Actually, good question. It doesn't really say in our manuals. However from observation it is governed by altitude on the 737. CLB-1 washes out at roughly FL100 and CLB-2 at roughly FL150, however any reduced climb thrust is in any case automatically deleted above FL150.
Just a few more tidbits from the manual: CLB-1 reduces climb thrust by 3% N1 or around 10% thrust, CLB-2 is 6% N1 and roughly 20% N1. If a reduced thrust takeoff has been specified on the take off reference page the FMC will select either CLB-1 or 2 so as to avoid a climb N1 greater than reduced take off thrust N1, however as both climb settings are fixed it can't really do it on max reduced take offs (Derate 2 and above roughly 50°C assumed temperature).