Australia Urged to Buy Carbon Credits for Cheaper Emission Curbs

Buying carbon credits near record low prices in global markets would cost-effectively ensure Australia meets its pledge to cut emissions by 5 percent, an industry group told the nation’s new government.

Purchasing carbon credits from the UN’s Clean Development Mechanism would give the government an insurance policy if its plans for reducing emissions fall short, according to a recommendation from The Australian Industry Group, which has a membership of 60,000 businesses. Certified Emission Reductions from the UN fell to a record low of 20 euro cents ($0.27) on April 17 as nations have failed to boost demand outside Europe for the so-called carbon offsets.

“It’s raining soup in international carbon markets, and we should be out there with a spoon,” Tennant Reed, lead policy adviser for the group, said in an interview yesterday at the Carbon Expo in Melbourne.

Tony Abbott, the newly elected prime minister, has tried to reassure skeptics around the world that Australia still intends to cut greenhouse gases by 5 percent from the level in 2000 by

2020. He plans to ban Australian emitters from buying carbon credits outside the country, in a break with the previous administration.

The UN carbon-credit market was designed to let richer nations make up for their emissions by paying for carbon reductions in China, India and other developing countries, where abatement is often cheaper.

Reasonable Costs

The Abbott coalition government’s Direct Action plan would reward the most cost-effective approaches to cutting carbon over the next five years. It would include auctions where companies win government funding by bidding the least to eliminate a ton of emissions. His Emissions Reduction Fund may also give credits to those who cut back faster than peers.

The Australian Industry Group, which supports an emissions-trading system as the lowest-cost method for curbing carbon, says it’s offering the new government ideas to flesh out the Direct Action policy.

“There has long been agreement that Australia faces relatively high domestic abatement costs, given the weighting of our economy toward inherently emissions-intensive activities and energy sources,” Chief Executive Officer Innes Willox said in the submission. “Overseas abatement opportunities are available at lower cost and in great abundance, particularly in developing countries.”

Carbon Reserve

CERs for December closed unchanged yesterday at 31 euro cents a metric ton on the ICE Futures Europe exchange in London. That’s 46 Australian cents.

The government could use a portion of the Emissions Reduction Fund to establish a reserve of international units, Willox said. To cover the full risk of not meeting the target, the reserve fund could set aside from 275 million to 450 million credits, the submission said. Given yesterday’s CER price, the government could cover its commitment for as little as A$129 million ($117 million).