A third Emissions Trading Scheme auction fails

Economy / news

An entire year’s supply of carbon units will be offered in the year's final ETS auction and will be erased if unsold

6th Sep 23, 1:11pm by Dan Brunskill

No carbon units were sold in a third consecutive Emissions Trading Scheme (ETS) auction because bidders did not clear the minimum price and volume settings.

All the unsold units from the three failed auctions will be offered again in one final auction later this year, but will be permanently erased if bidders don’t buy the entire lot.

Bids were placed for 7 million units but 13.4 million were on offer and will be carried over to be added to the pile in the next auction.

This will mean emitters will be facing a high stakes auction in December with an entire years’ supply of units on the line.

But at this point, there may be a new Government and more clarity on ETS settings going forward. This could be what buyers are holding out for.

Labour has instructed the Ministry of the Environment to explore whether units relating to carbon offsets could be priced differently from regular units to drive gross reductions.

An economic policy document released on Wednesday said the party was committed to reducing carbon emissions at their source rather than just offsetting them with pine plantations.

“We will drive down gross emissions and avoid over-reliance on offsetting through plantation forestry. We cannot offset our way out of the climate crisis,” it said.

The environment ministry has been consulting with the public on possible reforms to the scheme that would drive up the carbon price and make offsets less attractive.

Some carbon traders have said this review has already hurt the value of units which have come from forestry offsets. Buyers have been unwilling to pay full price if their value might be reduced in the future.

The quarterly auctions are for fresh Government issued units, however. This suggests buyers are generally uncertain about the future of the scheme.

National has opted to use revenue earned from the scheme to help pay for its tax cuts and promised to follow the Climate Change Commission’s advice to keep a tight lid on units.

This should result in the carbon price being higher than it has been for much of this year. Units were trading below $45 on the secondary market in July, but had recovered to $71 today.

Simon Watts, the party’s climate spokesperson, said a National Government would bring greater certainty to the scheme which could stabilise the price.

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54 Comments

by powerdownkiwi | 6th Sep 23, 1:38pm 1693964316

'We cannot offset our way out of the climate crisis,'

Some of us have been pointing this out, for a very, very long time.

But it's a polycrisis - not a climate crisis alone. So they have some way to go....

by Pa1nter | 6th Sep 23, 3:01pm 1693969293

polycrisis

I guess when "crisis" has become so overused as to loose its relevance, might as well take it up a notch.

"Super crisis" or "megacrisis" woulda sounded cooler.

by kiwimm | 6th Sep 23, 3:26pm 1693970787

Clusterf##k is on hold until 2025

by powerdownkiwi | 6th Sep 23, 3:26pm 1693970805

No - and the difference is crucial; it isn't one crisis, it is many-headed. The Rockstrom/Planetary Boundaries crowd talk of 9 Boundaries - but they can be split into sub-parts too.

Poly is the correct word :)

by Pa1nter | 6th Sep 23, 7:14pm 1693984482

At any given point

There's usually multiple crisies

You're quite right though, nothing lasts forever

And we both know hearts can change

by Nzdano | 6th Sep 23, 9:58pm 1693994299

Due to global boiling, the rain is now hot in November.

by fat pat | 7th Sep 23, 4:49am 1694018955

Regarding nomenclature... polycrisis or super crisis or megacrisis

I think pantomime is more appropriate.

by powerdownkiwi | 7th Sep 23, 8:09am 1694030990

Your last sentence is an oxymoron.

Work it out.

by murray86 | 7th Sep 23, 8:17am 1694031424

He doesn't get that it is multiple issues coming to a head all at once. Each is feeding the others to some extent, and of course feeding from them. The solutions are not simple, nor easy. But at the end of the day i would suggest that if the political problem can be solved then the rest might be achievable (but possibly too late). War is not a solution to the political problem.

by Noncents | 7th Sep 23, 9:52am 1694037149

Supercalifragilisticexpiali-crisis

by cjmain | 6th Sep 23, 1:44pm 1693964651

great news, 13.4 million units+ of carbon that will not be permitted to be emitted, might leave a hole in Nationals so called 'climate dividend' through

by kiwimm | 6th Sep 23, 3:27pm 1693970846

That's a climate success if the units get retired.

by solardb | 6th Sep 23, 2:17pm 1693966630

Those that think the units are going to get cheaper, are in for a disappointment, under any government.

