CO2 - Carbon Fund units

[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.forwardtomyfri...9C-ttaihil-l-j

NEW ZEALAND CARBON MARKET NEWS THURSDAY 13 APRIL 2023

Carbon Match Update CCC ETS Settings Advice for 2024 - 2028 Released The Climate Change Commission (CCC) has released its updated advice on recommended unit volumes and price settings for the NZ ETS for 2024-2028, to be tabled today by Minister Shaw. When the CCC's inaugural NZ ETS unit limits and price control settings advice (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 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, 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 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-new...ir-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

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, NZUs firmed notably following news that the High Court had ruled 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 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).

Source: MfE as at 25 July The accompanying announcement from MfE 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 - 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