Emissions trading scheme has created a 14 billion dollar asset for big emitting businesses

Last week the web site Carbon News pointed out two seemingly unrelated records achieved by New Zealand's emissions trading scheme.

On 15 November 2022, the New Zealand secondary carbon market reached a new record maximum price of $88.50 per emission unit.

On 19 October 2022, the Environmental Protection Authority released an update of the total number of privately owned emissions units held in the Emissions Unit Register. It was also a new record. Private firms who must mostly be ETS 'participants' (i.e. emitters) held 158,897,263 emission units.

This chart of NZU spot prices shows what we already know: that prices have tripled in the last 24 months.

I put the NZU price movements down to two factors.

First: the emissions trading scheme price cap of the "fixed price option" (unlimited units could be surrendered for $25.00 until the end of 2019 and then $35 for 2020) was replaced by quarterly auctions of units from 17 March 2021 onwards.

Second: the Climate Change Commission keeps advising the Government that the price floor and price caps should consistently track upwards. The most recent example is the July 2022 Climate Change Commission advice NZ ETS unit limits and price control settings. It again recommended an upward trajectory for the carbon price floors for the emission unit auctions. This is Figure 7 from page 56.

Conventional thinking might be that a higher emission unit price is a good thing. A sign of the emissions trading scheme being finally fixed so that it reduces emissions. However, that is unlikely if the 'stockpile' of privately held emission units keeps growing. As this bar chart shows.

These holdings of units are current investment assets in the balance sheets of firms. That can be easily marked to market value by the latest record NZU price in the spot market. Which has just broken a record in reaching more than $88 per unit. And 158,897,263 privately held emission units valued at $88 each equals $14 billion dollars!

The stockpile of emissions units isn't a good thing as it threatens climate targets and the potential supply of emissions units to the market is just one of the many reasons why the emissions trading scheme does not cap emissions.

Conventional thinking might be that a higher emission unit price should incentivise firms to sell their units. Thus reducing the stockpile. However, this is not happening. The stockpile is growing and is now worth a whopping 14 billion dollars! This $14 billion will be an investment asset on the balance sheets of firms participating in the emissions trading scheme.

Recall my recent post about New Zealand Steel Limited consistently being allocated more units than they surrender. Their holding of units is always accumulating.

They don't sell any of their units for two reasons:

1. they don't need to because of the continual annual over-allocation of units under Industrial Allocation and,
2. NZ Steel Limited, having read the Climate Change Commission's advice to Government, expects the price to continue to rise - further boosting the market value of their "investment asset".

So why sell an investment asset when you expect it to appreciate? You don't. Your strategy is "hold"

NZ emissions unit price chart Datawapper style

This is an experiment in embedding a chart created in Data Wrapper. That's Data Wrapper style.

It looks alright.

The Zenodo citation for the data source is "New Zealand emission unit (NZU) monthly prices 2010 to 2016: V1.0.01".

The annotation from the citation is "This data and R code repository provides a reproducible public domain data series of mean monthly spot prices of the New Zealand emission unit (or "NZU"), the domestic emission unit in the New Zealand emissions trading scheme (https://en.wikipedia.org/wiki/New_Zealand_Emissions_Trading_Scheme/). Version 1.0.01".

New Zealand emission unit NZU prices 2010 to 2015

I have made a new graph.

Actually its more accurate to say I have collated or perhaps compiled a data set of New Zealand emission unit (NZU) prices from 2010 to 2015.

Although private sector carbon brokers such as OMF and Carbon Forest Services display some current prices and a few historic prices, there is no openly available public data series of the New Zealand carbon price as represented by trading in the domestic New Zealand Unit.

So I decided to make a monthly data series by digitizing images of graphs via the programme G3Data and via the website Web Plot Digitizer.

I took an image of a chart of New Zealand carbon prices, much like this one below, I drew some vertical lines on it and uploaded it to the Web Plot Digitizer webpage, selected some exact points on the horizontal and vertical axes to orientate the chart and then clicked on the intersection of the data series with the axes. That records the data points in the Web Plot Digitizer app.

