Australia Carbon Price Seen Lower After Floor Scrapped, CMI Says

Australia’s decision to abandon setting a minimum rate for carbon permits and instead linking it to the European Union market by mid-2015 will mean a lower price for carbon, the Carbon Market Institute said.

“Not having a floor price means, presuming that the price does ease off, we have a lower cost of compliance with the carbon tax,” Chairman Les Hosking told Australian Broadcasting Corp.’s Inside Business today. “In 2015, it means that we have a lower price for carbon.”

EU Climate Commissioner Connie Hedegaard and Australia’s Climate Minister Greg Combet announced plans to link the two markets on Aug. 28. To facilitate the connection, Australia agreed to scrap a planned floor price and set a new “sub- limit” on the use of United Nations-sponsored emission credits.

“Artificial prices do not work, they do not eliminate volatility and uncertainty and risk, they actually increase it,” Hosking said. Still, “linking the market to a market which is in a volatile environment itself doesn’t look as though it’s an exact solution and doesn’t really solve the problem of carbon emissions.”

Combet said Aug. 28 the two programs will have their first links as of July 1, 2015, and a full tie-in three years later. Businesses will be able to buy carbon units immediately from the EU system to comply with Australia’s new emission restrictions, he said.

Biggest Polluters

Australia’s fixed price on carbon was set at A$23 ($23.74) a metric ton for about 300 of its largest polluters on July 1 and it will rise at a predetermined-rate of 2.5 percent a year in real terms until 2015. The Australian law set a minimum price for the market phase starting at A$15 in 2015. EU permits for December delivery closed at 8.08 euros ($10.16) on Aug. 31.

The carbon price is Prime Minister Julia Gillard’s main tool for reducing Australia’s reliance on coal and meeting its target for a 5 percent cut in greenhouse gas emissions from 2000 levels by 2020.

The EU created its carbon market in 2005 as a key tool to reduce greenhouse gases and has repeatedly said that it is committed to have an international network of linked emissions trading programs by the middle of this decade. In Australia, Gillard has struggled to defend a carbon price more than twice as high as the one in Europe, which runs the world’s biggest cap-and-trade plan.

The proposed linking of the EU and Australian greenhouse- gas-reduction programs will demonstrate to policy makers across the world that carbon markets can help address climate change, Andrei Marcu, head of the Centre for European Policy Studies’ Carbon Market Forum in Brussels, said Aug. 29.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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