Photo: AFP
The first carbon auction of the year sold the right to emit just under three million tonnes of greenhouse gas, earning the government $190 million, money it previously said would help fund tax cuts.
Emitters paid $64 a tonne, the legal minimum the government can sell at, ending a run of failed auctions when no permits sold.
Not all the units on offer sold.
But the auctions can clear part of their total if every bid reaches the confidential reserve price - or in this case, the legal minimum price floor, which must have been at or above the reserve.
The reserve price has to be set after looking at carbon spot prices, so it does not tank the secondary market for buying and selling permits.
Ahead of the auction earlier this week, a tonne of climate pollution on the secondary market was trading at $64.50.
The government price settings were changed after a group of activist lawyers took former climate change minister James Shaw to court, challenging the Labour Cabinet's decision to reject advice from the Climate Change Commission on tightening supply, to reduce the stockpile of units companies are holding on to.
All four of last year's auctions failed, and the market was looking shaky this week, according to market commentators.
By law, many big polluters need to buy enough units each year to cover their emissions. After being used, they go on a virtual scrap heap and cannot be used again.
Big electricity company Genesis needed fewer units last year because of a wet year, meaning it could use more hydropower and burn less coal.
Genesis Energy. Photo: Supplied
But the climate commission has warned there is a broader issue of oversupply.
Millions of units were cancelled last year after all four government auctions failed to sell any, a development which might have been expected to tighten supply.
Salt Funds managing director Paul Harrison, a company that runs a $100 million stockmarket-listed carbon fund, said companies still seem to have plenty stockpiled.
Harrison said the number of units registered as being in existence - meaning emitters had not surrendered them to cover emissions - did not change as much as might have been anticipated.
Emitters can either buy their units from the government, or get them from forest owners (who create units when they grow carbon-sucking trees) or anyone else with units to spare.
Contact Energy's chief financial officer said last month the carbon price needed to rise to around $130 to make it worthwhile for companies to switch to clean energy, without the 'corporate welfare' (grants) the new government has promised to scupper.
Contact Energy. Photo: RNZ / Nate McKinnon
Lizzie Chambers of carbon exchange platform Carbon Match said even last week's advice from the Climate Change Commission, calling on the government to sell radically fewer units in future, barely bumped the carbon price on the secondary market.
"What was interesting was that the market barely reacted," she said.
She said confidence in the market was still suffering after the Labour-led government last year ignored climate commission advice to raise the price floor (a decision later overturned after a court challenge).
The market dropped further when Labour announced a major review of forestry's ability to sell unlimited units, an announcement Chamber said gave "shivers" to market participants.
The new National-led coalition government cancelled the review, but the commentators said it has not solved the underlying issues.
Harrison said if foresters could sell unlimited, relatively low-price units the carbon price was "going to struggle".
Climate Change Minister Simon Watts. Photo: RNZ / Samuel Rillstone
That was because all the country's forestry was available to cover less than half the country's emissions - agriculture does not have to buy units, and big exporters, like Rio Tinto, NZ Steel and others, were issued most of their units free.
National and ACT's coalition deal promised to bring in different forestry restrictions, limiting the classes of land (and soil productiveness) that can be used for carbon forestry.
Asked how the move was progressing, Climate Change Minister Simon Watts wrote through a spokesperson: "The government is progressing with restricting the classes of land that can enter the (Emissions Trading Scheme) for forests".
"The government is awaiting advice coming to ministers this week on these options, one of which will include the possibility of bringing a Bill."
