The New Zealand ETS (NZ ETS) held its second allowance auction on 23 June 2021. In this second round of auctions, all 4.75 million available allowances were sold at a clearing price of NZD 41.70 (USD 29.27), which is markedly higher than the first auction price of NZD 36.00 (USD 25.90). A total of 37 participants bid for 10.8 million New Zealand Units (NZUs), and 16 participants successfully procured units.

New to the 2021 compliance period is the Cost Containment Reserve (CCR), a price control mechanism that releases a specified number of allowances if a predetermined auction set at NZD 50 (USD 32.42). The CCR replaces the fixed price option (FPO) that was in force through the 2020 compliance period (ending 31 March 2021).

Within the hour after the second auction concluded, trading in the secondary market saw prices rise to NZD 43.50 (USD 30.65), marking a 40% increase in the carbon price so far this year.

The second NZ ETS auction came on the heels of a recent report released by the Climate Change Commission, which was tasked under the Zero Carbon Act 2019 with advising the New Zealand government on meeting its 2050 net-zero emissions targets. The report lays out recommendations to strengthen the NZ ETS to achieve New Zealand’s current emissions reduction plan for 2022-2025 and its first three five-year emissions budgets to 2035. The recommendations are in line with several workstreams already being pursued by the government and include:

  • Updating the ETS unit supply and price control settings to align with New Zealand’s current and future emissions budgets, including raising the CCR trigger price to NZD 70 (USD 49.11) as soon as possible with an annual increase of 10% plus inflation, and raising the auction reserve trigger price to NZD 30 (USD 21.04) as soon as possible with an annual increase of 5% plus inflation;
  • Amending the NZ ETS to moderate the amount of new exotic forest planting that the system drives, while simultaneously incentivizing long-term gross emissions reductions (the forestry sector is covered under the NZ ETS and there is currently no limit on the amount of removal units that may be generated by commercial forests);
  • Improving the market governance regime;
  • Developing a plan to recycle ETS revenue for climate-related purposes; and
  • Continuing to implement legislation for the phasing out industrial free allocation.