuation Days currently occurevery Friday. When a Wednesday or a Friday fall on a public holiday processing of applications andValuation Days will defer to the next Business Day. Generally, if we receive a valid application (andaccept that application) before 1.00pm on the Wednesday immediately before a Valuation Day, wewill issue units at the price set using the Fund’s net asset value for that Valuation Day. If we receivethe application on or after 1.00pm, we will issue units at the price set using the next Valuation Day’svalues. You can access the net asset value of the Fund on the website www.carbonfund.co.nz. We alsomay defer processing applications if we consider it necessary or desirable. "

Draw your own conclusions...

[KJMLimited]

There's an obvious arbitrage opportunity subject to shares being issued by the fund at a price sufficiently below market to account for delay and tax. Existing holders would be able to make best use of the gap if it exists. At the moment the gap is 10 cents. Worth it for some.

[Newman]

If everyone buys units from Carbon Fund, there will be no buyer on the NZX market. Selling to buyers via NZX is the only exit way.

[tommy_d]

The price has jumped up considerably since the auction. You seem to be quite knowledgeable on CO2. Where do you see a fair SP currently for this fund. $2 seems quite a leap from where it was recently sitting. Do you feel this rally will subside back to around 1.7- 1.8 again?
they update NTA daily on NZX (announcements). Current fund price is pricing in an increase in NZU price, which is speculative. Until recently it traded more-or-less at NTA. There are commentators who think NZU price will rise, others that think it will stay reasonably static, and others even picking a price correction. I dunno, i'll watch with interest, the December auction will be telling, but I suspect it will cause over-reactions.

someone mentioned arbitrage - look up NZ ETS post-1989 forestry arbitrage for a now-ended opportunity for foresters

[Maxtrade]

SP up 5% so far today, is this normal trade action for CO2, seems like a pretty firm rally?

[Davexl]

SP up a further 7.6% today, another strong move - is this sustainable at ~ 16c above NTA ?

Not that I'm complaining!

[kiwi_crusader]

James Shaw about to burn a heap of Carbon lol

[tommy_d]

SP up a further 7.6% today, another strong move - is this sustainable at ~ 16c above NTA ?

Not that I'm complaining!

right now, CO2 is basically an index fund on NZU prices. So, for recent price movement and trading in the fund above NTA

you'd want to:
a) think seriously about future price movement; and
b) more importantly, look at the volumes being traded driving nzu (i.e. underlying instrument) prices.

NZUs are commodities, not financial products, and in a sense the market is fairly unregulated (for background, see open consultation on changing governance of the nz emissions trading scheme secondary market here: https://consult.environment.govt.nz/climate/designing-a-governance-framework-for-the-nz-ets/

NZ's Environmental Protection Authority published on privately held NZU holdings (i.e. the NZU market) yesterday: https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/market-information/privately-held-units/
there was a change in published breakdowns, it is unclear why, and that might give some clues on likely future price scenarios in this market. The EPA have not explained the rationale for this change.

Of note, this is data at 30 June, and since then there has been an auction at which ~12 million NZUs were sold into market.
That suggests +/- 150 million privately held NZUs, current secondary market trade value (although possibly illiquid due to no sellers?) of approx. $65 - call that $10 billion-ish?

This is an unsophisticated market, with opportunity for those who take the time to understand it. However.... it's a market entirely created by regulation/law - no underlying fundamental desire for product.

Fascinating stuff eh....

edit: if you want to look at how seriously this is being considered, and use the market smarts of analysts from Genesis energy, check out their most recent results presentation, e.g. slide 24 here: .http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/GNE/377944/353149.pdf

@Beagle will be able to explain this better than i can, but NZUs as i understand it are treated as excepted financial instruments so retained in books at cost of purchase rather than being revalued.

NZ ETS impacts are not well considered by most....

[tommy_d]

NZU price dropped back to $61.50 from almost $66 over the last couple of days.

Could it be that successful bidders at the 1 September auction (cleared at just under $54) finally received their units and are taking profits?

Note, the delay between the auction and bidders receiving units isn't clear, however this FAQ from the auction website suggests that it may take up to seven working days https://www.etsauctions.govt.nz/public/training/faq :

Q: When will I receive my NZUs?
A: After settlement (12pm, four business days after the auction), the Auction Operator will provide the EPA Register with NZU transfer instructions for all fully paid invoices. These transfer instructions will be validated by the Ministry for the Environment before the EPA Register can transfer the units.

If you have not received your NZUs 7 business days after the auction, please contact the Auction Operator at auctions@nzx.com or (+64) 4 470 9768 and the EPA Register at emissionstrading@epa.govt.nz.

[gbogo]

paywalled sorry but interesting. watch for same action at Dec auction. https://businessdesk.co.nz/article/climate-change/unknown-player-makes-big-move-in-carbon-market

[Newman]

https://carbon-pulse.com/140627/?utm_source=CP+Daily&utm_campaign=cc715e2c47-CPdaily07102021&utm_medium=email&utm_term=0_a9d8834f72-cc715e2c47-110341541
Two companies secured around 6.5 million, or 57%, of the NZUs sold at last month’s record-breaking New Zealand carbon auction, regulator data showed Thursday.

[Newman]

New Zealand releases 2022 ETS auction calendar
Published 04:06 on October 4, 2021 / Last updated at 04:06 on October 4, 2021 / Asia Pacific, New Zealand / No Comments

The New Zealand environment ministry has released its NZU auctioning calendar for next year, with the first sale due in mid-March.
https://carbon-pulse.com/140257/?utm_source=CP+Daily&utm_campaign=4f45bc1124-CPdaily04102021&utm_medium=email&utm_term=0_a9d8834f72-4f45bc1124-110341541

[Sparky669]

Today's ETS auction cleared at $68.

[gbogo]

Today's ETS auction cleared at $68.

- European price is $110 NZ equiv.
- More countries adding ETS system in order to meet COP obligations.
- New floor of $70 next month here in NZ

still feels like a near-sure thing.

Disc: my biggest NZ holding now.

[haewai]

Floor is $30 in 2022, not $70

[Ricky-bobby]

Hey guys, this one has pricked my interest as I know some very smart money is currently investing heavily into this sector. What’s your view on the share price over the next month? Potential dip on the cards and opportunity for a good entry point?

[Sparky669]

Hey guys, this one has pricked my interest as I know some very smart money is currently investing heavily into this sector. What’s your view on the share price over the next month? Potential dip on the cards and opportunity for a good entry point?

there were some neat stuff from the previous posts from people firstly drew their attention on this. Some readings were very informative. Now would be a good point as the NTA is 2.041 today while highest buy at 2.03 with lowest sell at 2.04.

