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NZU Market Insights
Purpose
1. This aide memoire relays to you market insights that we have recently collected, to help
inform you as work is completed on this year’s decision for ETS settings. The insights
reflect feedback that we have received, and not advice from Ministry for the
Environment.
2. We have gathered these insights as part of our periodic ‘market colour’ exercise. We
conduct this exercise by interviewing a collection of stakeholders who participate in the
ETS market in different ways (e.g. platform operators, brokers, forestry participants -
around 14 in the latest round) to increase our understanding and awareness of the NZU
market. The exercise will be completed later in August, with interim information provided
to you now to help inform you given the timing of the ETS settings decision.
3. We maintain strict controls around the market colour exercise. To protect the
integrity of our work, we request that you do not share this aide memoire (or any
of the information in it) with other Ministers, staff, or other people. Those who
participate in the exercise provide information in confidence and we anticipate
that they will not participate in future if this is breached. The participants are
aware that we share aggregated and anonymised information with a discrete
senior audience.
Summary of Interim Insights
Key theme #1: Despite the ERP2 discussion document, the market continues to seek
certainty about Government policy and direction
4. 9(2)(ba)(i)
There are mixed messages on trading volumes. 9(2)(ba)(i)
Direct visibility to basic price and volume information
remains very challenging.
5. 9(2)(ba)(i)
6. Market participants say they are still waiting for clarity on Government direction, despite
the release of the ERP2 discussion document. In particular, the market expects that this
year’s ETS settings outcome will impact market confidence.
7. Uncertainty was increased following the ETS settings consultation because of the
suggestion of lowering the price with no mention of increasing the price.
8. 9(2)(ba)(i), 9(2)(f)(iv)
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Key theme #2: The stockpile is not well understood by the market
9. In early July, the Environmental Protection Authority (EPA) released a report showing a
25.5million unit reduction. However, there was very little reaction to this reduction.
10. The headline stockpile size is reasonably well understood, but the blocks that make up
the stockpile are not well understood.
11. 9(2)(ba)(i)
12. [Note from MfE: We have commenced discussions with the EPA and the Ministry of
Primary Industries about a range of data, forecasting and information issues and intend
to undertake a programme of work in the coming months to improve the analysis and
understanding of the stockpile.]
Key theme #3: NZUs remain fungible, but a small preference remains for auction units
(over forestry)
13. 9(2)(ba)(i)
14. There has been positive market reaction to the new Government clarifying its position
on forestry. 9(2)(ba)(i)
15. 9(2)(ba)(i)
Key theme #4: The new platforms and brokers will not increase liquidity by much
16. In recent months, several new NZU market participants have announced their intention
to join the market. These include ICAP and Marex.
i) 9(2)(ba)(i)
ii) 9(2)(ba)(i)
17. The market is watching the new ASX NZU futures product with interest. The
development is welcomed due to the ability to trade with more confidence out to three,
four and five years, and the potential for a forward curve to be established.
18. 9(2)(ba)(i)
19. 9(2)(ba)(i)
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