CarbonCurious Transcript - That carbon price + new ETS planning tools - March 2026
- Rebecca Hunink
- Mar 12
- 18 min read
In our March 2026 CarbonCurious webinar, CarbonCrop CEO and Co-Founder Nick Butcher covered two topics that are top of mind for a lot of landholders right now: what's been driving the carbon price over the past year and where it might go, and a preview of new platform tools for planning exotic forestry registrations under the LUC restrictions introduced late last year.
As always, the full recording is available to watch below. If you'd prefer to read through the discussion, the full transcript follows.
In this webinar we covered:
- Carbon price trends and key events
- Why the price is where it is - supply, demand and the stockpile
- What might drive the price in the future
- New LUC restriction planning tools in the platform
- Q&A
Carbon price trends and key events
Nick Butcher: Good afternoon everybody. Today we're talking about two topics - a look at the carbon price trends over the last month and year, with some commentary around the drivers and where it might go, and then a preview of some new tooling we're in the process of releasing around planning for your exotic forest in the context of the LUC restrictions.
This is recorded and we'll share it on our website after the session. If you have any questions as we go, make sure you ask them in the Q&A box at the bottom of the screen, and if we don't get to it, we'll come back with an answer in the transcript on our blog.
So kicking off with the carbon price. I'm looking at data from EMS Trade Point covering basically the start of last year - January 2025 - through to pretty much today.
A couple of key events stand out. In the middle of March last year, the auction failed to clear completely. This created a ceiling on the carbon price for the rest of the year, because essentially everybody in the market knew they could always get units in fairly large quantities at the auction floor price - which at the time was about $64.
There was also a dip around the same time. I think the auction failed to clear a couple of days before that dip. On the date of the dip itself, there were some announcements about the LUC restriction policy. In my view, those two things probably weren't correlated - because if anything, LUC restrictions should drive increased scarcity of units, which should push the price up. But clearly there was a general trend of lack of buy-side market confidence in future unit prices.
There was a bit of recovery over the course of the year, with a lot of trading in the high fifties. However, in November, there was an announcement from the government that included, among other things, a decoupling in law of the ETS from the NDC - New Zealand's Nationally Determined Contributions under the Paris Agreement. This was interpreted really negatively by the market.
I don't entirely agree with the interpretation. What changed in terms of actual implementation was, in my view, less significant than what the market clearly thought. But in a nutshell, it seemed to be interpreted as a lack of commitment from the government to ongoing scarcity of supply of units within the ETS - like New Zealand was less committed to its climate change targets than previously believed, which would mean unit prices were going to be even lower in the months ahead.
Almost immediately after this came out, various ministers and ministries were pushing quite strong messaging that that wasn't the intention and that they did remain committed to New Zealand's climate change targets - and that the ETS would remain a key instrument. But that didn't immediately restore confidence. The general sentiment revealed by the price was: we're not convinced.
This was followed in early January by a further slump. We'd reached the end of a mandatory emissions return period. That means that not only do all forest operators in the ETS have to submit an emissions return over the next six months between January and June, but some who haven't been submitting for the last three years will get all three years' worth of their units at once.
This is a supply-side trigger that can release more units into the market. Some of those units are from people who need the cash quickly - as soon as they get the units, they start selling at whatever price they can get. That creates a further price slump because there's basically a surplus of supply on the market that isn't waiting for good prices. They need the money right now.
The more recent event - which was mostly a reiteration of the status quo but was interpreted by at least some as a positive sign of government commitment - was the publication of some letters between Minister Watt's office and the Climate Change Commission around the ongoing reviews of the ETS settings. These letters are publicly available online. In a nutshell, it was the minister signalling ongoing commitment to the ETS, including an openness to exploring further limitations on auction supply to support pricing and help the ETS be an effective emissions mitigation tool.
At very low prices, the ETS doesn't do a lot to support decarbonisation, because it's cheaper just to emit and it's not that commercially compelling to plant a forest. We need higher prices for it to be effective as an emissions reduction tool.
