The quarterly ETS auction was held today, and like March's one, it failed, with no bids above the confidential reserve. As a result, another 4.475 million tons of carbon has gone unsold, and the government will have quarter of a billion dollars less to fund decarbonisation. And its now looking like a real possibility that we'll see millions of tons of units unsold and cancelled at the end of the year (which is good for the climate).
Along with this collapse in price has come a collapse in bid volumes. Before 2023, ETS auctions were always oversubscribed, some massively so. The bid volumes for last year were 11.7, 10.5, 6.4, and 6.1 million tons (it dropped after June because that's when the CCR was exhausted). But in March, bidders wanted just 4.9 million tons (of a possible 4.475, plus 8 million units in the cost containment reserve), and today they wanted only 3 million. The clear implication is that Labour's December 2022 decision to keep ETS prices low has driven investors from the market and crushed demand (the upcoming election and National driving uncertainty about climate policy likely won't be helping either). But the ETS isn't meant to be about investors - its polluters who need credits to meet their surrender obligations. And if they're not even trying to buy, then that suggests that they have plenty of credits already, that we are overallocating the auctions, and that we can cut those volumes. And the government should take this opportunity to do so.
