Markets with Madison: Carbon market chaos as price halves, 9 million units unsold

Some investors are turning against the carbon market after the price halved and the Government was forced to make changes.

“It’s been one of the most volatile [years] that I’ve seen,” Jarden’s head of commodities Nigel Brunel told Markets with Madison.

“If it’s too volatile and too uncertain, people will say ‘I can’t invest in that market’ ... There’s been a little bit of that this year.”

The spot price of New Zealand carbon units fell to $34 in July, from about $75 six months ago. It had since recovered to close at $57 last night.

The price of NZ carbon units fell to $34 in July this year. Photo / Jarden

The CO2 Fund on the NZX, which gives investors exposure to the carbon market, was down 34 per cent in the year to the end of June.

The carbon market operates under the Emissions Trading Scheme (ETS) which puts a price on carbon and requires emitters to give the Government one carbon unit for every tonne of CO2 produced.

Four auctions are held every year, where units are allocated into the scheme. In the past two auctions, almost 9 million units were not cleared because they failed to meet price requirements. They will instead be added to September’s auction.

Brunel said that did not mean the market was inefficient but it did make the next auction tougher to clear.

“If people wanted those units, they’d step up and buy them.”

The Government announced changes to the market last month, including altering the supply of units and pricing mechanisms.

“The number one risk when you come into the ETS is regulatory risk, because the Government can change the rules, and to be fair, they often have to.”

Watch Brunel explain what’s happening in the carbon market, and his forecast for the price of carbon, in today’s episode of Markets with Madison above.

Get investment insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.

Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Stake is the proud sponsor of Markets with Madison. Stake your claim today at HelloStake.com.

Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.