[gbogo]

Floor is $30 in 2022, not $70

sorry - my bad. the CCR level is $70 - the point at which more supply is released. Usually, that would seem to create a short-term top for a market, but in this case, in 2021, it seemed to trigger a buying frenzy..

International Carbon Action Partnership (ICAP) - New Zealand updates cap and price control settings (icapcarbonaction.com) (https://icapcarbonaction.com/en/news-archive/793-new-zealand-updates-cap-and-price-control-settings)

[Mya]

Here are some random thoughts and stats. Welcome any corrections or criticisms.

* From 2019 data, non-agricultural emissions were 39.3 million tCO2e, forestry accounted for 27.4 mtCO2e, resulting in a net non-ag emissions of 11.9m tCO2e. https://emissionstracker.mfe.govt.nz/#NrAMBoEYF12TwCIByBTALo2wBM4eiQCc2AHEltEA

* ETS auctions non-CCR volume next year is 19.3m, so this is already higher than our annual emissions. Including CCR volume is 26.3m units, this represents 2.2 years worth of net emission units. https://www.etsauctions.govt.nz/

* Non-CCR auction volume decreases each year, 18.6m in 2023, 17.2m in 2024, 15.5m in 2025.

* NZ companies have already stockpiled a lot of NZUs, about 63m non-forestry units, or about 135m including forestry units. Some companies are hoarding many, many years of emissions to hedge future costs

* CCR price is $70 next year and set to increase 12.5%pa every year to $110 by 2026, but this does not mean the carbon price will increase by this amount.

* The CCC have a future projected carbon price path, but this is not necessarily what the carbon price should meet. By their own admission, they don't really know what price will trigger the required degree of change in the market to push to greener technologies. The intention is to provide a wide price range and the market can dictate what the price should be, while the CCR should theoretically be the ceiling each year.

* Current ETS scheme has a fixed quantity of units to auction from 2021 through to 2025 (~90m), after 2025 we have no idea what will happen, and especially how agriculture could be included.

* By 2025 agriculture is supposed to either join the ETS scheme or have their own scheme to incentive emissions reductions. Some punters have said they could absorb a 5% liability of their emissions via the ETS scheme, which would increase the market demand by ~2m based on 2019 data. Presumably their liability will increase each year which will increase demand.

* Above data is from 2019, does not reflect company emission reductions schemes or increase in forestry over the last 2 years. In all likelihood company emissions will continue to go down (especially when NZU is $68 compared to $35 a year ago), while forestry units generated will continue to go up, therefore the net required number of NZUs should go down each year.

* Prior to May 2021, ETS units could be bought directly from the govt ($25/t increasing to $35/t in 2020). The introduction of the auction system in 2021, along with the reports of the CCC, exposure from COP26, etc, drove up the carbon price in 2021.

* Most companies do not buy units directly, they buy via contract with a bank - so agree to buy future units at a future price, with the price profile dictated by the bank's carbon price projection models. Current models predict a ~$3 increase over the next 2 years compared to the last auction price at $68 (ie that is the premium paid by the retailer through the bank holding the contract).

* In May companies are required to surrender their units for the previous year, if they have not purchased enough last year to cover their liability, the March auction could have a lot of action, as could the secondary market in April.

* Carbon Fund currently trading at NTA thus current price is predicting no growth of this fund.

My interpretation:

Companies are stockpiling units in a big way. Net emissions volume is less than non-CCR ETS volume so CCR will only be triggered if companies still continue to stockpile, but even then, the CCR price next year is $70 compared to closing Dec auction cost of $68, so I don't see the price exploding next year.

Carbon price could continue to rise in the coming years but I don't think it will in a big way. The explosion of carbon price this year was related to the introduction of the Auction system, companies seeing the writing on the wall in terms of emissions liability, company board requirements to hedge future carbon prices and hold a number of year's worth of NZUs to appease shareholders, by the end of 2021 emissions budgets have been developed by many companies highlighting their need to stockpile units, and debt was also cheap this year so great time to stock up on credits compared to future years where interest rates will be higher.

Changes in legislation and which colour the govt is could vastly change the landscape and significantly impact the value of the carbon price and this fund. National could reverse or slow down some of the ETS, resulting in a reduction in carbon price. If Labour need to go into a coalition with Greens again, and Greens ever grow a pair and hold Labour to account, Labour could become more aggressive in the ETS scheme.

Conclusion: Don't buy.

[haewai]

Not all forestry is in the ETS, so don't use the emissions tracker to predict ETS supply and demand
The supply of emission units to ETS foresters is not part of calculating auction volume: https://environment.govt.nz/what-government-is-doing/key-initiatives/ets/nz-ets-market/setting-unit-limits-in-the-nz-ets/
Interested in your evidence of hoarding. Here's the actual data: https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/market-information/privately-held-units/ Sure, hedging is sensible for some participants, but not all. And there is clearly some investment holdings eg this CO2 fund

[Mya]

Do you have any idea how much of forestry is not generating credits in the ETS scheme? And why is that?

I didn't say they were used to calculate auction volume, but my point is once you factor in the amount of forestry credits being generated, there is less annual demand for NZU's than are being sold by auction (based on 2019 data) even excluding CCR.

Privately held NZUs: https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/market-information/privately-held-units/

[haewai]

Do you have any idea how much of forestry is not generating credits in the ETS scheme? And why is that?

Participation is voluntary for foresters. Numbers are here: https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/ets-reports/emissions-returns/

[tommy_d]

Here are some random thoughts and stats. Welcome any corrections or criticisms.

* From 2019 data, non-agricultural emissions were 39.3 million tCO2e, forestry accounted for 27.4 mtCO2e, resulting in a net non-ag emissions of 11.9m tCO2e. https://emissionstracker.mfe.govt.nz/#NrAMBoEYF12TwCIByBTALo2wBM4eiQCc2AHEltEA

Incorrect choice of forestry data to consider, you should be looking at units transferred into the market for forestry, here might be a good start: (https://emissionstracker.mfe.govt.nz/#NrAMBoEYF12TwCIByBTALo2wBM4eiQCc2AHEltEA)https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/ets-reports/unit-movement/


* ETS auctions non-CCR volume next year is 19.3m, so this is already higher than our annual emissions. Including CCR volume is 26.3m units, this represents 2.2 years worth of net emission units. https://www.etsauctions.govt.nz/
you should be comparing auction volumes with mandatory ETS surrender obligations = approximately 40 million units, e.g. see here: (https://www.etsauctions.govt.nz/)https://www.epa.govt.nz/assets/Uploads/Documents/Emissions-Trading-Scheme/Reports/Emissions-returns/Participant-Emissions-Report.pdf

* Non-CCR auction volume decreases each year, 18.6m in 2023, 17.2m in 2024, 15.5m in 2025.
you might want to check these numbers, subtract CCR from total available to be auctioned from the regs as they will be at 1 January 2022: https://www.legislation.govt.nz/regulation/public/2021/0290/latest/LMS548494.html#LMS548494

* NZ companies have already stockpiled a lot of NZUs, about 63m non-forestry units, or about 135m including forestry units. Some companies are hoarding many, many years of emissions to hedge future costs
it's easy to overstate stockpile hedge - from memory Nigel Brunel wrote a good piece on this, or might have been Lizzie from carbonmatch. Effectively, many units are held by foresters against future harvest obligations so are not available to market.