Since then, the price has trended back up to around where it is today. I think it's currently trading around $45. Though I'd note the correlation between those letters and the price movement - it looks like they're at least correlated, but that doesn't mean there's a clear cause. It could just be that the really liquid supply from forest owners who urgently needed cash has dried up a little, and the people who are now selling are a bit more discretionary - they're not prepared to sell at $35, they're waiting for better prices.
Why the price is where it is
Nick Butcher: The reason the price is low - which is always the question we get - is because there's plenty of supply prepared to sell into the market at that price. A lot of the buy-side of this market, the emitters who have a compliance obligation, are mostly just trying to buy at a price that's reasonable. They don't want to buy too much at too high a price and end up less competitive.
The general intention of the ETS is that units are relatively scarce and the government can make units available through the auction mechanism. One of the things that helps control the price is the floor price at auction. Then there are various cost containment reserves where if the price gets too high, more units are released so prices don't go out of control.
The 2021 and 2022 auctions sold out completely, including all of the cost containment reserves. Since then, auctions have generally not been succeeding. I went back as far as December 2024 - the previous three auctions that year all failed to clear. December 2024 was the last time an auction even partially cleared, and that was at a floor price of $64. Since then, we've had five auctions in a row that have completely failed to clear.
Given the floor price is now $71, it's no surprise they're failing to clear. People who might buy at auction can buy units for much less in the secondary market.
So how much difference do the auctions actually make? Looking at the supply-demand picture from MfE's data: on the supply side, there's roughly 27 million tonnes per year coming from auction units, industrial allocations, and forestry removals. On the demand side, there's around 40 million tonnes from liquid fossil fuels, stationary energy, waste, and deforestation.
Under these assumptions, there's about a 13 million tonne annual imbalance between supply and demand. If the auctions don't clear - as they didn't last year - that gap rises to around 19-20 million tonnes, all else being equal. So auctions do change the supply-demand balance by quite a bit, but they're fairly small in the context of total supply - which is why auctions can fail to clear and you just see more demand drawing on the stockpile.
The stockpile
This brings us to the stockpile, which is really the key question around why the price is so low. The answer is that there are a lot of units still sloshing around in privately held accounts in the market.
Back at the end of December 2022, the stockpile was at its highest point on record - 164 million tonnes. As of the end of last year, that's down to 135 million tonnes. So there's been a 30 million tonne drop, but there's still 135 million tonnes sitting there.
There are various perspectives on how much of that 135 million tonnes is actually available to the market - some of it is being held back because people will need it to meet future forest harvest surrender scenarios, and so on. But at the moment, this is the pool that the market is drawing on when you see that annual supply-demand imbalance.
The sentiment of the people who own units in this pool has a very big impact on price. If they're feeling optimistic about future prices, they're less likely to sell. Supply goes down, prices go up. If they're feeling pessimistic - about ETS prospects, future demand, potential regulatory changes - they might sell even at lower prices. And clearly, the aggregate sentiment at the moment is somewhere that supports a price around $45.
What might drive the price in the future
Nick Butcher: This is an incomplete list, but the key factors are:
How quickly does the economy decarbonise - or at least the part covered by the ETS? Does demand drop as we move away from fossil fuels in energy generation and transport, including personal transport, freight, and air travel? Domestic air travel is captured by the ETS, just to note.
Afforestation rates also have a big impact - though small in the short term and larger over time. If there were 50,000 hectares of new forest planted this year - and I think the reality will probably be an order of magnitude less given the way things are going - that wouldn't change the total supply much next year or the year after, but it does change the forecast of supply for the 2030 to 2035 period and beyond, when those forests start growing quickly.
Harvest rates matter too. If unit prices are high enough, people might choose to delay harvesting their forest because they'd have to potentially surrender units when they harvest. If unit prices are very low, people who'd been delaying might choose to harvest more, which creates demand for units and equalises prices down a bit.