They are not reading the tea leaves correctly , a more market driven price under NACT would push the price up , not down.

The only way to think this auction failed , is to look at it as a revenue producing activity only.

clearly a lot of units have been brought by speculators , and emitters to store. Once they are used up , the price will go up .

by Zwifter | 6th Sep 23, 2:49pm 1693968561

Are we talking about Carbon or Bitcoin ?

by Te Kooti | 6th Sep 23, 2:52pm 1693968725

How about some real analysis from someone who knows what is going on (not a criticism btw)? Clearly there is a surplus of credits as no one is buying any, not at the price offered anyway. When does the surplus run out, how do speculators take profit? It seems such a contrived and pointless exercise, just introduce a tax.

by mfd | 6th Sep 23, 2:59pm 1693969168

Fascinating to see a Green-lead policy criticised as being too market driven, and suggesting a tax instead.

With this setup we limit the actual emissions based on a government budget as you can't emit with one of the finite supply of permits. With a tax, the government would have to figure out what level of taxation will lead to the required emissions reduction. Just let the market figure that out.

by Te Kooti | 6th Sep 23, 3:29pm 1693970978

There is no market though?

by mfd | 6th Sep 23, 3:35pm 1693971321

There is a secondary market where emitters trade credits. The ultimate source of the credits is these auctions - I expect the next one will be well subscribed. It is a shame the government has shot it self in the foot with inconsistent policies over the last year or two disrupting the market.

https://www.commtrade.co.nz/

by Te Kooti | 6th Sep 23, 3:49pm 1693972147

A market has opening prices, closing prices, live prices, volume etc etc.

Where is this info? because without it more closely resembles a tax than a functioning market.

by mfd | 6th Sep 23, 4:18pm 1693973915

I think you need to sign up to see the depth etc - I haven't done so. As a small scale investor, you can participate by buying units of CO2 on the NZX which buys on your behalf.

If you mean the auctions - the government has boundaries to the price it can settle at, which will increase over time. The number of permits being auctioned are well signaled - years in advance.

by Landgirl | 6th Sep 23, 7:48pm 1693986502

The ‘market’ is made by government who dictates how many units a designated ‘emitter’ must surrender - the amount is determined by a whole bunch of factors including how ‘trade exposed’ the industry is, what number of ‘free allocation’ they’re allowed etc. The requisite number of units must be supplied by all identified entities (that’s how the rest of society is currently funding the ETS) and paid to government- these entities pass the cost on to consumers. The idea being that rather than do this - the companies will invest in tech etc and lower their emissions. Instead they have been joining syndicates and buying farmland to plant. The government knew this would happen back in 2019 and before - it was known then as the ‘least cost’ means of attaining Net Zero’ meaning companies were free to lower emissions however they pleased so long as the government got the credit for meeting headline targets.

The narrative around offsetting has only recently changed as we worked out that recycling domestic carbon in a forestry Ponzi scheme is somewhat less good for the climate and economy than reducing emissions and selling things.

First figures I ever saw MFE were planning on around 1.8 million hectares of afforestation. That was years ago.

by Te Kooti | 6th Sep 23, 10:11pm 1693995093

Thanks! I guess it doesn't matter who plants the pine, whether it's out/in sourced is largely irrelevant I assume? As it's so lucrative I expect many larger emmiters try and insource. The negative consequences of lower regional GDP should not be unexpected either?

by powerdownkiwi | 6th Sep 23, 3:44pm 1693971887

Key and English were of the ideology that said you can make a market out of anything. Not surprising given that currency-trading is skimming unproductively. So the neoliberal economics culture decided to 'trade' in carbon. As pointed out upthread, that's better than taxing, in that the lid can be screwed down.

