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March 2024 Carbon Credit Auction Values Set Slightly Higher Than Recommended

Source: GreenXperts Limited Imagery 2023

Today the New Zealand Government released its auction settings for the March 2024 Government Auction of carbon credits, the first by the new National-led Government.

A High Court decision in late 2023 required the Government to auction credits from December 2023 onward using the price recommendations of the Climate Change Commission, shown below.

Source: Climate Change Commission 2023

The March 2024 auction settings released today are slightly different.

Source: Ministry for the Environment 19.02.2024

The floor price for the March 2024 auction has been set at $64. But, interestingly, the Tier 1 $184 and Tier 2 $230 prices are slightly above what the Climate Change Commission recommended for 2024 ($182 and $228 respectively). The confidential reserve price is not known at this stage.

Secondary market prices tend to follow the floor and actual auction purchase prices. For example, in the second half of 2023 they achieved sale values in the range of +70%-250% of the floor price. The floor price is set to rise and credit supply drop over the next four years, putting more upward price pressure on credit value. Using this sales range 'rule -of-thumb' (and that is all it is), we can project a post-March 2024 secondary market price in the range of $108.80 - $160.00, well below the Tier 1 trigger price of $182.00.

Since early February 2024 there has been some downward price pressure on the market. It will remain to be seen how the confidential reserve price and higher trigger prices affect the auction. One imponderable at present is how the National Government's policy of allowing farmers to off-set their emissions (nearly 50% of New Zealand's total) using on-farm carbon storage will influence markets - the policy and scientific mechanisms for this aspect are not yet known. Each farm and business enterprise will need to keep close watch on carbon market trends to leverage best results for their situations.

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