New Zealand’s final carbon auction of 2024 expects partial sale amid high spot NZU prices

New Zealand's final carbon allowance auction of 2024, set for Dec. 4, is expected to see partial clearance amid rising prices in the secondary market, market sources told S&P Global Commodity Insights.

Platts previously reported Nov. 26 that spot New Zealand Unit prices breached the auction floor price of NZ$64/mtCO2e ($37.66/mtCO2e) and scaled to an over eight-month high at NZ$64.10/mtCO2e, due to firm demand from compliance entities and the anticipated tightening of supply from next year.

Platts, part of Commodity Insights, assessed NZUs at NZ$64.05/mtCO2e on Nov. 28, down 5 New Zealand cents on the day.

Under the New Zealand Emissions Trading Scheme, the government conducts quarterly auctions of NZU carbon allowances.

Participants in the ETS can trade NZUs in the secondary market before surrendering them to the government by the end of the compliance year to meet their emission reduction targets.

"A full clearance of the auction seems unlikely, but we can expect a partial clearance," a New Zealand-based project developer told Commodity Insights.

"Prices are climbing because next year's auction floor price is NZ$68, so people who need NZUs next year will be buying now at a perceived discount," the developer added.

The government has set a higher auction floor price for the auctions in 2025 at NZ$68/mtCO2e.

A New Zealand-based forester echoed the sentiment, saying: "I still don't foresee a full sale, likely just a partial one."

Under the NZU auctions, bids must be equal to or above the auction floor price, set by the government to prevent sales significantly below spot market prices.

"We could see the auction clear above NZ$64, as from next year the total volume drops to 6 million units in auction and then declines every year going forward," a second New Zealand-based forester told Commodity Insights.

The previous two quarterly auctions in 2024, held in September and June, did not clear amid a lack of high bids. The first auction of 2024 in March saw partial clearance at the auction reserve price.

The upcoming auction will offer 11.13 million mt of NZUs, which includes unsold volumes from the prior unsuccessful auctions.

"I believe around half of the volume could clear in this auction," a trader dealing in NZUs said following the spot NZU prices crossing the floor price.

Any units that remain unsold in the auction will be withdrawn from the market in 2025.

Following the auction results, NZU prices are anticipated to rise towards the auction floor price for 2025, according to sources.