New Zealand Climate Change Minister Paula Bennett on Wednesday gave the clearest hint yet that the 2-for-1 provision is about to be dropped from the country’s ETS, telling a conference in Wellington that it was a matter of ‘when and how, not if’, local media reported.

“I’m currently considering the options and potential implications of removing these artificial measures, including pricing emissions units at 2-for-1, and the cap of NZ$25. As some of you might have seen me say already, this isn’t really a case of ‘if’, but more ‘when and how’,” Bennett told the conference, according to BusinessDesk

“It was always a temporary measure. It is abundantly clear that if the ETS is going to work, carbon must cost more than it does right now.”

She said the ETS review would be finalised within a couple of months.

Market anticipation that the rule will change has pushed up prices for months, and after Bennett’s comments spot NZUs traded up to NZ$11 on OM Financial’s CommTrade and Carbon Match for the first time since Dec. 2011.

Currently, the NZU price is some 40% higher than when the government released the ETS review paper in November last year.

The 2-for-1 provision allows emitters to surrender one allowance for every second tonne of CO2e they emit, and has been a major factor in keeping NZ carbon prices low in recent years.

Removing it would mean electricity generators, industry and fuel providers would have to hand over twice as many allowances to the government each year to comply with the scheme, effectively doubling market demand.

By Stian Reklev – stian@carbon-pulse.com

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