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On 28 August 2012, Australian Climate Change Minister Greg
Combet announced a linkage of the Australian carbon scheme to the
European Union's carbon scheme, intended to be effective from 1
July 2018, with an interim one-way linking effective from 1 July
2015.
Under the current scheme, Australian liable entities may use
"eligible international emission units" to meet up to 50%
of their emissions liability, as from the commencement of the
flexible phase of the scheme on 1 July 2015.
Until now, the only classes of "eligible international
emission units" (defined in the Australian National Registry
of Emissions Units Act) have been Certified Emission Reduction
Units (CERs), Emission Reduction Units (ERUs) and Removal Units
(RMUs) under the Kyoto Protocol.
With this announcement, the Government will prescribe European
Union emission allowances as an additional class of eligible
international emission units that may be used by liable entities in
Australia from 1 July 2015.
The Government will also apply an additional quantitative
restriction of 12.5% on the use of the Kyoto units (CERs, ERUs and
RMUs) within the overall 50% annual limit on the surrender of
international emission units by liable entities.
With these two measures, for emission years from 1 July 2015 a
liable entity could, for example, use Kyoto units for up to 12.5%
of its emission liability, European allowances for another 37.5% of
its emission liability, and Australian carbon units or Australian
carbon credit units for the remaining 50% of its emission
liability.
The Climate Change Minister also announced that the Australian
Government would discontinue its plans to impose a $15 floor price
on emissions units from 1 July 2015. This measure had been the
subject of significant criticism and was also proving difficult to
implement in the face of international emission units trading well
below that price.
The fixed price (which is currently $23 per tonne) will continue
to apply as we are still in the fixed-price phase.
The Australian Government and the European Commission have
exchanged letters setting out a pathway to full linking of the two
carbon schemes by 2018, including the interim one-way use of
European allowances in Australia from July 2015.
This access to a wider range of international emission units,
and the dropping of the unworkable floor price, is likely to be
beneficial to the Australian carbon scheme, ensuring that its
carbon price stays within range of the European economies and
international carbon prices.
The European Commission will also be hoping that this additional
demand from Australian liable entities will soak up some of the
excess liquidity in the European scheme, and may exert some upward
pressure on the European carbon price.
Once European allowances are prescribed as "eligible
international emissions units", they will also become
financial products regulated under the Corporations Act, and
subject to the licensing, market regulation and inside information
provisions of the Corporations Act in Australia.
We will provide updates as any further developments arise.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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