Regulatory change and reform is another key one. There've been various reform signals in the past, and I'm sure there'll be more. If, for example, you could no longer use forestry units in the ETS - a proposal that's been raised before with varying degrees of seriousness - that would completely change the supply-demand dynamic and prices. The market's perspective on how likely these proposals are directly affects the market price.
And then there's the size of the stockpile, and perspectives on how much of it is actually available to be used by emitters - versus being held as a hedge by people waiting to see what the price does.
Probably the biggest factor in the short term, though, is just sentiment around all of the above. What do people think these things are going to happen? Therefore, what do they think units will be worth in the future? Therefore, what should they pay for them now?
What does this all mean?
The key thing to say is: we don't know. We're trying to read the tea leaves like everyone else, and it is genuinely a tea-leaves-reading exercise. Those factors are pretty diverse and pretty hard to bring to a definitive conclusion.
The market, which is kind of the whole point - that it provides an independent signal on what a unit is worth - currently thinks, having balanced all of these factors, that a unit is worth about $45.
There's various commentary and analysis suggesting the long-term marginal price of exotic forest carbon units is around $50 - that is, the price that needs to be in place for someone creating a new exotic forestry unit to decide it's worth doing. Though there are various questions around what timeframe you're talking about. Some perspectives suggest there might be an oversupply of units in the late 2030s to 2040s, while others suggest a structural shortfall over the next five years that could lead to a supply squeeze - and that even if there are enough units in the long term, there may not be in the short term, and that could push prices much higher. $90 is one figure that's been mentioned.
I strongly discourage people from fixating on any of these numbers and going, "Great, I can rely on that price," because if recent years have shown anything, it's that all of this is pretty speculative and there are a lot of factors that can change it.
These numbers aren't necessarily inconsistent, though. It could simultaneously be true that units get to $90 a tonne towards the end of the 2020s - call it 2030 - and that they're also only around $50 in the long term by the time we reach the mid-2030s or later.
All that said - for those looking at planting new exotic forest, $45 a tonne is still a lot better than nothing, especially if you're looking to plant the forest anyway. Which ties in with a lot of the discussion we've had around the new LUC restrictions and how to work within those for whatever you're looking at doing on your land.
Tip: We've said to people for a long time that it's better to view the ETS as a way to help support something you're interested in doing anyway in terms of your land use change, rather than rely on the ETS for something you otherwise wouldn't want to get into.
New LUC restriction planning tools
Nick Butcher: I'll quickly recap the LUC restrictions for anyone who needs a refresher. The new regulations introduce a ban on registration of forest on LUC one to six land - but it's not all forest and it's not all LUC one to six land. There's restricted forest, and even within restricted forest, there are certain things you can still register.
Without going into all the detail - if you want more background, go back to our previous webinars on this - the main categories that mean you're not restricted even if you're on LUC one to six land, plus the four main exemption pathways if you are restricted, are:
- A transitional exemption if you can prove you had a qualifying forestry investment already in process between certain dates
- Forest that was forest before 31st of October 2025 is not restricted, regardless of whether you'd put in an application
- Up to 25% of the LUC one to six land per individual farm can be registered regardless
- A permit for LUC six land only, of up to 15,000 hectares per year across New Zealand, which people can enter a ballot to get a share of
What we released late last year
Late last year, we released high-level analysis tooling that showed, under these constraints, what your restrictions and opportunities might look like on your land. You can see the breakdown of total farmland by LUC classification, and from there work out things like your 25% allowance.
What we didn't have last year - and do have now - is how this ties in with what you actually want to do on your farm. That's what we're sharing today.
The new planning tools
Here's how it works. Let me walk through an example farm.
This particular farm has a total of 3,200 hectares. Of that, 2,260 hectares is LUC one to six at the regional level - and hence could be restricted. The remaining 898 hectares is LUC seven to eight, which isn't restricted under these new rules.
Within the LUC one to six land, the breakdown of one to five versus six matters - because on LUC six land you can potentially apply for the ballot, but on one to five you can't.
