Aug. 29 (Bloomberg) -- The proposed linking of the European Union and Australian greenhouse-gas-reduction programs will demonstrate to policy makers across the world that carbon markets can help address climate change, said Andrei Marcu.
“Those who say there is no urgency are being contradicted on the ground,” Marcu, head of the Centre for European Policy Studies’ Carbon Market Forum in Brussels, said today in an interview from United Nations climate talks in Bangkok. “This is a very good signal. This is not theory any more.”
Australia said yesterday it will allow its emitters to use international credits including EU permits and United Nations Certified Emission Reductions for as much as half of their compliance needs, tightening the specific limit on UN offsets to 12.5 percent from 50 percent. The nation would scrap a floor price of A$15 ($15.57) a metric ton set to take effect in 2015.
The two regions will start a partial link of their carbon markets by July 2015, allowing Australian companies to purchase European allowances immediately for future compliance, hedging the risk that carbon permits will rise, Martijn Wilder, a partner at the law firm Baker & McKenzie LLP in Sydney, said yesterday by phone.
“The timing of the government’s announcement is particularly opportunistic,” given low EU carbon prices and the high Australian dollar, Wilder said.
EU allowances for December have dropped 43 percent in the past year on surging supply and muted demand. They declined 0.9 percent today to 7.91 euros ($9.92) a metric ton on the ICE Futures Europe exchange in London as of 12:23 p.m.
United Nations Rules
Australia may link with carbon programs in China, South Korea and New Zealand, which could also provide the nation with supply, Wilder said.
The EU-Australia linkage is being proposed as the UN considers establishing rules that seek to oversee carbon markets around the world, where at least 29 programs have started or are being considered, according to World Bank figures from May.
The UN framework will attempt to prevent countries from counting emission reductions for themselves while selling credits in international markets, for instance, according to a technical paper published Aug. 24 on the website of the UN Framework Convention on Climate Change.
Such so-called double counting could exceed 1 billion metric tons of carbon dioxide by 2020 unless new rules are introduced, according to the paper, which cited the UN Environment Programme. The EU market’s cap this year will be 2.4 billion tons, according to an estimate by Bloomberg New Energy Finance.
‘Cookie Crumble’ Risk
The UN rules, alongside the linking proposed by Australia and the EU are needed to help keep carbon markets from becoming too disconnected from each other, Marcu said.
“Once the cookie crumbles, it’s very hard to put it back together,” he said.
“Given the recent turmoil around markets, you want to reassure that it will function well,” he said.
The 1997 Kyoto Protocol, the world’s biggest cap-and-trade market measured by emissions covered, has targets for 37 developed nations for the five years through this year. That market, which the U.S. didn’t ratify, is oversupplied by more than 10 billion tons, the World Bank estimated in May.
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