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Australia to implement ETS one year earlier – Treasurer

15 Jul 2013 20:45:15 | edcm

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The Australian government plans to move from a fixed to a floating carbon price one year earlier than expected, a minister said over the weekend, to bring the world's highest emissions price more in line with the lower levels in Europe, as the country's economy faces a challenging outlook.

If an emissions trading system (ETS) replaced the current fixed-price system - often referred to as a tax - on 1 July 2014, rather than 1 July 2015 as scheduled, it could be linked to the EU ETS earlier than currently planned after necessary regulation is passed.

The Australian scheme at the moment is in fact due to establish an interim link with the European program as soon as it kicks off in 2015. A full link is then scheduled for no later than 1 July 2018.

The European Commission will seek a mandate from the EU Council to negotiate a treaty by mid-2015 to implement the full linking.

Comments made by Australian Treasurer Chris Bowen in a series of interviews over the weekend indicate that the move to speed up the ETS is motivated by the aim of lowering the CO2 price ahead of big challenges facing the Australian economy, such as the end of the mining boom and falling terms of trade.

"New Prime Minister, new Climate Change Minister, new Treasurer, new Cabinet, fresh set of eyes, looks at the issues, looks at the development in the world economy since then, looks at the way we need to spur investment in the non-mining sector as well, looks at cost of living, and says, well, we think it's sensible to bring it [the ETS] forward," he said, referring to the fact that Kevin Rudd recently defeated Julia Gillard in the Labour leadership and became prime minister ahead of the elections due later this year.

He added that because the carbon price is lower in Europe, "it makes sense to match our price to theirs earlier."

The benchmark European 2013 contract closed at €4.00/tonne of CO2 equivalent (tCO2e) on Monday, according to ICIS data, while the current fixed Australian carbon price stands at A$24.15/tCO2e (€16.71/tCO2e).

"I don't think Australia would move to a floating price if they can't link with the EU ETS at the same time, because if their purpose is to lower the carbon price, then no one knows what it would be in case they implement their ETS without linking to Europe," said Philipp Ruf, senior analyst EU carbon markets at consultancy Tschach Solutions - recently acquired by ICIS. "However, they still have to pass some regulation allowing the link to be fully operational," he added.

Another expert also highlighted that getting approval to link earlier would require EU buy in as well.

"There are a lot of discussions that need to be done in order to move the linkage date. Australia can take a unilateral decision to move to a floating price earlier, but they can't take a unilateral decision to implement the linking earlier," said Alyssa Gilbert, unit manager for market-based mechanisms at consultancy Ecofys.

Australia's independent research organisation the Climate Institute, said any decision to bring the ETS forward by a year should come with a statement of increased ambition and strengthened domestic policy.

"In determining the new limit, the government should respect the legislated role for the independent Climate Change Authority, which is due to bring draft recommendations on future caps and targets in October with a final recommendation in February," CEO John Connor said in a statement, adding that the process can work with a decision to bring forward the ETS.

Bowen admitted that changing from a fixed to a floating price one year earlier will have a "significant" impact on the state budget, but not close to the A$6bn per financial year figure that the opposition has warned against.

He also added such a move would be done in a "revenue neutral way". Further details will be announced in a plan within days. Silvia Molteni

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