For this example farm, the 25% allowance under the LUC one to six 25% pathway is 565 hectares. However, the current intended planting on this farm is 1,200 hectares - so it exceeds that 25% allowance.
Is that a problem? That's exactly the question the new tool helps you answer.
We've added functionality that lets you, for any given area of forest, designate how you plan to get that area into the ETS. The categories are:
- 25% pathway
- LUC six ballot
- Transitional exemption
- No pathway yet designated
That last one - "no pathway yet" - is a bit of a red flag. It's fine if you don't intend to register that land in the ETS, but you'd want to go into that with your eyes wide open. Even at $45 a tonne, the carbon income over the lifetime of a new exotic forest is a lot of money.
In the example I'm walking through: the intended planting includes some forest going in through the 25% allowance, some through the LUC six ballot, some through the transitional exemption, and a small area with no pathway designated. That's around 1,100 hectares in total - which is a lot more than the 565-hectare 25% allowance.
That doesn't mean you can't do it. But it does mean whether or not you can depends on how the various pathways play out.
Nobody currently has an LUC six permit, as far as I'm aware, because the balloting process hasn't yet been defined. And just because you intend to get a transitional exemption doesn't mean you'll necessarily be granted one - it depends on the strength of your case and how clearly you can demonstrate the conditions were met.
The sanity-check view
The tool includes two summary views that are really the sanity check for whether you're about to get yourself into trouble.
The first shows how much of your 25% allowance you've used up, broken down by the stage of the registration process: draft, intended, prepared, submitted, and registered. If the total of these starts to go over your allowable 25% hectares, you need to find another way to balance things out.
The second - and this is the important one - shows your 25% allowance as a backstop for your other intended pathways. So you've got some forest going in through the LUC six ballot (267 hectares in this example), and some through the transitional exemption (575 hectares). If the ballot process doesn't go your way, or if your transitional exemption application is rejected, can you fall back on your 25% pathway?
In this example: if the results of all those things stacked together were still less than 565 hectares, you could be a little more comfortable, knowing that even if the ballot doesn't come through or the exemption isn't granted, you've still got your 25% as a safety net. In this case, that's not where things are at. You'd want to hold off on the planting until you've got the necessary permits or exemptions in place.
Two things still unconfirmed
There are two things that are still basically unconfirmed in terms of process.
The first is the LUC six ballot specifics. To the best of my knowledge, it's not yet defined exactly how you enter an LUC six ballot, how much it costs, or at which point you do or don't have to pay. The expectation, given the legislation, is that there will be two ballots this year. So if you think you're going to need an LUC six ballot, watch carefully for announcements - we'll send out email updates when the time comes. But if you're looking at 2026 planting, you want to be making these plans and exploring these options now, in advance of the first announcements on the ballot. The ballot rules might not play to what you want, and you might not get an allocation.
The second is erosion prone land designation. There is a carve-out for erosion prone land in the legislation - to the extent that your forest is on erosion prone land, you're exempt from these restrictions even if the land is designated as LUC one to six. The issue is that "erosion prone land" for this purpose isn't just any land that's declared erosion prone in any data layer. It has to be specifically designated - something like "highly erodible land" or "severe erosion risk land" - in a regional or district plan.
To our knowledge, that is currently only true of one district: Gisborne. Gisborne District Council has a layer in their regional plan that qualifies. We're not aware of any other regional or district plans that meet this nationally. And from the feedback we've had, it's also unlikely any will be added in the next year or so, given the restructures signalled around regional councils.
So my recommendation: if you're thinking of relying on the erosion prone land pathway in the short term, probably don't.
Next steps
If this has got you thinking "I'm not sure what this means for my farm and my plans" - basically, make a plan. It may well be that you can still do exactly what you want to do. The point is just to take the risk out of it where you can.
We're still offering the regional LUC basic analysis for free. Head to carboncrop.com/lucky, find your farm, click submit, and we'll email you a report giving you the high-level breakdown of your land by LUC classification. If you want to go further and use the explicit planning tools I've just walked through - and start working through all of those questions - some of these features now exist in the platform, with more coming. You might also be able to access CarbonCrop through your catchment group - express your interest through that same link and mention the catchment group you're part of, and we'll see if we can get you access to the extra tooling.