* CCR price is $70 next year and set to increase 12.5%pa every year to $110 by 2026, but this does not mean the carbon price will increase by this amount.
100% agree with you on this, so many people mis-understand what the CCR trigger price is...

* The CCC have a future projected carbon price path, but this is not necessarily what the carbon price should meet. By their own admission, they don't really know what price will trigger the required degree of change in the market to push to greener technologies. The intention is to provide a wide price range and the market can dictate what the price should be, while the CCR should theoretically be the ceiling each year.
again, 100% agree

* Current ETS scheme has a fixed quantity of units to auction from 2021 through to 2025 (~90m), after 2025 we have no idea what will happen, and especially how agriculture could be included.
spot on

* By 2025 agriculture is supposed to either join the ETS scheme or have their own scheme to incentive emissions reductions. Some punters have said they could absorb a 5% liability of their emissions via the ETS scheme, which would increase the market demand by ~2m based on 2019 data. Presumably their liability will increase each year which will increase demand.
I love to speculate on where agriculture will land with respect to the ETS, safe to say nobody has a clue

* Above data is from 2019, does not reflect company emission reductions schemes or increase in forestry over the last 2 years. In all likelihood company emissions will continue to go down (especially when NZU is $68 compared to $35 a year ago), while forestry units generated will continue to go up, therefore the net required number of NZUs should go down each year.
it will be interesting to see how price changes previously only hypothetical actually impact things

* Prior to May 2021, ETS units could be bought directly from the govt ($25/t increasing to $35/t in 2020). The introduction of the auction system in 2021, along with the reports of the CCC, exposure from COP26, etc, drove up the carbon price in 2021.
not quite "bought from the govt", rather, surrender obligations could be met by paying these dollar amounts to the govt, and units were transferred to meet the associated surrender obligations

* Most companies do not buy units directly, they buy via contract with a bank - so agree to buy future units at a future price, with the price profile dictated by the bank's carbon price projection models. Current models predict a ~$3 increase over the next 2 years compared to the last auction price at $68 (ie that is the premium paid by the retailer through the bank holding the contract).
interesting hypothesis... you might mean via a contract associated with a trading platform such as commtrade?
the carbon price for forward delivery is nothing to do with a prediction, but is instead entirely related to cost-of-carry (in effect, cost of access to capital and arb opportunity associated with that)

* In May companies are required to surrender their units for the previous year, if they have not purchased enough last year to cover their liability, the March auction could have a lot of action, as could the secondary market in April.
didn't you say above they're all hedged? ;) agree, could be interesting. Look at the monthly trade volumes published by EPA to see the annual variation as that deadline approaches

* Carbon Fund currently trading at NTA thus current price is predicting no growth of this fund.
so, is the market right or wrong on future price of carbon? look at december 2020 CO2 instrument value

My interpretation:

Companies are stockpiling units in a big way. Net emissions volume is less than non-CCR ETS volume so CCR will only be triggered if companies still continue to stockpile, but even then, the CCR price next year is $70 compared to closing Dec auction cost of $68, so I don't see the price exploding next year.
would be really interesting to see your updated interpretation based on corrections above. My guess = a price fall to around $65, or at most up to $75 by mid-next year

Carbon price could continue to rise in the coming years but I don't think it will in a big way. The explosion of carbon price this year was related to the introduction of the Auction system, companies seeing the writing on the wall in terms of emissions liability, company board requirements to hedge future carbon prices and hold a number of year's worth of NZUs to appease shareholders, by the end of 2021 emissions budgets have been developed by many companies highlighting their need to stockpile units, and debt was also cheap this year so great time to stock up on credits compared to future years where interest rates will be higher.

Changes in legislation and which colour the govt is could vastly change the landscape and significantly impact the value of the carbon price and this fund. National could reverse or slow down some of the ETS, resulting in a reduction in carbon price. If Labour need to go into a coalition with Greens again, and Greens ever grow a pair and hold Labour to account, Labour could become more aggressive in the ETS scheme.

Conclusion: Don't buy.


the ETS is complicated, so it's not surprising that you've got a good mix of things correct and things incorrect above.... i've added notes in bold italics

[tommy_d]

Do you have any idea how much of forestry is not generating credits in the ETS scheme? And why is that?

I didn't say they were used to calculate auction volume, but my point is once you factor in the amount of forestry credits being generated, there is less annual demand for NZU's than are being sold by auction (based on 2019 data) even excluding CCR.

Privately held NZUs: https://www.epa.govt.nz/industry-areas/emissions-trading-scheme/market-information/privately-held-units/
post-1989 forestry involvement in the NZ ETS is optional. Can't remember the percentage of eligible forestry that is in the scheme - under half:
https://www.interest.co.nz/rural-news/112617/there-are-close-400000-hectares-non-registered-post-1989-forests-eligible-join
https://www.epa.govt.nz/assets/Uploads/Documents/Emissions-Trading-Scheme/Reports/Annual-Reports/88be7cb061/2017-ETS-Facts-and-Figures.pdf

any move to allow averaging for previously registered post-1989 forestry could stir things up a bit

[kiora]

Ouch, this is really really nuts !
https://www.newshub.co.nz/home/new-zealand/2022/01/5000-hectare-historic-station-on-east-coast-could-soon-be-foreign-owned-carbon-farm.html?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Wednesday+1 2+January+2022

[Sideshow Bob]

Ouch, this is really really nuts !
https://www.newshub.co.nz/home/new-zealand/2022/01/5000-hectare-historic-station-on-east-coast-could-soon-be-foreign-owned-carbon-farm.html?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Wednesday+1 2+January+2022

Really is just nuts.......helping overseas companies meet their obligations.

Farm in Southland recently sold for the same thing. From what I understand, at least 4 other bidders at around $10m, but sold to an overseas company for around $17m.

Can't blame the vendors, but just crazy what it is doing to our environment and economy.

[ados_nz]

A little bit of misconception here as the overseas buyers are required to establish production forestry (as opposed to permanent carbon forestry) under their OIO requirements. These investors do receive carbon under the averaging accounting methodology (16 years of carbon for P. rad) but will be managing these forests as production forests that are harvested to provide log supply both domestically and export.

