Isra-Mart srl : New Zealand spot carbon price slumps to three-month low

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New Zealand carbon prices fell to their lowest in three months this week, as the market stalled ahead of the deadline for the surrender of pollution permits under the scheme and weaker international carbon prices.

Spot permits under New Zealand's emissions trading scheme eased about 20 cents over the week to trade between NZ$19.70 and NZ$20 ($16.12 to $16.37), Westpac Bank said in a note to clients.

About 250,000 NZUs were traded over the week, according to brokers, the lowest volume in five weeks.

Each permit represents a tonne of greenhouse gas emissions. The scheme is designed to help curb output of emissions blamed for causing global warming.

"The softening price appear to have been driven by buyers backing off their demand for credits," analysts at Westpac said.

Emitters are required to surrender permits for the period to March 31 by the end of May, and the market is waiting for the deadline to pass so the focus can switch to 2012 requirements.

This is the first surrender deadline since the scheme was expanded from July 1 last year to include the transport and energy sector, which account for about half of all the country's greenhouse gas emissions.

Further flow of credits to forest owners, and the reluctance of sellers to enter the market also suppressed the price, Westpac said.
New Zealand's carbon price was also pressured by a bearish commodity market in Europe, with a rising New Zealand dollar and falling euro narrowing the spread between New Zealand and European prices for carbon.

The price for U.N carbon offsets closed at 12.23 euros (NZ$21.29) on Thursday, a flat performance for the week so far.

"The most interesting development in the last few weeks is the capitulation of the euro on fears of both a default and break-up of the EU," said broker Nigel Brunel of brokerage OMFinancial.

The New Zealand dollar has gained about 15 percent against the euro since mid-March. "The effect of this is to cheapen the value of CERs, now trading below NZ$21.50," he said in a note to clients, referring to U.N. carbon offsets, or certified emissions reductions.

The offsets can be imported by polluters in New Zealand to meet emissions obligations under the trading scheme, and are favoured by many emitters as they are far more liquid than the NZU.

Under transition measures for the scheme, the first national scheme outside the European Union, emitters such as power generators and refiners have the option of paying a fixed NZ$25 per tonne of carbon pollution until January 2013 or buying from the market.