On August 28th, Australia and the European Union have
agreed to fully integrate their respective cap and trade schemes by
2018. Also, Australia has decided to drop its planned A$15 per
tonne carbon credit floor price. The combined effect is that
cheaper EU carbon credits will be available for Australian
emitters. Under the integrated scheme, Australian business will be
able to source 50% of their carbon liabilities from the EU,
starting 2015. A similar allowance will be available for European
emitters by 2018.
This is a welcome announcement for the EU trading scheme.
Problems with oversupply have driven the cost of carbon credits to
record lows. Currently, EU carbon trades at around US$10 per tonne.
Opening the market to Australian demand should alleviate this
oversupply. With a carbon tax fixed at A$23 per tonne, Australian
emitters are welcoming the integration which will offer them a
cheaper alternative to the relatively high tax. However, the
Australian government is standing by its projections that carbon
prices will reach A$29 per tonne by 2015 and 2016.
This formation of an international carbon trading bloc is of
interest to other jurisdictions considering a carbon trading
scheme, including Canada. If successful, it could serve as the
model for other nascent international and regional cap and trade
blocs, such as the Western Climate
Initiative between California, BC, Manitoba,
Ontario and Quebec.
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