But

If you refer to my recent op/ed, the inputs are materials/resources and - energy. And it's energy we burn the FF for, using so much so greedily we don't mitigate the burning (CCS takes too much energy to do). So we decided to fudge it, and pretend that you could plant trees (which we are raping the planet of, in reality, and really need to redress that first) to 'offset the dug-up carbon.

It was never a flier, and there is no scalable alternative. Every renewable alternative delivers orders-of-magnitude less energy - trust me, I live that way - and so there isn't the money underwrite. So the default recoil - if the silly goal continues to be economic growth rather than human survival - will always be back to FF, until they're gone. Which is also happening.

by morepork | 6th Sep 23, 4:28pm 1693974537

Not sure what's so hard about a tax. You set the desired curve of emissions per year until net zero in 2050 or whenever. First couple of years getting the tax level right would be tricky, but you can adjust the tax each year based on whether the previous year under/overshot the curve.

by mfd | 6th Sep 23, 4:37pm 1693975057

Why bother when you can just run a few auctions and let them figure it out for themselves? I don't get the desire to centralise this any further, or to increase government bureaucracy to do so.

by morepork | 6th Sep 23, 5:14pm 1693977283

The auction system seems like a lot more bureaucracy than a tax that adjusts once a year, it also means you can treat "offsets" like planting trees however you want.

It also eliminates all the speculation and market swings that we've seen with the ETS that harms the credibility of the scheme.

by powerdownkiwi | 6th Sep 23, 5:20pm 1693977656

Think it through. If you tax more, either the outfit makes less profit or it charges others more. Neither is a driver of carbon-reduction - and the taxes would have to be buried anyway - they being a demand on energy one way or another.

We actually have to do less. A lot less. To the point that an economy as we have temporarily known it, won't exist. Including governments in present form, taxes ditto.

by morepork | 6th Sep 23, 5:42pm 1693978953

If prices go up, demand will go down, at least for anything that isn't a necessity. This will reduce production and consumption.

by Palmtree08 | 7th Sep 23, 9:24am 1694035441

I wonder how that will work in an economic system requiring exponential growth of production and consumption? Seems the system is going to wobble a little.🤔

by solardb | 6th Sep 23, 3:54pm 1693972483

Yes, I'm first to admit I don't understand it fully. But I do know speculators were allowed to buy, and they dumped big time when there was doubt of the future direction of the unit price. The emitters snapped them up , so have no need to buy units ATM.

The part I don't understand, is where these units come from. Keith Woodward did explain it, but I didn't really get it and have forgotten anyway.

by _Nick | 6th Sep 23, 5:49pm 1693979387

Units are either created when the government creates new units and auctions them (there is a yearly cap on number of units able to be auctioned), or they are given to businesses when they undertake activity that sequesters carbon from the atmosphere (i.e. forestry). These businesses can then sell the units to emitters (or speculators).

The units don't physically "come from" anywhere - they are forged from thin air, which is not a criticism. They give the holder the right to emit a tonne of CO2e, and conversely, the incentive not to emit, as the unit could then be sold to another emitter.

by solardb | 6th Sep 23, 6:19pm 1693981171

I don't think that is correct, asit the govt is saying once it's store of credits are gone it will have to buy more overseas. Assuming that we don't significantly reduce our emissions, or plant a huge amount of pines.

Everything has to be based on emissions/ reductions since 1990, they can't just make credits up.

by Landgirl | 6th Sep 23, 8:01pm 1693987291

Yes unfortunately it’s true - they are ‘made up’ but the reason they’ll have to buy overseas ones is because they’ll have exceeded the amount actual reductions budgeted that fits within the Climate Change Commissions budgets. The credits the government issues don’t represent actual reductions - they represent a ‘unit’ which can be surrendered to ‘pay for’ having emitted a tonne of CO2. The forestry just claims the reverse - they exchange their tonne of CO2 (sequestered) for a fresh unit - which can also be surrendered in exchange for emissions.

