Carbon hits $15 a tonne benchmark following Budget ETS decisions

The price of a tonne of New Zealand carbon in the emissions trading scheme has pushed through $15, creating theoretically breakeven conditions for forestry planting based on carbon farming.

Climate Change Minister Paula Bennett confirmed a widely expected cancelling of subsidies to major emitters over the next three years in the Budget yesterday.

The cancellation immediately improves the prospects of a higher carbon price, which from $15 a tonne starts to make carbon capture through forest planting commercially viable.

The carbon price collapsed from a high point of $21 in 2011 to trade as low as 35c a tonne in 2014 as cheap eastern European carbon units flooded global markets already reducing emissions due to lower industrial activity after the 2008 global financial crisis.

When New Zealand closed its doors to foreign carbon credits last June, the price of New Zealand Units of carbon began rising and have traded above $14 a tonne in recent weeks, anticipating the subsidy decision.

The NZU price rose from $14.25 to $14.85 within minutes of yesterday's 2pm announcement in which Bennett detailed the phase-out of the so-called 'one-for-two' subsidy by January 2019.

A $25 per tonne maximum capped price for NZUs is to be kept for the foreseeable future to stop major industrial emitters facing spiking carbon prices, especially in the next four to five years, when New Zealand will have no access to international carbon markets, making NZUs the only carbon emission units obtainable by emitters.

A regulatory impact statement on the announcement, published on the Treasury website today, shows the $25 cap with a phased withdrawal of the subsidy would produce only a "low to moderate risk of NZU price reaching the $25 price cap."

It warns that if NZUs were to trade at the $25 price cap for any length of time, it would effectively become a carbon tax and would have the unwanted policy outcome of causing the government's liability to a stockpile of NZUs to grow when one objective of the changes to the ETS is to reduce the government's liability for meeting New Zealand's obligations under international climate change treaties.

(BusinessDesk)