Australia: Linking with the European Union Emissions Trading System (EUETS): the carbon price evolution

Last Updated: 3 September 2012
Article by Elisa de Wit


Two months into the operation of the fixed price phase of Australia's carbon pricing mechanism (CPM) the Federal Government has announced a major policy change to the design of the CPM. Starting on 1 July 2015, the CPM will be directly linked to the European Union Emissions Trading System (EUETS).

The changes

The details of the arrangement made between the Federal Government and the European Commission to allow this linking are:

  • from 1 July 2015 EU emissions allowances (EUAs) will be available for use by Australian liable entities to comply with their obligations under the CPM;
  • from 1 July 2015 Kyoto units (emissions units created from emissions reduction projects certified under the Kyoto Protocol) will be restricted to only 12.5% of compliance for a liable entity (while maintaining the limit of 50% for all eligible international emissions units);
  • the proposed floor price of A$15 per eligible emissions unit will not be implemented and the proposed price ceiling (which is currently to be set at $20 above the expected "international price" for a particular year) will be set against the expected price of EUAs; and
  • an agreement will be completed by mid-2015 to enable the full bilateral linking of the EUETS and the CPM by no later than 1 July 2018 (this will enable European liable entities to use Australian carbon units for compliance in the EUETS).

These policy changes are not entirely unexpected in a context where it had always been the plan for Australia's CPM to link to the European EUETS, however they have perhaps happened earlier than had been anticipated.

Part of the rationale behind these changes is that for emissions trading schemes to "link" there needs to be compatibility in some of the key parameters of the respective schemes. For example, the EUETS does not have a price floor for its EUAs and it has limits over the amount of Kyoto units that can be used for compliance purposes by European liable entities.

Future developments

In terms of a full linking arrangement, which is expected to be in place by 2018, the Federal Government and the EU Commission have reached a "shared understanding" and will need to "seek mandates from their respective authorities to negotiate and conclude an agreement to facilitate the full linking of their respective carbon markets".

The EU Commission will need to seek a mandate for this further agreement through complex rule making procedures involving Member States in Europe, which will likely take time.

The list of matters that the later agreement will cover highlights that a range of critical issues are yet to be determined. The agreement will cover, among other things:

  • measurement, reporting and verification arrangements;
  • the types, quantities and other relevant aspects of third party units that can be accepted into either scheme;
  • the role of land-based domestic offsets;
  • implications, if any, for supporting the competitiveness of European and Australian industries in particular sectors exposed to a risk of carbon leakage; and
  • comparable market oversight.

What is the impact for business?

There are a range of impacts that will flow from this decision for a number of different industry sectors.

With the restriction of the use of Kyoto units from the beginning of the flexible price period to 12.5 per cent of liability, and the ability to make up the balance of liability with EUAs to a maximum of 50 per cent of liability, the price of both carbon units issued under the CPM and Australian carbon credit units (ACCUs) issued under the Carbon Farming Initiative (CFI) will be taken from the market for EUAs (that is, the Australian carbon price will track the European carbon price).

Analysts seeking to predict future carbon prices for the purposes of investment decisions (whether in long term energy investments or short term derivative transactions) will now need to look to European policy makers to determine the macro market settings that will influence the levels of supply and demand that affect prices. This will be particularly important for project developers seeking to develop projects under the CFI who previously would have considered the fixed price and the floor price as the principal price points for assessment of a project's financial viability.

Key decisions are set to be made by the EU Commission later this year to deal with oversupply of EUAs in the market and, if these issues are resolved satisfactorily, stronger demand may see prices rise to levels which could see significant investment in CFI projects.

A further issue for CFI project proponents is that the current announcement sheds little light on the availability of ACCUs for use in the EUETS following full bilateral linking. This is, however, noted as a matter for consideration in the agreement which will ultimately reached between Australia and the EU.

The removal of the floor price takes away a key uncertainty for business looking to invest ahead of time in the procurement of eligible emissions units for the flexible price period. Investment in international emissions units had been hampered because of the uncertainty around how the "surrender charge1 would apply.

The changes announced yesterday now mean that it is much more likely that liable entities will look to enter into hedging arrangements through forward contracts or options to secure lower cost forms of compliance.

How we can assist you

Our European climate change practice has an extensive knowledge of the EUETS and has been advising clients on the operation and development of the EUETS since its inception in 2005. We have conducted numerous transactions involving EUAs and Kyoto units, and are well placed to advice you on the most appropriate arrangements for securing access to these units.

In order to provide you with an overview of the EUETS and the likely policy settings for its next phase, which will commence next year, we will shortly issue a briefing note. In the meantime, if you have any questions of how these policy changes will impact your compliance options or the Australian carbon market more generally, please contact a member of our Climate Change team.


1The surrender charge was proposed to be applied during the first three years of the flexible price period, to require liable entities to pay a "top up" amount on the international units surrendered for compliance to reach the $15 floor price. A number of options for the surrender charge had been proposed by the Federal Government, each of which had its own pros and cons.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Elisa de Wit
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.