Q&A
What impact are the failed government auctions having on the carbon market?
The impact in terms of overall supply-demand dynamics is definitely real - there are fewer units in the market than there would be if those auctions had cleared. However, the number of units that would have been available from those auctions isn't that large, so they haven't had a dramatic impact on the stockpile or overall supply.
One impact the auctions are currently having is that they're acting as a ceiling on the price. However, we're also nowhere near that ceiling. The current price is around $45, and the auction floor for this year under the current rules is $71. There are obviously many other factors meaning people aren't prepared to pay even close to the auction floor price.
In a nutshell, the overall oversupply of units in the ETS and the size of the stockpile is the main issue, rather than whether units do or don't clear at auction. I think that'll remain the case for the next year or two.
How do we ever gain certainty on carbon pricing into the future?
The question kind of answers itself - I think it is at least difficult to answer. Structurally, the world still has the problem of far too much CO2 in the atmosphere. Carbon markets globally are generally increasing in scope, price, and liquidity. New Zealand is, to some degree, a bit of an outlier in that we haven't changed the scope of the market in a while. The price has been falling probably because too much supply was released in the past. And we're very good at creating carbon removals using forestry, which combined with regulatory uncertainty does make it very difficult to answer this question with certainty.
Depending on the scale you're at, you can potentially enter into forward contract agreements with emitters who might be willing to lock in a price. It's the same risk on both sides - as a forester, you're worried the price might fall through the floor; the emitter is worried the price might shoot to $200 a tonne and make their activities uneconomic. By agreeing to buy and sell at, say, $60 a tonne for the next 10 years regardless of what happens in the ETS, both parties balance the risk. Those contracts do exist and people are making agreements along those lines - though not at $60 right at this moment.
The issue is that the overheads of getting involved in a deal like that - the legal agreements, security, administration - tend to make it unrealistic for a small-scale forester.
We've said to people for a long time that it's better to view the ETS as a way to help support something you're interested in doing anyway in terms of your land use change, rather than rely on the ETS for something you otherwise wouldn't want to get into.
How do we start trading carbon credits?
If you want to trade carbon credits in terms of technically accessing the market, you set up an emissions trading account - I think it's still free - and then an account with one of the brokerages that let you buy and sell units.
If you're interested in selling units you already have and you're with us, it's as easy as sending us an email. We'll take you through the process. If you want to do it completely independently, you can set up your own brokerage account and then, when you want to send units to that account, just ask us to prepare the transaction - we don't charge anything for that.
What is LUC?
LUC stands for Land Use Classification. It goes from LUC one - super highly productive land - through to LUC eight - rocky scree slopes - and it's intended to be a rough proxy for agricultural suitability and adaptability. LUC one to four tends to be really good grazing, arable, or crop land. Five through eight is getting into hill country or borderline mountain country sheep and beef. It's a fairly coarse classification - there's a lot of really good farmland designated as LUC six or seven - but it's the general classification in the regional plans of what kind of land you have.
What do I do about a 1981 photograph that's stopping me from getting carbon credits?
My interpretation of this is: what do you do about evidence that suggests your forest is pre-1990, which is stopping you from registering it as post-1989 forest in the ETS?
The short answer is that it's very difficult under the current framework. You probably can't do much about it unless you have compelling evidence to the contrary - showing that whatever's in that photograph was not forest, and that your forest is actually post-1989 and eligible for registration.
That said, carbon markets are evolving, and it may be that in the years to come there are better incentive frameworks in place for pre-1990 forest, and you could access those markets. But in a nutshell, if the evidence says your forest isn't eligible and that evidence is correct or compelling, that's how the assessment will be made. You're unlikely to be able to get registered.
All right, thank you all very much for your time. We will be back in touch later in the year with further updates and some further details on the new product features that are coming. Enjoy the rest of your day.
Comments