The values obtained in this way are best thought of as being similar (but certainly not identical) to a monthly mean. The accuracy is perhaps plus or minus 20 or 50 cents. I know that as I did several 'replications' and they varied from each other by 20 to 50 cents. The data file is available as a Google sheet called "NZU-price-data-2010-2015.csv".

The R script for the chart is also available at Ghost Bin and at the Wikimedia Commons page for the graph.

Brother can you spare $3.10 for a flat white or a tonne of carbon dioxide?

In which I have a rant about people begging on Lambton Quay, the fact that the spot price for a tonne of carbon dioxide is the same as for a flat white and the uselessness of the report of the Finance and Expenditure Committee on the Climate Change Response (Emissions Trading and Other Matters) Amendment Bill.

Have you heard the old Tin Pan Alley song "Brother can you spare a dime?" The experience of poverty and the Depression in America summed up in a popular song. The lyrics were written by Yip Harburg, and the music by Jay Gorney in 1931. The version by Al Jolson is very well known, but I like this version by Charlie Palloy and his Orchestra.

I usually start most weekdays getting off a bus on Lambton Quay. From the bus stop I walk along to work looking forward to the first coffee of the day.

I usually note how many people are begging. There are usually a few people begging on Lambton Quay. Who says New Zealand is not in a depression? Not Paul Krugman. 'Brother can you spare a dime' is alive and well.

Except it's sad cardboard signs saying 'Homeless and need help'. Also its at least $3 to $4 for a coffee, not a dime. Not for a long time.

The other price that is less than the cost of a flat white is the spot price of emission units in New Zealand. The brokerage firm OMF reports a spot price each day. Guess what? The last trade of a New Zealand Unit (a tonne of carbon dioxide equivalent emissions) was $3.10.

Carbon News reports spot prices in the range NZD4.50 to NZD5.00 range. The Otago Daily Times reports $4.20 per unit. Stuff reports $2.50 per emission unit.

OMF also have a chart. It shows the collapse of the international carbon market reflected in our own plucky little battler NZ emissions trading scheme. Can any sane person look at this chart and reach any other conclusion than the NZ emissions trading scheme has completely failed?

OMF originally committed the chart sin of not starting the vertical (price) axis at $0. However, reality has intruded. As the New Zealand Unit (NZU) price has relentlessly approached $0, they keep having to move the bottom of their chart closer to zero. That would almost be a small bit of humour in a pretty sad story. If it wasn't the empirical nail in the coffin of pricing greenhouse gas emissions via a NZ emissions trading scheme.

If the $3.10/tonne NZU price is the nail in the coffin, the death notice must be the Finance and Expenditure Select Committee, which today released its report Climate Change Response (Emissions Trading and Other Matters) Amendment Bill

That's the National Government's bill to further weaken the NZ Emissions Trading Scheme. You know, indefinitely delay the entry of agriculture, make the half-price "two-for-one" transition permanent.

If you can quickly recover your will to live after digesting 30 pages of bureaucratic and political policy denial and excuse-making, download and read the 117-page report.

Otherwise, just read Patrick Smellie's column "No restrictions on foreign-sourced carbon credits confirmed"

"The Climate Change Response (Emissions Trading and Other Matters) Bill was reported back to parliament by the finance and expenditure select committee with only technical amendments, and a decision that capping the use of foreign credits would compromise the emissions trading scheme principle of "least cost of compliance".

The policy has seen major emitters such as oil and electricity companies snap up some of the lowest cost carbon units available on global markets, where prices have slumped to as little as $2 a tonne.

New Zealand Units, issued by the government, continue to be worth slightly more, at around $3 a tonne, but well below the $25 a tonne maximum price put on carbon when the ETS was introduced in 2009."

Or just read the press release from Peter Hardstaff, Climate Change Programme Manager at WWF-New Zealand.

“This is another nail in the coffin for New Zealand’s credibility on climate change and suggests the government has no intention of trying to set this country’s emissions on a downward path. Other parties in the UN climate talks will rightly see New Zealand’s claims to be doing something to reduce emissions as all spin and no substance."

What a complete freaking shambles!

They used to tell me I was building a dream,
and so I followed the mob,
When there was earth to plow, or guns to bear,
I was always there right on the job.
They used to tell me I was building a dream,
with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Why don't you remember, I'm your pal? Buddy, can you spare a dime?