SINGAPORE, March 18 (Reuters) - Spot New Zealand carbon units traded above the NZ$21 level this week for the first time, as soaring prices for U.N. carbon offsets continued to pull up the value of the local units.
U.N. carbon offsets, called certified emissions reductions, or CERs, can be bought offshore and used by New Zealand polluters as an alternative trading instrument in New Zealand’s emissions trading scheme.
However, the recent jump in CER prices over the past several weeks, and particularly this week, has effectively priced the offsets out of the New Zealand market.
Spot NZUs closed on Thursday at NZ$20.80 according to a price assessment by Point Carbon News, a Thomson Reuters subsidiary, up 60 cents or 3 per cent week-on-week.
The closing price is the highest recorded since the New Zealand emissions trading scheme started July 1 last year, and a trade of 50,000 NZUs reported Wednesday at NZ$21.10 is an all-time record for the scheme.
“It is mainly buyers switching from CERs into NZUs,” that is pushing the price up, one trader said, referring to New Zealand Units, the main trading instrument in the scheme.
NZUs are permits to pollute and each represents a tonne of greenhouse gas emissions. The scheme puts a price on carbon emissions and is designed to help curb output of pollution blamed for causing global warming.
CERs for December 2011 delivery have surged in the EU market over the past week, closing at 12.63 euros on Thursday, though down from more than 13 euros on Wednesday, versus last Friday’s close of 11.84.
Widespread shutdowns of atomic power in Germany in the aftermath of the nuclear plant crisis in Japan have increased demand for fossil fuels in Europe, pushing up the price of carbon.
“The increasing local price is being driven by rising international carbon prices that have been impacted by the crisis in Japan,” Westpac bank said in a note to clients.
“The link with international carbon prices comes from emitters who purchased CERs in the NZ$19s and NZ$20s and are now selling them and looking to buy back NZUs,” the bank said.
In January, CERs and NZUs traded at the same level, but this week’s gains have CERs above NZ$25, which is the fixed price New Zealand companies can choose to pay the government for NZUs if they don’t want to actively trade in the market.
New Zealand firms had bought between 2 million and 3 million CERs over the course of January and February, but for the second consecutive week the same firms have been selling the UN credits back into the European market and replacing them with NZUs, pushing up the price of the domestic credits.
Around 500,000 NZUs have traded in the New Zealand market since last Friday, slightly fewer than the previous week.
“We continue to recommend those holding CERs for compliance switch to NZUs as the differential is the widest it’s been for two years at $4,” said Nigel Brunel of brokerage OMFinancial.
He expected the NZU price to peak at current levels. ($1=NZ$1.38) (By Stian Reklev of Point Carbon News; Editing by David Fogarty)
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