Spot NZUs gained another 5.5% this week to close Friday at NZ$10.60 ($7.10) in a rally driven by compliance buyers expecting the government to introduce tougher rules.

The allowances broke through the NZ$10 level last week for the first time since Dec. 2011, and rose another 55 cents this week. One lot of 50,000 went through on Carbon Match at NZ$10.75, though the price settled at NZ$10.60.

“The emitters are seeming more aligned than we might have expected in terms of the two-for-one having to go,” one observer told Carbon Pulse.

The government ETS review has been driving prices in the New Zealand carbon market for months and though the outcome remains unknown, comments from ministers that the CO2 price needs to go up have convinced the market to bet on bullish changes.

Tipped as the biggest change ahead, traders expect the government to remove the provision that emitters must only surrender one allowance for every second tonne of CO2e they emit, a move that would almost double market demand.

Allowances are likely to continue to climb to around NZ$12-13 before meeting any real resistance, one broker said.

Volumes continue to be relatively high, with about 750,000 NZUs changing hands for the second consecutive week, around three times higher than average levels.

“As the market moves higher sellers are beginning to offer larger parcels,” brokers OM Financial said in an emailed statement. “It’s that time of year where emitters are surrendering their NZUs for the year gone and so we expect more volume to move and higher prices to come.”

Emitters covered by the ETS must report their 2015 emissions to the government by Mar. 31, and surrender a corresponding number of allowances by May 31.

By Stian Reklev – stian@carbon-pulse.com

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