Also, interesting to note that we are only just approaching the same net stocked area of forestry that we had prior to the dairy boom. What we are seeing is not a rapid expansion of one industry(despite the current rhetoric). Instead this is actually a relocation of the forest resource from the lower LUC classes (I.e. high quality land that underwent dairy conversions) to the hill country (higher LUC classes) where forestry actually grows better. The land grab occurred in the conversion from forestry to dairy and the forestry industry is only just rebuilding its estate. This is actually a really nice example of an economic prioritisation of land use (from low earning farming land use to a higher earning forestry land use), an economic prioritisation that will be a net benefit to the NZ economy long-term. If only there was more domestic capital available to invest so we weren't so reliant in the big overseas funds.

[haewai]

Really is just nuts.......helping overseas companies meet their obligations.


The carbon units received by the offshore investors are not able to be used to meet their obligations. No emissions trading scheme allows people to meet obligations by buying or receiving emission units somewhere else in the world.

Different story with voluntary offsetting, though I doubt that's the intention of this particular investment.

Of more importance to the CO2 fund is the increase in emission unit prices today.

[Sideshow Bob]

The carbon units received by the offshore investors are not able to be used to meet their obligations. No emissions trading scheme allows people to meet obligations by buying or receiving emission units somewhere else in the world.

Different story with voluntary offsetting, though I doubt that's the intention of this particular investment.

Of more importance to the CO2 fund is the increase in emission unit prices today.


A little bit of misconception here as the overseas buyers are required to establish production forestry (as opposed to permanent carbon forestry) under their OIO requirements. These investors do receive carbon under the averaging accounting methodology (16 years of carbon for P. rad) but will be managing these forests as production forests that are harvested to provide log supply both domestically and export.

Agree, the emission unit price is most important, as the value and trading of carbon credits drives the value.

Interesting to understand the space, and appreciate the info/comment.

If they are being bought for timber, there is a clear mis-reporting, or not finding the real facts - and this has been commonly reported for similar land purchases and through different media channels.

While maybe not using the carbon credits, perhaps a hedge on carbon, and then sell and then can buy credits where they need to.

Some of the farms being bought aren't just hill country, but better performing sheep/beef units.

[kiora]

Like this one, crazy as.
"5000-hectare historic station on East Coast could soon be foreign-owned carbon farm"
https://www.newshub.co.nz/home/new-zealand/2022/01/5000-hectare-historic-station-on-east-coast-could-soon-be-foreign-owned-carbon-farm.html

[Sideshow Bob]

Like this one, crazy as.
"5000-hectare historic station on East Coast could soon be foreign-owned carbon farm"
https://www.newshub.co.nz/home/new-zealand/2022/01/5000-hectare-historic-station-on-east-coast-could-soon-be-foreign-owned-carbon-farm.html

DejaVu??

Same article as you posted yesterday??

[Sideshow Bob]

NTA this morning was $2.1672

Price this afternoon $2.26....

[Sideshow Bob]

Continuing its upward trend, and continues to trade north of NTA.

63.8% in the 12 months!! :p

[maclir]

And now moving down, with NTA going from 2.40 a week ago to 2.31, and price pulled back to 2.32. I think it's because of the martial uncertainty coming out of Ukraine but would be interested in others' opinion.

[Sideshow Bob]

And now moving down, with NTA going from 2.40 a week ago to 2.31, and price pulled back to 2.32. I think it's because of the martial uncertainty coming out of Ukraine but would be interested in others' opinion.

91% of their assets are currently carbon credits in the NZ Emmissions Trading Scheme - but not sure what triggered the drop. I guess like any market, doesn't go in a straight line??

Would have thought Putin's tanks would put out a few emmissions..... :scared::p

[haewai]

And now moving down, with NTA going from 2.40 a week ago to 2.31, and price pulled back to 2.32. I think it's because of the martial uncertainty coming out of Ukraine but would be interested in others' opinion.

Try this to improve your understanding: https://www.ey.com/en_nz/sustainability/nz-ets-prices-dont-bank-on-the-bull-run-continuing

[maclir]

Try this to improve your understanding: https://www.ey.com/en_nz/sustainability/nz-ets-prices-dont-bank-on-the-bull-run-continuing

thanks, haewai - unfortunately getting Http/1.1 Internal Server Error 43531. Hopefully it will be available later.

and not it's there

[haewai]

That's weird, I dont. Here's the paper: https://assets.ey.com/content/dam/ey-sites/ey-com/en_nz/pdfs/ey-nz-ets-ets-price-dont-bank-on-the-bull-run-continuing.pdf

[maclir]

That's weird, I dont. Here's the paper: https://assets.ey.com/content/dam/ey-sites/ey-com/en_nz/pdfs/ey-nz-ets-ets-price-dont-bank-on-the-bull-run-continuing.pdf

Was just a temporary error. I've read the paper and it was interesting as far as it went. As with all things at the moment the impact of Ukraine and Covid on the recent drop in price is tough to figure - NTA was up today, but unit price dropped 8c.

[Sideshow Bob]

Fallen out of bed pretty quick.

NTA today at $2.205, but currently down 9.5% today to $1.91!!

[Newman]

The spot price of carbon units is $70.25 now. It seems that a magic force is to pull the price down to $70 so that the Government does not have to offer 7 million reserve units for auction on March 16. The NTA of CO2 shares would be 5% lower than the $2.17 announced yesterday if the change in the spot price of carbon units is used to calculate the NTA of CO2 shares.

[haewai]

The 7 million reserve units are part of the auction. It doesn't matter what is going on with spot prices. The auction is a different event. If the auction initially clears above the reserve trigger price of $70, the reserve volume comes into the supply side.

[gbogo]

Carbon Units should theoretically follow the NTA and the NZ ETS Spot price but there is a 20-hour delay on the NTA. Spot price also seems to follow European and other carbon prices. KRBN ETF gives a good overview of that.

[Newman]

https://www.etsauctions.govt.nz/public/auction_noticeboard/24
10,518,300 units sold at $70

[Sideshow Bob]

Trading well under NTA in recent times. Latest today $2.05 vs NTA $2.2034. Almost 7% discount.

Can they buy back their own units....??

[kiora]

Farmers Weekly Markets Friday, May 27, 2022
"Whatever the outcome, it’s an increasingly likely possibility that those countries who want to trade with the EU will face barriers if they have low or no carbon prices on their exports"

[freddagg]

Trading well under NTA in recent times. Latest today $2.05 vs NTA $2.2034. Almost 7% discount.

Can they buy back their own units....??

Pretty sure that's what this announcement is about
https://www.nzx.com/announcements/392584

[nztx]

Pretty good sort of Unit Market Price upward trend on these in just 1 year..

