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New Zealand carbon price collapses below $10 a tonne

Tuesday 6th December 2011

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The price of a tonne of emitted carbon has fallen below $10 for the first time today, with Westpac quoting a buy price for a New Zealand Unit falling to $9.90 as European carbon prices collapse.

The developments coincide with New Zealand and Australian climate change ministers, meeting on the sidelines of the global climate change summit in Durban, South Africa, announcing terms of reference for efforts to align the two countries’ emissions trading schemes.

While the New Zealand government’s emissions trading scheme is operating on a carbon with an upper limit of $25 a tonne, the current prices mean that major industries currently covered by the scheme can theoretically buy carbon at less than half the price the policy is intended to make them face.

However, carbon traders contacted by BusinessDesk doubt much activity is occurring at these levels, with forest owners, who are the only likely sellers of NZUs, staying out of the market at such low prices.

“Westpac has regular buy and sell prices, but no one knows whether they contract at those prices, we don’t know,” said one broker who declined to be named. “We’ve hit dire days in carbon pricing.”

The collapsing European carbon market and the weakness of the Euro against the kiwi dollar are being blamed for the price of carbon in New Zealand Units dropping below $10 a tonne for the first time.

The European price for Carbon Emission Reduction units, which are tradeable in New Zealand, fell to an all-time low of 4.99 Euros overnight, brought on by an over-supply of CERs and declining industrial output as the Eurozone crisis saps global growth.

However, the quoted NZU price was still higher than the price implied by the closing price in Europe of around NZ$8.80, said Daniel Crawford at OM Financial, reflecting the fact New Zealand foresters are seeking a premium on European CER prices.

“There’s significant oversupply in the EU ETS at present, and some fairly fundamental problems in how the supply has been managed,” said Crawford. “That’s weighing on the market significantly and on top of that you have the potential recession and sovereign debt issues in Europe.”

Climate Change Negotiations Minister Tim Groser and his Australian equivalent Greg Combet announced that an officials group would provide advice on “specific options for direct linking” of the two countries’ ETS’s, including “the possible timing for any linking arrangement to come into force and practical steps needed in each country to enact it.”

A potential start date for a linked scheme remains July 2015.

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