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Forestry and the Emissions Trading Scheme

Price update

NZU prices have continued to decline through March, as the potential impact of COVID-19 on emissions starts to be felt in the market. After seeing prices exceed $29.00 during January, we are now trading around $22.20 (as at 24th of March).

At this price level we will see many emitters change tack and look to surrender NZUs rather than take up the $25 Fixed Price Option (FPO). I expect many forest owners will ride this out and hold onto their NZUs, but if cashflow is constrained because of business closure, some may have no choice but to liquidate.

It will be interesting to see whether the current situation impacts the government’s proposed change in FPO to $35.00 for 2020 emissions, or indeed the proposed price floor of $20.00 under the new auctioning system.

Similar downward trends have been witnessed in Europe carbon markets, as lock downs start to take effect in multiple countries. EUA have recently hit a low not seen since mid-2018.