[tommy_d]

https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/nz-ets/our-advice-on-the-nz-ets/nz-ets-unit-limits-and-price-control-settings-for-2023-2027/
shame the technical annexes haven't been made available

[Newman]

China halts military, climate ties with U.S.:
https://www.cnbc.com/2022/08/05/china-halts-climate-military-ties-over-pelosi-taiwan-visit.html?&qsearchterm=China%20Climate%20change
Is it the beginning of the end of the Paris Agreement?

[haewai]

https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/nz-ets/our-advice-on-the-nz-ets/nz-ets-unit-limits-and-price-control-settings-for-2023-2027/
shame the technical annexes haven't been made available

Up now: https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/nz-ets/our-advice-on-the-nz-ets/nz-ets-unit-limits-and-price-control-settings-for-2023-2027/technical-annexes-and-supplementary-documents-advice-on-nz-ets-unit-limits-and-price-control-settings-for-2023-2027/ (https://aus01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.climatecommission.govt.nz%2 Four-work%2Fadvice-to-government-topic%2Fnz-ets%2Four-advice-on-the-nz-ets%2Fnz-ets-unit-limits-and-price-control-settings-for-2023-2027%2Ftechnical-annexes-and-supplementary-documents-advice-on-nz-ets-unit-limits-and-price-control-settings-for-2023-2027%2F&data=05%7C01%7CScott.Gulliver%40mfe.govt.nz%7C6920 0b50fd534baa13b508da79c7c5ae%7C761dd003d4ff40498a7 28549b20fcbb1%7C0%7C0%7C637956196179362502%7CUnkno wn%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luM zIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=lI%2B4RqWbBIN6p7ul1Jcq0nSn6CFireQH0quY9iQ7iV E%3D&reserved=0)

[tommy_d]

Up now: https://www.climatecommission.govt.nz/our-work/advice-to-government-topic/nz-ets/our-advice-on-the-nz-ets/nz-ets-unit-limits-and-price-control-settings-for-2023-2027/technical-annexes-and-supplementary-documents-advice-on-nz-ets-unit-limits-and-price-control-settings-for-2023-2027/ (https://aus01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.climatecommission.govt.nz%2 Four-work%2Fadvice-to-government-topic%2Fnz-ets%2Four-advice-on-the-nz-ets%2Fnz-ets-unit-limits-and-price-control-settings-for-2023-2027%2Ftechnical-annexes-and-supplementary-documents-advice-on-nz-ets-unit-limits-and-price-control-settings-for-2023-2027%2F&data=05%7C01%7CScott.Gulliver%40mfe.govt.nz%7C6920 0b50fd534baa13b508da79c7c5ae%7C761dd003d4ff40498a7 28549b20fcbb1%7C0%7C0%7C637956196179362502%7CUnkno wn%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luM zIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=lI%2B4RqWbBIN6p7ul1Jcq0nSn6CFireQH0quY9iQ7iV E%3D&reserved=0)
thanks
what do you think caused the 3-4 week delay?

[Newman]

4.824 m sold @ $85.40. https://www.etsauctions.govt.nz/public/auction_noticeboard/28

[Newman]

EU carbon prices dropped a lot in the past few weeks. https://www.theice.com/products/197/EUA-Futures/data?marketId=6847132

[Ricky-bobby]

Down 10%… markets weakening and politics getting involved… https://businessdesk.co.nz/article/markets/carbon-prices-drop-more-than-10-off-record-high

[Newman]

CO2 auction price $79. https://www.etsauctions.govt.nz/public/auction_noticeboard/31

[Newman]

Does the bubble start to burst? Cabinet decision: https://environment.govt.nz/assets/publications/cab-22-min-0533-minute.pdf

[Ricky-bobby]

Hell of a drop today with bids drying up…

[ronaldson]

Wow. Can buy CO2 at $2.10 this morning. I wonder what James Shaw is thinking?

[GTM 3442]

Wow. Can buy CO2 at $2.10 this morning. I wonder what James Shaw is thinking?


I think that Mister Shaw might be thinking that he has just been sh*t on from a great height.

[Ricky-bobby]

Big dip, followed by a strong recovery over the last few days. Any news?

[clip]

I find this email worthwhile subscribing too, it comes maybe once a month so does not give a lot of spam, but contains useful information if you follow carbon markets
http://carbonmatchltd.forwardtomyfriend.com/r-oljxtlbk-9D624C9C-ttaihil-l-j







NEW ZEALAND CARBON MARKET NEWS
THURSDAY 13 APRIL 2023


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Carbon Match Update


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CCC ETS Settings Advice for 2024 - 2028 Released


The Climate Change Commission (CCC) has released its updated advice (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-h/) on recommended unit volumes and price settings for the NZ ETS for 2024-2028, to be tabled today by Minister Shaw (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-k/).
When the CCC's inaugural NZ ETS unit limits and price control settings advice (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-u/) (for the 2023-2027 period) was published on 27 July last year, NZU prices skyrocketed $10 to $82.
By year end, however, it emerged that the Government had decided not to follow certain key aspects of that advice in relation to price settings. Prices then dropped $10 to $75 and so far 2023 has seen NZU prices falling away, briefly touching a 2023 low of $54 on Carbon Match on 31 March.
Today's CCC recommendations have driven renewed buying interest, albeit that there is a lot to digest, and of course a consultation to follow from MfE sometime this quarter. (The Government must make decisions on the settings in time for the regulations to be updated by 30 September, such that new settings will come into force on 1 January 2024.)
This time around, the Commission has maintained similarly strong recommendations on price settings but now proposes quite significant additional reductions in the planned volumes scheduled for auctions in the 2026 and 2027 years.
Key points to note:
1. In this report the Commission is more explicit that their recommendations are intended to be effective as a package - that they are inter-related. Hence, in light of the Government deviating from the CCC's recommended approach late last year, and the associated market fallout, the CCC appears to have focused on volume reductions. Under the CCC's seven step methodology, two new subsets have also been added to the calculation.
When compared to the current settings in regulations (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-o/) in force today, this amounts to a proposal to reduce the Government's planned 2026 auction volume by 5 million units (from 20 to 15 million) and a further reduction in 2027 by 4.6 million units (from 17.6 to 13 million). That would make for a total reduction of 9.6 million units over just two years.
The CCC also recommends that the Government plans to sell 10.6 million units at auction in 2028. This is the first time a number for the 2028 year has been floated, so no comparator is available, but certainly it foreshadows a considerable tightening of auction supply. For example, in 2028, if adopted, the plan would be for the Government to auction off just 2.65 million NZUs per quarter - the most recent auction this year was for 4.475 million units.
2. The CCC appears to have stuck to their guns in terms of CCR trigger pricing. Two tiers of trigger prices are still recommended, and these are very similar to those in last year's advice, despite the Government maintaining a single tier trigger price based on status quo, inflation adjusted.
3. Perhaps in a nod to current carbon market fallout and the associated hole in the Crown accounts (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-b/), the CCC has also provided the Government with advice on settings "should circumstances allow for the 2024 and 2025 settings be adjusted". This leaves the door open for Government to make potential changes before next year's regulations kick in.
There's more to digest and a consultation document to follow, but if you're contemplating selling we'd encourage you to read today's updated advice (https://carbonmatchltd.cmail19.com/t/r-l-ttaihil-oljxtlbk-n/) yourself and check out pricing widely - best bid as of writing is $61, with offers somewhat higher as sellers get their heads around the new proposals.
Carbon Match - open every weekday 10am-5pm.

