March 2, 2012 / 1:38 AM / in 6 years

NZ spot carbon prices recover from sell-off

WELLINGTON, March 2 (Reuters) - New Zealand carbon prices inched up on Friday, steadying from a sell-off in the past week that tracked a reversal in the European market following a rally on moves to possibly limit European carbon permits.

European carbon prices rallied on Thursday, rebounding sharply after posting steep losses earlier this week. The bellwether contract climbed to an intraday peak of 8.72 euros, not far from a 10-week high of 9.63 euros hit on Tuesday .

Spot permits under New Zealand’s emissions trading scheme were seen trading around NZ$7.95 ($6.67), brokers said, edging up from a closing price of NZ$7.85 on Thursday. New Zealand emissions unit (NZU) prices found their footing after sliding from NZS$8.40 in the past week.

Despite the losses, selling momentum in NZUs has lost some steam in recent weeks, having picked up in late 2011 as investors sold domestic units into relatively cheaper European green Certified Emmissions Reduction credits (CERs) .

The selling has narrowed the spread between NZUs and CERs to around 15 NZ cents, down significantly from around NZ$1.30 earlier this year. Last month, New Zealand credits briefly fell below their European counterparts.

With much of the premium on NZUs now wiped out and prices down significantly from around NZ$20 a year ago, market participants said the incentive to dump domestic units had dissipated, and that further selling would be limited.

“With NZUs under NZ$10, forest owners don’t really want to sell,” said Nigel Brunel, an analyst at OM Financial. “Given that they were at NZ$20 not too long ago, they don’t want to sell down here, it’s not worth it at these levels.”

The fall from levels around $20 was sparked by weakness in the European market.

Each permit represents a tonne of greenhouse gas emissions. The scheme is designed to help curb output of emissions blamed for causing global warming.

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For current NZ carbon unit pricing according to Westpac

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Market participants say the narrowing in the spread has been driven by carbon-emitting firms buying as many cheaper CERs as they can to meet upcoming compliance targets at the lowest cost possible.

Emitters covered by the New Zealand Emissions Trading Scheme must report their 2011 emissions to the government at the end of this month. By May 31 they must surrender permits equal to half their 2011 emissions in order to meet their obligations.

But Brunel at OM Financial said he expected NZU prices would soon move back into double digits, particularly if the CER market rallies. CER prices are seen gaining as speculation brews that a significant number of EU permits may soon be taken off the market.

The EU Parliament’s industry committee this week voted in favour of withdrawing an unspecified number of permits from the market starting in 2013 in order to help meet energy saving targets.

Still the European market may run into headwinds due to weaker power and gas prices, which have weighed on the carbon market and may put NZUs under renewed selling pressure.

For more carbon news: All carbon news -

EU carbon market report -

For carbon emissions and price forecasts:

ECX CER futures prices - <0#CERE:>

For more prices see the carbon speedguide - ($1 = 1.1918 New Zealand dollars)

(By Stian Reklev of Point Carbon News and Naomi Tajitsu in Wellington; Editing by Richard Pullin)

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