With prices turning vertical on the Emissions Trading Scheme (ETS) over the last two months, the government finds itself exposed to fiscal and reputation risks.
These risks do not come from the price increases per se, but from the way the price cap mechanism introduced to the ETS this year.
The price of carbon on the ETS now sits at $48, just $2 below the $50 price cap.
The cap could be breached at either of the next two auctions on 1 September and 1 December.
Source: Newsroom/Marc Daalder
According to Newsroom, Climate Change Minister James Shaw has ruled out raising the price cap.
The ETS has had a price cap for years. Before changes last year, the price cap was very simple.
The government gave effect to the cap with a standing offer to sell an unlimited number of emissions units at the fixed price.
For years, the…
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Utopia, you are standing in it! 
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