[Ricky-bobby]

Thanks for that Clip! Interesting… so they are looking to pull back volume to increase demand/price… I’m contemplating selling up my small holding as I see this fulling out of favour with business…. It’s a large cost with not a lot of gain.

[kiora]

Will anything change after election?
https://www.interest.co.nz/rural-news/122746/guy-trafford-has-look-where-nzs-five-main-trading-partners-are-their-agriculture

[Sideshow Bob]

https://www.nzx.com/announcements/415248

Salt Investment Funds Limited, the manager of the Carbon Fund, welcomes the government's decision to adjust the Emissions Trading Scheme (ETS) auction settings late yesterday.

In summary, these changes include:

• Auction price floor settings will rise from the current level of $33.06 to $60 in December 2023, with further increases thereafter.
• In December 2023, the price to trigger any release of extra NZU volumes from the Cost Containment Reserve (CCR) will be $173 rather than the current trigger price of $82.
• In 2024, the total CCR volume will decrease from 8 million NZUs under the current settings to 7.7 million NZUs, and will continue decreasing in the following years.

The government has accepted most of the Climate Change Commission recommendations from 2022 but has made earlier cuts to the volume of units available at auction thereby smoothing out the steep rate of decline that would have otherwise been needed from 2026.

See the attachment for more information on the changes.

[Snoopy]

https://www.nzx.com/announcements/415248

Salt Investment Funds Limited, the manager of the Carbon Fund, welcomes the government's decision to adjust the Emissions Trading Scheme (ETS) auction settings late yesterday.

In summary, these changes include:

• Auction price floor settings will rise from the current level of $33.06 to $60 in December 2023, with further increases thereafter.
• In December 2023, the price to trigger any release of extra NZU volumes from the Cost Containment Reserve (CCR) will be $173 rather than the current trigger price of $82.
• In 2024, the total CCR volume will decrease from 8 million NZUs under the current settings to 7.7 million NZUs, and will continue decreasing in the following years.

The government has accepted most of the Climate Change Commission recommendations from 2022 but has made earlier cuts to the volume of units available at auction thereby smoothing out the steep rate of decline that would have otherwise been needed from 2026.

See the attachment for more information on the changes.

And the unit price rises 23.4% on opening to $1.90!

I have hummmed and harrred about investing these. There is no 'income' associated with these units, for those who buy these units on the sharemarket anyway. This is always a 'red flag' for me. So the pricing of the units seems to rely on how one might think government policy, regarding climate change, will play out. How would a National/ACT coalition interefere with this pricing mechanism?

From today's press release:
"The government has accepted most of the Climate Change Commission recommendations from 2022 but has made earlier cuts to the volume of units available at auction thereby smoothing out the steep rate of decline that would have otherwise been needed from 2026."

Does this mean that those who need to purchase carbon units will may more in the short term, but less in the medium term?

What was it that was meant to happen from 2026? Is that the date climate change stops getting worse? I think the government realises that planting trees for carbon credits is a 'stop gap measure'. So is 2026 the date where the stop gap stops? What happens when a wildfire goes through some of these carbon credit forests? Do the carbon credits get cancelled?

If government policy moves entirely towards decreasing CO2 emissions, rather than mitigating their effect, what does that do to the CO2 unit price?

Maybe someone who is invested in these units can explain?

SNOOPY

[clip]

latest carbon match email, I find the regular updates they provide on the ETS are very good



Carbon Match Update


Tongariro Crossing: Marie Wiedenbrueck
https://ci6.googleusercontent.com/proxy/B1bIJGWBmVBwpUT7_1mIWl9FxWW4Y-VF-o3HoVZxmdnFqKyu1hallYSbggkLVn5HvOWawiMzpIKGshALRWI uua_i6V_ni_KdvXwxYNSlJwB8etuZXuzUd18DGPhswu2p6zgQv YqZLTXpClvrsdiHJJfTLg=s0-d-e1-ft#https://i1.cmail19.com/ei/r/D9/201/2D4/csimport/34C9FA8F-7341-4AEC-8561-5D15DFF15A10.234409.jpeg




Greetings from a Parallel Universe


Those who enjoyed the movie "Sliding Doors" might find intrigue in the latest events in the New Zealand carbon market. Yes, really, the events of today had us feeling like we'd glitched through time.
As already well covered, last November saw Cabinet largely ignore the advice of the Climate Change Commission in respect of ETS Settings - (these are not carbon prices per se, but auction guidelines - outer bounds if you will - within which NZU auction sales by Government might take place).
After much fanfare, the institutional reform and the build-up, the NZU price slumped on pre Christmas news that, instead of listening to the independent Commission it had so recently helped instate, Cabinet had instead taken an alternative view over cost of living concerns, adopting measures far weaker (and indeed already outpaced on the secondary market).
In particular, the trigger price at which extra volume could be made available at the 2023 auctions was set at a $80.64, rather than the two tiered $171/$214 trigger prices recommended by the CCC.
Confidence severely eroded, NZU prices buckled sharply, lost $10 within a week and slipped further back in recent times to trade on the secondary market around the mid to low $30s, a far cry from their previous all time high of $88.50 (mid November 2022). Procurement buyers paused, yesterday's purchases feeling like today's mistakes, suddenly unsure of direction or strategy.
Spot volumes have since dwindled and uncertainty has been further exacerbated by some blue-sky thinking explored in a recent ETS Review consultation document.
Then, as we wrote last week (https://carbonmatchltd.cmail19.com/t/r-l-ttdkdyud-oljxtlbk-t/), NZUs firmed notably following news that the High Court had ruled (https://carbonmatchltd.cmail19.com/t/r-l-ttdkdyud-oljxtlbk-i/) that the Climate Minister must reconsider ETS settings for 2023-2027 (in conjunction with the already scheduled decision on 2024-2028 settings), with new regulations to be made by the end of September this year.
(Shaw admitted he had erred in recommending the unit limits and price control settings without adequately evaluating whether they were in accordance with the NDC and Emissions Budgets as required in the CCRA.)
So, over the last week it's fair to say that a redraw was on the cards and prices were already firming a little to reflect that. What we did not expect was that action would be quite so swift. (The Court had noted that the auction could not function without settings in place, and that it would be unrealistic for Amendment Regulations to be reconsidered before the 6th September auction.)
But earlier this evening the Climate Change Minister announced (https://carbonmatchltd.cmail19.com/t/r-l-ttdkdyud-oljxtlbk-u/) that Cabinet has decided to follow the advice of the Climate Change Commission after all, putting us "in lock step with advice provided by the Climate Change Commission in 2022 and 2023" and with "17.6 million fewer NZUs auctioned over 2023 – 2028 when compared to the current settings".
This will leave ETS participants in a position to discover a far less constrained market price. Once the new settings are in place, the Government will only be able to sell NZUs above the auction floor of $60, with cost containment volume only available in theory from $173 (cf. the current $80.64).
https://ci6.googleusercontent.com/proxy/7Gl9i03BTrQnJ8dOqYuRdpp5PAf6k0YLFJTsn3HYSAWZufT94J RqOh06MbUPz09xPu0GS0-dp--lJwX6JiOvPEsGFCacPYTVYlDRmKbdpO_Jy9GhB7iyuUBvKufdL WVvYtNH_2lM-pCQ36Thr24=s0-d-e1-ft#https://i2.cmail19.com/ei/r/D9/201/2D4/csimport/ScreenShot2023-07-25at10.28.36PM.232308.png







