Profit-takers stall carbon price but $20 in sight for Christmas

Profit-takers are emerging, Nigel Brunel says.

The price of carbon in the New Zealand emissions trading scheme is nudging $19 a tonne and could reach $20 a tonne by Christmas, the director for financial markets at OMF, which operates a carbon trading platform, says.

However, with carbon prices hitting their highest price in six-and-a-half years, the OMF's Nigel Brunel said profit-takers were emerging despite the prospect of "much, much, much higher carbon prices" emerging as a new Labour-led administration looks to tackle climate change more aggressively than the National Party-led government of the last nine years.

The price of NZ Units (NZUs) – equivalent to a tonne of carbon – have reached as high as $18.95, having closed last Friday before the long weekend at $18.90.

"The market is probably pausing unnecessarily, in my view," said Mr Brunel, whose firm does not trade carbon but executes trades for a range of NZU traders, including large industrial greenhouse gas emitters, forest owners and traders who provide liquidity in the local carbon market, which has experienced a prolonged gestation in the absence of settled long-term policy on climate change reduction plans and, until 2015, the acceptance of low-quality, low-cost European carbon credits that pushed the carbon price below 50c a unit before they were banned.

A price above $15 a tonne is a rule of thumb level at which planting forests to create carbon sinks becomes commercially worthwhile, although many foresters have been reluctant to commit to investment in new carbon farming initiatives until long-term carbon charging policy is settled.

While Labour introduced the ETS in 2008 and National continued to develop it over its nine years in office, both Labour's partners in the newly formed government – the Greens and New Zealand First – oppose the ETS. The Green Party advocates a flat-rate carbon tax, pitched initially at $30 a tonne, to spur climate change action and went to the September 23 election with a policy to plant one billion trees over time.

NZ First has said it would incentivise climate change mitigation initiatives rather than have the "pointless" ETS and would encourage New Zealand-based manufacturing based on local timber. Labour has also said it would reintroduce a government forestry service. Details of the coalition agreement are expected this afternoon.

"I've been quite bullish on the carbon price for a long time," Mr Brunel said. "In the longer term, I think we are going much, much, much higher," he said, citing calculations based on the 2015 Paris climate change accords that could justify a global carbon price at $US70 a tonne.

"It's looking pretty good, even looking a bit cheap, but I don't know when it will hit $20 (a tonne), maybe by Christmas, but I would be buying."

Forests as carbon sinks are one of the primary ways New Zealand expects to meet its targets for GHG emissions reductions under the Paris accord but foresters have told the Productivity Commission it is "pointless to even expect the forestry sector to plant new forests without addressing the issue of land prices."

In a submission on the commission's low emissions economy investigation, the Forestry Leadership Group representing farm foresters, said current planning laws and an absence of carbon costs on pastoral agriculture are discouraging necessary new forest-planting on grasslands because such land is too expensive.

"Differential treatment of agriculture ... inflates land prices and discourages forest investment," the group's Aug 15 submission, recently made public, says. "A level playing field could only be created by subsidising the forest sector to a similar extent.

"The alternative is to introduce a meaningful emissions cost to agriculture and enforce environmental legislation. The resulting market signals would encourage some farmers to plant woodlots, purchase land for afforestation and /or find ways to reduce emissions; and depress agricultural land prices allowing forestry to become relatively more attractive as an investment."


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