GVNT has made promises under the Paris accord to reduce our nation emissions and it’s not our government issued units that they would surrender - it would be the international equivalent of whatever we missed budget by. Slightly madly - we may in fact buy units from other countries who are still doing what we are trying to wean ourselves off - planting trees. I don’t know what protocols exist for buying credible international units but the CCC seems to think we’re going to spend a few billion dollars on them.

by autumn | 6th Sep 23, 5:27pm 1693978056

You would think we would be in a massive deficit since trillions of tons of carbon have been emitted since the industrial revolution, and all those tons of carbon should be required to be recaptured.

Giving forestry credits is the equivalent of putting a debt against the land in the form of money and carbon, which isn't ideal.

The government should act as the facilitator, buying credits from the carbon farms and then selling credits to emitters, the two prices shouldn't be equal as overall carbon reduction should take precedence.

Carbon is also very cheap ideally it should cost over 200 per ton not the 60 or 70 dollars it's currently priced at.

by Colin Cameron | 6th Sep 23, 6:13pm 1693980839

So a bit like James Shaw so called degrees/tertiary education. On Linkin stating he has a BA from Victoria and one from overseas both is bogus apparently he has nether so the ETS is full of s... just like him

by powerdownkiwi | 7th Sep 23, 8:14am 1694031271

Your grammar confirms your preferred radio station.

I refer you to Page 13, Listener, current edition.

by murray86 | 7th Sep 23, 8:20am 1694031642

And his logic. The ETS is a scam, and that is irrespective of whether or not Shaw has any university qualifications.

by linklater01 | 7th Sep 23, 8:45am 1694033117

Colin,

I don't know what James Shaw's tertiary qualifications are, but I wonder how you know that his degrees are bogus? As a prominent politician, surely it would be much too risky to claim a degree from an NZ university. I would like to see your evidence.

by solardb | 7th Sep 23, 9:03am 1694034181

Shaun Plunket's show , i'm not sure if its a radio show or podcast .

by Beanie | 7th Sep 23, 9:09am 1694034543

James has already backtracked and his LinkedIn now says he studied for the BA but didn't achieve it.

by Jack Lumber | 6th Sep 23, 11:35pm 1694000157

There’s 2 markets, Goverment auction and secondary. The auction has the biggest volume but won’t most don’t realise is that by @2036 there will be no more volume to auction. The secondary is forestry and trading auction volume. Forests will be restricted so in time the volume available there will decrease as well.

So in time supply of offsets will reduce and price rise - if you want to use fossil fuel it’s going to get expensive in the next 10 years.

The problem is that we, the voters, don’t want to stop our lifestyle so governments keep adding volume to the market to delay the price rise. The auction failure will bring the market back into balance next year - watch the price. If we don’t want trees, fine, but be prepared to pay a lot more for energy - cue screams and howls as you further reduce supply.

Cap and Trade schemes have been used in the past and work if allowed to work - high Sulphur coal in USA used it and in the end it was closed as everyone stopped using high sulphur coal because of price.

anyone can buy at the auction, min 500 units, and buy on secondary market or via listed Salt carbon fund on market.

Every market has speculators for anything and they make markets function. Lamb, cattle, shares, currency etc etc.

in short it will drive change but it will be painful and hurt but that’s why people change.

by powerdownkiwi | 7th Sep 23, 8:20am 1694031617

Best post of the stack, Jack.

To really sequester the carbon we emit, would cover the entire country in pines (the quickest sucker-up) in a few short years, to the total displacement of EVERYTHING else. We aren't going to do it. Yet our current lifestyle is dependent - by some orders of magnitude - on burning fossil carbon.

Atop that, we are seeing the global North - and to a certain extent, everyone - having trouble with complexity/entropy.

