Carbon credit price meltdown

Carbon credit prices continue to plunge internationally and locally.
Louie Douvis/Fairfax
Carbon credit prices continue to plunge internationally and locally.

The cost of carbon credits fell to just 14 cents a tonne late last month, taking the annualised cost imposed on New Zealand business well below $10 million.

It is a far cry from the $25 a tonne forecast when the emissions trading scheme (ETS) was created.

The ETS, which mirrored schemes overseas, was designed to put a price on carbon to encourage reduced emissions of greenhouse gases. But carbon prices have collapsed, partly due to the economic crisis in Europe, and partly due to ETS changes designed to reduce the cost to business and keep the New Zealand economy competitive.

At 14 cents a tonne, the cost to New Zealand businesses has now become insignificant. Some market sources wonder if the costs of running the ETS are now greater than the cost to businesses of buying the carbon credits they need to surrender under the scheme.

Westpac's carbon dealing desk said certain imported European carbon credits can now be bought for 28 cents and emitters have to surrender only one credit each year for every two tonnes of carbon they emit.

The ability to surrender one credit for every two tonnes of carbon emitted was to have been a temporary position, as emitters got used to living with a price on carbon. But last year the Government extended that indefinitely.

New Zealand carbon credits are selling for around $2.50 - and some emitters choose to surrender them - but they are expected to be only a small portion of the carbon credits that big emitters surrender.

The breakdown of the 2012 carbon credits surrendered by the likes of petrol companies and big industry will not be available until the middle of the year. But several market sources told Sunday Star-Times they expected the vast majority to be cheap European imports, with many emissions reduction units (ERUs) bought from Russia and Ukraine.

In 2011, 16.34 million credits were surrendered in New Zealand, of which more than 70 per cent were cheap imported units, including ERUs.

Market sources say they believe the 2012 figures will show as much as 90 per cent of credits surrendered are cheap, imported credits.

The cost could be a little higher than 14c a tonne for very large emitters. Westpac said buying in bulk on the illiquid market would add a few cents to the price.

Simon Terry of the Sustainability Council said New Zealanders should not believe that reducing the carbon bill is a real saving. This generation was merely creating costs and problems for future generations, and the real cost of emissions will one day have to be borne.

As a trading nation New Zealand could expect to have to foot some of that bill.

Just how high the cost of a single carbon credit should be is unknown, but Terry said former United Nations' climate chief, Yvo de Boer, recently said he believes the European Union needs to quickly boost its carbon price to about € 150 ($240) a tonne, if it is to meet its objective of reducing emissions to 80 per cent below 1990 levels by 2050. "Compared to this, present New Zealand pricing seems to be in make-believe land," he said.

In November, New Zealand announced it would not sign up to a second Kyoto commitment period and would instead align itself with nations that had voluntary emissions reductions targets.

Sunday Star Times