Source: MfE as at 25 July

The accompanying announcement from MfE (https://carbonmatchltd.cmail19.com/t/r-l-ttdkdyud-oljxtlbk-o/) states that the new settings will take effect for the December auction, though of course the market will be forward looking.
So, it seems that the September auction will run before those sliding doors close. But with a general election just around the corner, who knows how many will get on that train, or even if it will leave the station.
Still, jumped we have, and the direction of travel is once again clearer. Tune in on our open at 10am and let's see what happens next.
Carbon Match (https://carbonmatchltd.cmail19.com/t/r-l-ttdkdyud-oljxtlbk-b/) - open 10am - 5pm every weekday.

[traineeinvestor]

And the unit price rises 23.4% on opening to $1.90!

I have hummmed and harrred about investing these. There is no 'income' associated with these units, for those who buy these units on the sharemarket anyway. This is always a 'red flag' for me. So the pricing of the units seems to rely on how one might think government policy, regarding climate change, will play out. How would a National/ACT coalition interefere with this pricing mechanism?

From today's press release:
"The government has accepted most of the Climate Change Commission recommendations from 2022 but has made earlier cuts to the volume of units available at auction thereby smoothing out the steep rate of decline that would have otherwise been needed from 2026."

Does this mean that those who need to purchase carbon units will may more in the short term, but less in the medium term?

What was it that was meant to happen from 2026? Is that the date climate change stops getting worse? I think the government realises that planting trees for carbon credits is a 'stop gap measure'. So is 2026 the date where the stop gap stops? What happens when a wildfire goes through some of these carbon credit forests? Do the carbon credits get cancelled?

If government policy moves entirely towards decreasing CO2 emissions, rather than mitigating their effect, what does that do to the CO2 unit price?

Maybe someone who is invested in these units can explain?

SNOOPY

My rather simplistic view is that these units are a punt on future government policies which makes it very hard to put a longer term value on them.

[haewai]

From today's press release:
"The government has accepted most of the Climate Change Commission recommendations from 2022 but has made earlier cuts to the volume of units available at auction thereby smoothing out the steep rate of decline that would have otherwise been needed from 2026."

Does this mean that those who need to purchase carbon units will may more in the short term, but less in the medium term?

What was it that was meant to happen from 2026? Is that the date climate change stops getting worse? I think the government realises that planting trees for carbon credits is a 'stop gap measure'. So is 2026 the date where the stop gap stops?



That line is wrong. It should refer to the Commission's 2023 advice which had those steep declines because the law doesn't allow the Government to update settings for the next two years. But instead the Government could do those updates because the Court required them to.



What happens when a wildfire goes through some of these carbon credit forests? Do the carbon credits get cancelled?

Not cancelled, but repaid if the forester was using measurements. If the forester was using the new system of carbon accounting, then nothing happens as long as the forest is replanted in four years.



If government policy moves entirely towards decreasing CO2 emissions, rather than mitigating their effect, what does that do to the CO2 unit price?

That's exactly the point of a cap on emissions. The cap sets the supply limit, demand sets the price, the price drives the emission reductions

[Snoopy]

If government policy moves entirely towards decreasing CO2 emissions, rather than mitigating their effect, what does that do to the CO2 unit price?




That's exactly the point of a cap on emissions. The cap sets the supply limit, demand sets the price, the price drives the emission reductions


First of all thanks for your answers. I have learned something. I do have a problem with that last answer though.

'Emissions reductions' occur when current energy use practices are realigned in such a way that carbon output is reduced. Carrying on as we are and trying to offset that by planting trees is not sustainable. Planting trees is a necessary short to medium term measure to capture some of that excess CO2 that already exists. I grant you that. But ultimately you can't 'carbon farm' your way out of climate change. It is the day to day operational processes that industry and consumers follow that must change for that.

Hence we have government schemes that subsidise the purchase of new electric cars, as an example. And other schemes that see the likes of some coal fired boilers replaced with electrically powered boilers. Those are the schemes that will actually reduce emissions for NZ on a sustainable basis. I see the government doing more of that, rather than persisting with carbon credits as an indirect incentive. Where to for the carbon market then?

SNOOPY

[jonu]

First of all thanks for your answers. I have learned something. I do have a problem with that last answer though.

'Emissions reductions' occur when current energy use practices are realigned in such a way that carbon output is reduced. Carrying on as we are and trying to offset that by planting trees is not sustainable. Planting trees is a necessary short to medium term measure to capture some of that excess CO2 that already exists. I grant you that. But ultimately you can't 'carbon farm' your way out of climate change. It is the day to day operational processes that industry and consumers follow that must change for that.

Hence we have government schemes that subsidise the purchase of new electric cars, as an example. And other schemes that see the likes of some coal fired boilers replaced with electrically powered boilers. Those are the schemes that will actually reduce emissions for NZ on a sustainable basis. I see the government doing more of that, rather than persisting with carbon credits as an indirect incentive. Where to for the carbon market then?

SNOOPY

The whole carbon market and emissions measurement system is a giant ticket clipping scam. There are so many inconsistent standards and glaring omissions in the way they measure things.

1. The government won't recognise native or natural regenerating bush/scrub. Has to be planted. (I have sympathy for Maori landowners in this regard)

2. Farmers are having to fight to get shelter belts and bush filled gullies recognised, presumably because it is deemed to be too small on a farm by farm basis, but actually adds up to thousands of acres across the country.

