New Zealand spot carbon price pushes higher to six-week high

WELLINGTON Feb 3 (Reuters) - New Zealand carbon prices pushed higher over the week to the best level this year, boosted by rising carbon prices in Europe.

Spot permits under New Zealand's emissions trading scheme rose around 2 percent to NZ$7.65 ($6.38), brokers said. That was the highest level since just before the Christmas period.

EU allowances gained nearly 5 percent to reach a five-day high of 8.85 euros on Thursday on a cold snap in Europe. Prices for UN-backed CERs gained for a third straight session to a six-week high.

In the secondary market for U.N.-backed carbon credits, spot CERs traded up nearly 6 percent at 4.20 euros.

The rise in NZUs was kept in check by a rise in supply, with forest owners seen converting their permits into cash, while some emitters sold NZUs and replaced them with cheaper CERs.

Around 300,000 NZUs were traded over the week, the highest volume in six months and about half the average sales in the second half of last year. Each permit represents a tonne of greenhouse gas emissions. The scheme is designed to help curb output of emissions blamed for causing global warming.

An analyst noted that there was currently a market opportunity for holders of NZUs to swap them for cheaper units, such as large-scale hydro CERs and ERUs, which are trading as much as NZ$1.30 below the cost of an NZU.

"NZUs have limited international appeal, are illiquid, trade by appointment and carry liabilities - CERs and ERUs are free of that and by switching to them - you straddle global markets and now have a unit that is much more liquid," said Nigel Brunel of OM Financial.

He said the price advantage would not last long with more NZU supply expected in coming weeks and months.

"Our view is that NZUs will switch back to a discount this year and we are also of the view that a short squeeze in carbon may be occurring," Brunel said.

($1 = NZ$1.20)

(By Stian Reklev of Point Carbon News and Gyles Beckford in Wellington; Editing by Himani Sarkar)

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