Carbon Credit Prices Explained: At its core, a carbon credit represents the right to emit one tonne of carbon dioxide or its equivalent in other greenhouse gases. It puts a tangible price, often reflected in the carbon credit share price, on greenhouse gas emissions, urging businesses to reduce their carbon footprint. By adhering to a “cap and trade” tenet, the government delineates a ceiling on aggregate emissions, while businesses transact emission permits within this threshold.
Emissions Trading Scheme (ETS): New Zealand’s ETS is central in the country’s approach to combating climate change. It’s a tool that tags a price on greenhouse gas emissions, propelling businesses to curtail their carbon emissions. Operating on a “cap and trade” principle, the government establishes a cap on total emissions, and businesses trade emission allowances under this umbrella.
Dynamics of Carbon Credit Price in NZ:
The carbon credit price in NZ is moulded by several elements. Government auctions are crucial in defining the base price. Yet, secondary markets, where firms buy and sell credits amongst themselves, can sway the price based on demand and supply.
NZ Carbon Price and the Climate Change Commission:
The commission’s recommendations are foundational in sculpting the carbon market. By outlining emissions budgets and advising on emission cutbacks, the commission indirectly tweaks the NZU price. A stringent budget might escalate the carbon credit prices in NZ as companies vie to achieve their quotas.
Supply of NZUs: The New Zealand Unit (NZU), the principal carbon credit in the ETS, has its supply regulated by the government. By introducing or cutting back on units in the market, the government can influence the NZU’s value. Scarcer NZUs can elevate the carbon credit prices, amplifying the cost for firms to neutralise their emissions.
Reserve Price: It signifies the lowest price at which NZUs can trade in government auctions. It assures that the prices of carbon credits doesn’t plummet below a mark that would jeopardise the ETS’s aims.
Carbon Fund and Secondary Markets: While the government auction remains a predominant NZU source, secondary markets are significant. Here, companies trade NZUs based on their needs. The carbon fund, a reservoir of capital allocated to purchase carbon credits, also steers the NZU valuation.