3. Grass growth on farms isn't taken into account, but the methane produced by eating that grass is. Many farms would be neutral or close to it if this was taken into account. It's extraordinary that they measure the output without allowing for the input. It is a carbon cycle after all.

4. Wetlands. Wetlands have high ecological value but are also high emitters of methane. Hence the fears of the Siberian tundra permafrost melting. Yet we hear endless pleas for more wetlands without anyone bothering to calculate the methane ouput.

[Ricky-bobby]

There is a perception that the whole carbon offsetting is green washing… we as a business have moved away from it and instead of buying credits we now take that $$ saved and put it into initiatives that actually make a difference. Upgrading machinery etc. I can see other businesses will do the same, thus why I exited my salt shares…

[haewai]

Hence we have government schemes that subsidise the purchase of new electric cars, as an example. And other schemes that see the likes of some coal fired boilers replaced with electrically powered boilers. Those are the schemes that will actually reduce emissions for NZ on a sustainable basis. I see the government doing more of that, rather than persisting with carbon credits as an indirect incentive. Where to for the carbon market then?



Every effort and option is needed.
And markets are imperfect. There are failures and barriers and differing elasticities. Emissions costs are important to electrciity generation investment, but not to car buyers. Investing in new technology is risky. etc etc

[Snoopy]

Article here on today's events:
https://www.newsroom.co.nz/sustainable-future/surprise-decision-restores-climate-commissions-legitimacy

"Last year, the commission provided its first batch of advice on the Emissions Trading Scheme (ETS), required each year under the Zero Carbon Act, proposing major changes."

"These would curtail the number of units auctioned into the scheme in an effort to draw down a stockpile of units already held by polluters, which were obtained when the price of carbon was low. They would also increase the floor on the carbon price substantially and drastically increase a soft price ceiling, to better allow the market to find the right price to cut emissions."

The above was what was 'back-flipped' on today. So the 'go' button has now been placed on the formerly 'curtailed' plan.

I guess once carbon credits are created, they remain in the system. But why would polluters want to 'draw down their stock' of carbon units? Surely they could only do this if they could simultaneously change their production processes so they are not emitting so much CO2, and they therefore don't need the credits any more?

I guess the higher the carbon price, the greater the incentive to sell and spend the money you get on decarbonising your production processes?



There is a perception that the whole carbon offsetting is green washing… we as a business have moved away from it and instead of buying credits we now take that $$ saved and put it into initiatives that actually make a difference. Upgrading machinery etc. I can see other businesses will do the same, thus why I exited my salt shares…


Is the above effectively what you are doing Ricky-bobby?

SNOOPY

[Ricky-bobby]

Yep we changed to a carbon reducing standard. We are also planting trees etc, but this takes time and $$. the off-setts will take time to come online. Some companies will stick with carbon zero, but many won’t specially at the moment with the cost of business blowing out. It’s a nice to have.

[Sideshow Bob]

Quarterly Update

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/CO2/415524/399412.pdf

[clip]

Carbon Match


Q3 Auction Results
The third NZU auction for the year took place at midday today - and was "declined" again for the third time this year.


No volume had been sold at the previous two auctions, meaning that in addition to today's scheduled volume of 4.475 million, there was volume carried over from the first two auctions, taking the total available to 13.425 million.


A floor price of $33.06 applied, and a further 8 million units were available at a trigger price of $80.64. As usual, a Confidential Reserve Price (the "CRP") also applied.


For the Government to have sold volume at today’s auction, either (A) all 13.425 million units were required to be bid for at or above the CRP, or (B) a portion of the 13.425 million could be sold, subject to all buying interest turning up at a level at, or above, the CRP.


Neither of those scenarios bore out today, and we note that total volume bid for was just 7.674 million.


This auction was the final auction for the calendar year under the ‘old’ price control settings. Amendments to these were announced in July following the High Court decision ordering the Climate Change Minister to reconsider the ETS settings for 2023-2027.


In contrast to today's auction parameters, December auction will take place with new settings as follows:


Image
Carbon Match’s lowest priced trade for the year was at $38 in early July, and spot NZUs have in general been gaining ground ever since - with a last trade price of $70 at market opening this morning.


With today's Cost Containment Reserve ("CCR") trigger price ($80.64) some $10 above current secondary market pricing, the 8m extra CCR volume was not expected to be released this auction.


However, had all the primary scheduled volume bee sold today, at, for example, yesterday's closing price of $70, the Government would have received some $940 million.


Not all is lost. While new regulations are yet to be published, it is understood from the MfE website that the amended volumes (a downwards adjustment of 1.9 million from previous NZUs available by auction for 2023) will mean that the December auction will offer 15 million units (excluding the 8 million CCR). That could equate to a cash injection for an incoming Government of more than $1 billion assuming a similar price level.


There are variety of scenarios for the December auction - we will report back on this closer to the time. As of writing this (12.33pm) last trade for NZUs was $71.50. The situation is fluid so do log in and check out the board.


EPA Reports Available
On a separate note, the EPA’s annual ETS Participant Emissions Report was released yesterday. This details a summarised list of the ETS participants and their related reported emissions (tCO2e). Total reported emissions were down from the last two years, decreasing from 71 million to 67 million this year.


Total reported removals were up from around 8 million in the last two years, to 22.5 million this year - in part due to this year being the end of the five year MERP for forestry owners.


The corresponding surrenders presented in the EPA’s Unit Movement Report are not as expected, and we aware that many participants have been querying the discrepancy. In previous recent annual periods, total net surrenders were around 38-40 million. However the statistics for the most recent year showed total net surrender volume of just 25 million.


The EPA has now noted that this variance is due to the fact that the EPA proposes to amend certain emitters’ returns under the CCRA for this reporting period, thus the original surrender obligations are suspended until the relevant emissions return(s) have been satisfactorily corrected.

[Sideshow Bob]

Trading about 10% under NTA.

Since the 1st of October, they've bought back around 3% of the units as treasury stock (43m on issue), and announcements have said they've only issued about 4,500.

Must be a good game buying yourself at a 10% discount....

[nztx]

No James & No Robbo around to bicycle pump things up or down ; or survey large expanses of
little CO2 interest, Auctions going south like a lead balloon etc etc

and all the resident Mooloos out back soon get to pump out as much rich BS as they like to their hearts content
free of the Clingon's bales of red & green restraining tape :)

Merry Christmas - Muriel, Edna & Trev :)

[Sideshow Bob]

Price slumping - current discount to NTA over 15%.

They are almost be the only buyer in town. By my reckoning, they've bought back about 1.95m units so far this year according to disclosures.

Apparently average volume YTD is only 38.5k per day.........!!

https://www.intelligentinvestor.com.au/shares/nzx-co2/carbon-fund-units/share-price