Australia Approves Link with EU Cap-and-Trade Program

Marking another step forward in its new carbon emissions control scheme, Australia officially agreed to link its nascent carbon trading system with the European Union’s emissions trading market, starting in mid-2015. 

Along the way, it is abandoning a plan to set a minimum price for carbon permits, because they are not allowed under the EU cap-and-trade program.

"This is the first step toward a truly global trading system," Alex Wyatt, the Melbourne-based chief executive officer of Climate Bridge told Bloomberg. "This provides clarity on the Australian scheme and enables liable entities to determine hedging and purchase strategies."

Many countries have recently passed emissions trading legislation, and they are looking to hook up into regional and then worldwide systems.

China and Korea are also scheduled to begin emissions trading in 2015, and VietnamMexico and Peru recently passed national climate change legislation. South Africa has plans for a program.

In the US, the northeastern states have a cap-and-trade program, California‘s begins in 2013, which will be linked to Quebec and most likely British Columbia. New Zealand started emissions trading in 2009, and the EU’s went into effect in 2005. 

Australia’s carbon tax, which went into effect July 1, morphs into carbon trading in 2015.

Currently, Australia’s carbon tax covers 294 of the nation’s largest carbon emitters such as coal-fired plants, smelters and mining companies.  The number of companies affected was recently cut from 500 because of fierce opposition, and now covers about 60% of Australia’s top emitters.

The tax for emitting one ton of carbon starts at $23 and escalates at a rate of 2.5% a year until the carbon trading starts in July 2015.

At that time, Australian companies will be able to buy offsets that can be traded to help cover their carbon reduction obligations.

The phase-in with the EU program officially starts July 1, 2015, and it will take about three years for the complete integration of the two emissions trading systems. But Australian companies will be able to buy from the EU system immediately to cover future exposure.

Australia Prime Minister Julia Gillard, who fought hard to get the program passed, wanted a floor price of about $15.90 for offsets, but she reversed that position – both due to political pressure and because EU cap-and-trade system doesn’t allow minimum prices.

"This delivers certainty to businesses that will have a liability under the Australian scheme because they will have access to the largest carbon market in the world," says Greg Combet, the Australian Climate Change Minister. "This is the best sort of confidence, market confidence that you can deliver."

Prices for EU permits for delivery in December are around $10.50 on the ICE Futures Europe exchange; the value of these offsets has slipped more than 41% over the past 12 months in part because the global economic crisis is distracting many developed countries from concentrating on greenhouse gas  emissions controls. The EU may delay future carbon permit sales to help support prices, reports Bloomberg.

Australian companies will also be able to use UN-sponsored emissions credits, including Certified Emission Reductions (CERs) to meet up to 12.5% of their carbon liability. UN CERs for delivery in December are trading at about $3.90 per metric ton;  prices have slipped about 69% over the past year.

The carbon tax is meant to help Australia reduce its reliance on coal and meet its target for a 5% cut in GHG emissions from 2000 levels by 2020.

The Australian opposition leader, Tony Abbot, vows to repeal the tax if his conservative party wins in November 2013 elections. But by then, the system may be "embedded" into the nation’s financial system, which would make getting rid of it difficult.

Read the Bloomberg story: 

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