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Australia wants its companies to access EU ETS from 2014

16 Jul 2013 18:09:08 | edcm


The Australian government said on Tuesday that it wants companies that pay its carbon price to have earlier access to EU allowances (EUAs) under a plan to sooner implement a domestic emissions trading system (ETS).

The Labor government said at the weekend that it will shift from the current fixed carbon price - often referred to as a tax - to a floating price one year earlier than the previously expected 1 July 2015 (see EDCM 15 July 2013). Under the current regime, carbon is priced at Australian dollar (A$) A$24.15/tonne of CO2 equivalent (tCO2e) (€16.88/tCO2e).

The government explicitly aims to lower the CO2 costs it imposes on 370 large businesses, which include Anglo Coal and BHP Billiton, covered by the tax, ahead of national elections due by November. It estimates that bringing the ETS forward would slash this cost to polluters by more than three-quarters.

"Bringing forward the ETS to 1 July 2014 will allow the market to find the cheapest way of reducing Australia's emissions," the government said in a fact sheet published after its weekend announcement. "Australian businesses will incur lower carbon costs and have earlier access to international permits from the European Union Emissions Trading System (EU ETS) and credible Kyoto units from international markets," it added.

The original plan, published in 2012, foresaw that Australian companies could access the EU ETS from July 2015 under an interim one-way link. A full link, allowing European companies to buy Australian Carbon Units (ACUs), was scheduled to be negotiated by mid-2015 for no later than 1 July 2018.

Under the new plan, the government plans to cap 2014-15 emissions via an ETS in line with the country's emission reduction target. To do so, it will first seek advice from the Climate Change Authority, which independently advises on the country's carbon price, before consulting on draft legislation.

Speeding up the introduction of its ETS will cost Canberra around $3.8bn over the next four years. The government plans to plug this hole by savings, among others, on fringe benefit tax arrangements of employer-provided cars.

Linkage discussions

The decision to move the ETS forward is still subject to the passage of domestic legislation. Analysts have said that moving the linkage forward would also require EU legislative action.

EU Commissioner for Climate Action Connie Hedegaard on Tuesday said on Twitter that the Australian announcement is "speeding up ETS linking discussions".

Australian carbon research firm RepuTex said on Tuesday it "assumed" government would negotiate an earlier linkage with the European Commission, despite details being unannounced. The proposed timing is in line with the expected time necessary for amending legislation to be passed through both houses of Parliament, it added.

"The new timeline is ultimately dependent on the outcome of the upcoming federal election and the shape of the Senate, with the ability of a Labor or coalition government to gain cross-bench support in the upper house likely to be a critical driver of the final shape of any amending (or repealing) legislation," it said.

Germany-based consultancy Tschach Solutions - recently acquired by ICIS - expects hedging demand from Australian companies in the EU ETS to be around 50-70m tonnes. This could take place in a variable period after the elections, depending on who wins.

Opposition remains

Although the government's move is aimed at cutting carbon costs for businesses, strong domestic opposition to any form of carbon pricing remains.

The government said that "commencement of emissions trading in 2014-15 and a drop in the carbon price from $25.40 to an estimate of around $6 in that year will enhance the support already in place for emissions-intensive trade-exposed industries". It is unclear if that figure, which represents a 76% reduction, is based on the assumption that Australian companies would be able to buy EU allowances earlier.

RepuTex estimates that ACUs would trade at a discount to EUAs, "with lower emissions in the Australian market likely to lower demand for premium priced EUAs and hence drive a price spread between the Australian and European markets".

The Liberal opposition led by Tony Abbott - who recently called the ETS a "so-called market in the non-delivery of an invisible substance to no one" - remains firmly against the measure.

This stance is shared by the coal industry. "A floating carbon price in an ETS does little to resolve our industry's serious concerns, given that Australia will remain the only country in the world that imposes a carbon tax on the greenhouse emissions generated from the mining of coal," said Nikki Williams, CEO of the Australian Coal Association, on Tuesday.

Another industry body, the Queensland Resources Council, said it cannot judge the new Kevin Rudd-led government plans until more details emerge. The organisation pointed to details - such as whether EU politicians will be in charge of setting a floor price; if the government plans to lock Australian firms into buying 50% of carbon permits locally; and whether carbon pricing will continue to cover emissions from coal mines - that need clarification. "If the federal government's answers to each of these questions is 'no', then clearly the intent is no more than a political fix in the shadow of an election," CEO of Queensland Resources Council Michael Roche said on Sunday. Silvia Molteni and Fionn O'Raghallaigh

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