Interesting times...

by Jack Lumber | 7th Sep 23, 6:59pm 1694069956

Probably need around 1 to 2 million ha of new trees. Google Prof Euan Mason he has a blog site and has just put out a paper on what forests can and can’t do in NZ. If I find the link I’ll post it.

by solardb | 7th Sep 23, 9:06am 1694034387

Jack , can you explain why the NZU's the govt will auction will dry up ?

If they are created , why are they creating less? Is it to gradually reduce our emissions.

otherwise ,if they are based on some existing source , what is it . ?

by Jack Lumber | 7th Sep 23, 5:59pm 1694066364

Think of the auction units as a permit to pollute. Under Paris and our targets we are allowed to pollute so much every year. As time goes by our annual allocation falls in order to get our targets ie we aren’t meant to pollute anymore than a certain number. As such the Government can’t hand any more out. It then needs to be a real emissions reductions hence why they talk about buying offsets overseas to balance the ledger. Of course you can miss and do nothing but it seems more trade deals are linking this to market access.

Forests store carbon as well but as PDK says we can’t just keep planting it simply smooths the planned transition. No one in the forest industry believes we can plant our way out of this. It helps for a while as we, or should be, changing. How and what we change to is the real question and is where PDK is coming from, I think, and is the big debate and dilemma.

No politician is brave enough to explain what the ETS is designed to do, stop using fossil fuels through pricing them off the market, as this affects all our privileged and energy intensive lives, which means big changes. Industries all claim to be “essential” and should be exempt or provide complex and weird maths as to why their emissions don’t matter.

im constantly amazed that we don’t seem to realise what we need to do but it’s not a popular topic taking away a lot of things that our grandparents never had.

by profile | 7th Sep 23, 8:17pm 1694074652

Plant our way out of what? We are already carbon negative as a country. What are we trying to achieve here other than enrich carbon bludgers and impoverish the rest of us?

@ICOS_RI

"Results from Beata Bukosa's research from

@niwa_nz

confirm New Zealand as a carbon sink. Interesting and encouraging preliminary results of inverse modeling and new measurements in New Zealand #CarbonWatchNZ #ICOS2020SC"

"• Recent flux NZ picture: 2017-2019 CO2 sink still present

• New measurements suggest even larger sink"

PowerPoint Presentation (noaa.gov)

by solardb | 7th Sep 23, 10:33pm 1694082831

Thanks, that makes sense.

I do worry what our future generations will think of us, how many more warnings do we need?.

Another election with the 2 major parties promising to kick the can down the road, and voters apparently prepared to vote for the one promising to kick it the hardest.

by Palmtree08 | 7th Sep 23, 9:12am 1694034737

So let me guess? Nats will create units out of nothing, sell them and distribute the proceeds mainly to high income earners, while those who actually have carbon captured on their property get shafted yet again?

by Frank Brown | 7th Sep 23, 9:56am 1694037415

The whole thing is a charade, when is the world going yo wake up to this massive hoax

by powerdownkiwi | 7th Sep 23, 11:33am 1694043190

Didn't realise we had a chapter of the Proud Boys in NZ

by jakenz | 7th Sep 23, 3:02pm 1694055747

You are certainly happy to carry the eugenics flag, let someone else have a go on the soap box.

by Palmtree08 | 7th Sep 23, 12:13pm 1694045602

Thought science illiterates had gone the way of the dodo years ago?

by nigelh | 7th Sep 23, 7:27pm 1694071634

here are two science illiterates for you.

https://www.youtube.com/watch?v=l90FpjPGLBE

https://www.youtube.com/watch?v=vVi01vJ4nxM

by powerdownkiwi | 8th Sep 23, 9:14am 1694121289

Standard strawman - use denigration (an abhorrence), associate the target with said abhorrence, then dismiss said target's comments by association.

It's the hallmark of a weak argument - if they had better they'd use it.

In this instance, I warn of population as an existential threat; I do not advocate selective culling.

These folk are probably scared underneath it all - and given where we're headed, I don't blame them...