New Zealand's three-party coalition government announced today it has changed the methodology used to calculate the confidential reserve price in the carbon allowance auctions under the country's Emissions Trading Scheme (ETS).
The reserve price methodology has not been changed since the country's previous Labour government introduced quarterly auctions in 2021 to sell New Zealand units (NZUs). The methodology was reviewed after the last auction in December 2023 failed to sell any NZUs, completing a full year of failed auctions with a total of 23mn unsold units being cancelled as a result.
"A decision was made to change the methodology because it had not been updated since auctions began in 2021 and a change was appropriate to preserve its confidentiality," the New Zealand Stock Exchange (NZX) and European Energy Exchange (EEX), which jointly operate the auctions, said in a notice on 8 March, without specifying the change.
The change comes less than two weeks ahead of the next auction, which will take place on 20 March. The methodology used by NZX and EEX is set by New Zealand's climate change minister, with the undisclosed reserve price intended to prevent auction sales at prices significantly below those fetched in the secondary spot market.
Auctions have been failing because bids have been below the reserve price. New climate change minister Simon Watts said in December 2023 that a review of the ETS system started in June by the Labour government was "driving uncertainty" and was a factor in failed carbon allowance auctions in the country. The coalition government that came to power in November 2023 immediately announced it was stopping work on that review.
NZUs in the secondary market last traded on Friday at NZ$69 ($42.50) in broker Jarden's CommTrade trading platform, NZ$68.50 on CarbonMatch, and NZ$70 on emsTradepoint, which is operated by state-owned electricity transmission system operator Transpower New Zealand's Energy Market Services.
