March 16, 2023 — CarrZee: Yesterday’s first-time failure of the New Zealand carbon auction shows how the secondary market may struggle to stay at such a big discount to the primary market sustainably.

Cost containment reserve (trigger) price is about NZ$81 / ton and rising while secondary market is about NZ$65 and falling. Floor price is around NZ$32 …and rising.

The crumbling of the secondary market since the previous successful auction was dramatic. See the charts below.

 Notes

Cost Containment Reserve (CCR): volume is used when the auction clearing price exceeds a certain level (CCR trigger price).

See this post on LinkedIn — I’m not sure all the comments are reliable, BTW.

Matthew Cowie, Author, Director, Climate Change at EY

This Cowie comment seems key:

“Even if this forecast from the government proves accurate, most of the forestry “demand” might not need to come from buying in the secondary market.

Much of that forestry harvesting demand should come from forestry accounts that already hold banked NZUs for that purpose.

So the stockpile can reduce without automatically causing secondary market demand to increase.“

CarrZee: Basically — I take from this that the stockpile is doing the work meant to be done by the secondary market.

(Comments to mathew@carrzee.net …especially if you confidently know why auction bidding was so low and why secondary market is so low vs the cost containment trigger price…[if they are the best questions. I’m keen to learn].)