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Australia Cuts Carbon Price Forecast for 2015 by More Than Half

May 15 (Bloomberg) -- Australia more than halved its projection for carbon prices in the year starting July 2015 to A$12.10 ($12) a metric ton as the European Union, its planned partner in a cap-and-trade system, struggles with low prices.

“Profound economic weakness in Europe has had a significant impact on European growth and its carbon market,” Climate Change Minister Greg Combet said yesterday in a statement as the nation released its annual budget. The revision cuts the value of permits by about A$6 billion through June 2016, or a net cost to government of A$2.1 billion after accounting for industry aid, he said. Previous Treasury forecasts were for A$29 a ton.

The charge on emissions is Prime Minister Julia Gillard’s main tool for meeting her minority Labor government’s pledge of cutting greenhouse gases by 5 percent before 2020. Opposition leader Tony Abbott, whose Liberal-National coalition leads in opinion polls, has vowed to scrap what he has called a toxic tax should he win power in the Sept. 14 federal election.

Carbon emissions from the national electricity market dropped 7.7 percent in the first nine months after the permit price was introduced, as consumers and businesses reduced power use, Combet said.

“The Australian government forecast is subject to huge uncertainty as a result of its direct relation with European prices,” said Konrad Hanschmidt, an analyst in London for Bloomberg New Energy Finance. Australian emitters may buy EU permits for a cheaper price than cutting greenhouse gases at home, Hanschmidt said yesterday by e-mail.

‘Game-changing year’

EU prices may rise if the bloc tightens its carbon targets and installs a system to temporarily deal with a supply glut, he said. “2015 can be a game-changing year in Europe.”

Australia’s ruling Labor party set the price of carbon at A$23 a ton starting in July 2012 with the aim of reducing Australia’s reliance on coal. Gillard’s minority government amended the law in August 2012 to allow emitters to immediately begin buying EU permits in place of Australia’s own carbon allowances starting in 2015.

The cost of permits on London’s ICE Futures Europe exchange, fast becoming the benchmark price for Australia as the nation prepares for market-based trading, closed at a record low 2.75 euros ($3.56) a metric ton last month. They advanced 7.7 percent yesterday to close at 3.52 euros on ICE.

The Australian government had promised additional tax cuts of A$1.59 a week starting in 2015 to those earning as much as A$80,000 a year to offset the costs of carbon pricing. While those tax cuts will be deferred until carbon prices exceed A$25.40, other household-assistance programs won’t be eliminated.

‘Coal Industry Assistance’

The government said A$274 million of coal industry assistance will be reduced in line with the revised price. It said A$662 million of uncommitted funds for low-emissions coal and carbon capture and storage will be returned to the budget.

The deferral of investment in the Australian Renewable Energy Agency and cuts to carbon capture “are regrettable,” John Conner, chief executive officer of the Climate Institute, said yesterday in an e-mailed statement.

“The government will continue to monitor the carbon price to ensure that households are adequately assisted,” Combet said in the statement. “Should carbon price revenue be higher than anticipated when we move to an emissions trading scheme, the government will also prioritize investments in land and biodiversity programs.”

Abbott’s coalition supports Australia’s 5 percent reduction target by 2020. Its so-called Direct Action Plan would commit as much as A$750 million to subsidize companies’ spending to achieve that goal.

To contact the reporters on this story: Jason Scott in Canberra at jscott14@bloomberg.net; Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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