Another no-sale ETS auction

Bids at yesterday's auction of freshly-minted government-issued carbon credits didn't meet the reserve price for the second time in a row.

Newsroom's Jonathan Milne asked me for my take on it. I warned that it's better to talk to market participants on it as I'm not one, and that James Shaw's discussion of it on Newstalk was very much worth the listen. 

But otherwise, I said this; Jonathan included a summary in his morning newsletter. 

1. Govt made a substantial forestry announcement the morning of the auction. It resolved one kind of uncertainty (how govt would respond to rising opposition to carbon forestry) while introducing another (what councils will do with it).
2. Govt could further resolve uncertainty by fixing the number of unbacked units it is prepared to auction or allocate between now and 2050, committing to drawing only from that volume. 
3. In the absence of having that fixed quantum, govt could instead wipe unsold units rather than hold them over to the next auction. Failed auctions would then tighten supply and make future failed auctions less likely. Bit better to just fix the number of units.
4. Simplest explanation remains that participants last year expected govt to be taking a very restrictive path relative to prior expectations, then were surprised. They had priced in expectations that there would be a lot fewer credits than had previously been scheduled and had banked credits against that possibility. Govt went with a less restrictive path. And an incoming National govt might be less inclined to take a sharply restrictive path to net zero. So holding credits makes less sense; using stockpiled ones makes more sense. Again - would be great to legislate a fixed number of NZU.