Strong demand drove carbon prices higher at the Government's latest Emissions Trading Scheme (ETS) auction.

Carbon units were cleared at $76 per unit, up from $70 at the last auction in March.

Bids outweighed the available units, excluding those in the cost containment reserve, by two to one.

The 4.825 million units on offer were taken out, as were the 1.3 million units in the reserve.

Prices in the secondary carbon market rallied after the auction.

"I think it was a much better result than people expected and the spot market is now $1.20 higher at $77.20 a unit," Jarden's head of commodities Nigel Brunel said.

Prices in the secondary market peaked at just over $85 a unit in February.

Today's auction means there are no units left in reserve for this year.

Fewer units in the reserve lessen the Government's ability to try to take heat out of the market by offering more supply.

There are two more auctions this year, each of 4.8 million units.

"Prices I think will track higher," Brunel said. "I don't think there is much downside momentum."

The Emissions Trading Scheme's quarterly auctions are the Government's main tool for meeting domestic and international climate change targets.

Under the rules, each unit allows the polluter to emit one tonne of carbon dioxide.

Prices have come a long way from early in 2020, when the units traded at just $25.

High carbon prices have incentivised the planting of pinus radiata in permanent plantations, causing concern in the rural areas where productive pastoral land has been lost to trees.

The Government this year outlined proposals to better manage carbon farming, which could exclude future permanent plantings of exotics like radiata pine from the ETS.

"We want to balance the risks created by new permanent exotic forests, which are not intended for harvest," Forestry Minister Stuart Nash said at the time.

Nash said there was a window to build safeguards into the system, before a new ETS framework comes into force next January.