The New Zealand carbon price hit its highest level in more than six years on speculation the Labour-led government is likely to lift a cap on the maximum price emitters pay.

The price for a New Zealand carbon unit under the Emissions Trading Scheme last traded this morning at $19.85 per tonne, the highest level since May 2011, having traded in a range around $19.30 a tonne for the past couple of weeks, according to brokerage OMF.

New Zealand is reviewing its emissions trading scheme, which currently includes a $25 per tonne cap on the price emitters have to pay the government for liable emissions. Green Party leader and climate change minister James Shaw told industry publication Carbon News that he expects to announce before Christmas the process to establish a climate commission, and that officials are about to begin work on outstanding issues from the latest review of the ETS, including the carbon price cap. Shaw told Carbon News that he believes carbon prices need to be higher than $25, although he noted the commission will have some say over those prices.

“That’s a pretty massive hint that it might be his intention to raise the $25 cap,” said OMF carbon dealer Karl Arns. “The big question mark is around the government and what tweaks they will be making to the emissions trading scheme in the new year,” Arns said, noting Shaw’s comments – although his personal view – are “a good signal”.

Arns said there was little volume available at current prices, with many sellers having traded their units prior to September’s election for around $17-to-$18 a tonne.

“There is not a whole lot of supply out there at these levels. The market is trading up because there are more buyers than sellers,” he said. “A lot of sellers have done their volume and the market is just trying to find the level where there is more volume available.”

While emitters have to buy, foresters flush with cash from high log prices were in no rush to sell given the positive outlook for carbon prices, Arns said.

Under Shaw’s predecessor, National’s Paula Bennett, the $25 cap was expected to stay for now to ensure major industrial emitters didn’t face a spike in carbon prices, although Bennett had signalled it could be reviewed in the future.

“That cap price was extremely likely to be raised at some point,” Arns said. “Under National it was later rather than sooner, but under the new coalition government it’s probably looking like sooner rather than later and it could be as early as next year. If they push that out to $30 or higher, then you are going to see carbon prices react immediately on the back of that.”

Arns said the outlook for the market was positive.

“The price has reacted for a reason and with the government’s review in mind it’s hard for NZUs not to rally if that cap is lifted.”

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