EU – Australia Hook-up On Climate Change Trade …

• September 8th, 2012
• Posted by 7thmin

The European Commission and Australian government will “facilitate the full linking of their respective carbon markets”, under the terms of their agreement announced on 28.8.12. (See text of agreement below).

MEETING OF MINDS

Something of that kind was thought of, cautiously during the visit to Australia one year ago by the EC President, Jose Manuel Barroso.

He said in Canberra:

“Australia’s decision to put a price on carbon emissions is, in our view, an important step, both environmentally and economically, because it is in our European experience the most cost-efficient way to reduce emissions and also a great, green business opportunity.

“We will now continue our joint work for a global climate regime and discuss on experts level how we could gradually
link up our emissions trading systems in the future.”

See EUAustralia Online, “Barroso: Agreement On Climate Change, Nuclear And The Pacific”, 6.9.11.

Taking that up would suit Australian interests wanting to get on  with tightening of greenhouse gas emissions into the environment, and the government ready to side-step criticism of its interim “carbon tax”.

Its fixed price of A$23 per tonne, set to end in July 2015, was to have been replaced with a market price, but held to a floor price of $15, seen as “articial” by its many critics – and classed as very difficult against the European standard, currently around $10.

Said the Australian Financial Review: “Despite the changes, the government will keep the three-year fixed price for carbon, which began on July 1 at $23, a policy designed to hit heavy emitters such as power stations and aluminium producers. It is also sticking by Treasury projections the price of carbon will reach $29 a tonne in 2015 and raise A$9.4 billion of revenue. Independent forecasts estimate the European price will then be about $12.”

(For a detailed treatment of the ETS and taxation aspects, see the June 2012 report from the Institute of Chartered Accountants and Ernst and Young, reference below).

The positive factor for Australian industry, as seen by the Climate Change Minister, Greg Combet (picture), is that it will give immediate access to the EU market from the 2015 commencement date.

Credits bought in the EU, the largest carbon emissions market, will be recognised in Australia; and the schemes will be fully inter-changeable from 2018.

EU’S “TRIAL AND ERROR”

It won’t be an easy way to reduce the pressure on the atmosphere, but it is billed by the EC as “a cornerstone of the European Union’s policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. “

It has 30 member countries to date, the 27 EU members plus Iceland, Lichtenstein and Norway, and covers 11,000 power stations and industrial plants.

Under emissions trading, they are  only able to produce emissions up to set limits on pollution, and for any output beyond those limits they have to use compensatory credits – available to buy from other participants.

The European ETS was bedeviled by problems in its first six years after commencing as a voluntary scheme in 2005; especially as the initial allocation of credits, free, in which national government had a hand, clearly went too far. Problems existed over competing measurement systems to be used in working out the levels of output, and the credits to be allocated. It’s been argued that for a time credits were held for more carbon than the plants were producing.

By 2011 the scheme was suspended (19.1.11), due to stealing through manipulation of the credits trade, which the European Commission called “cyber fraud”.

Repair work followed:

Some parts of the system were allowed to resume trading soon after, on assurances they had improved their control mechanisms.

The European Commissioner for Climate Action, Connie Hedegaard (picture), said (23.2.11) member governments were collaborating on joint new security arrangements.

“The Commission has identified a range of actions that Member States can already take in the short term to further improve security, for example by regularly reviewing security plans, by reinforcing registry account policies and identity checks, by training registry users etc”, she said.

Positive results were being noted. After initially disappointing reductions of 2.5 – 5% , an EC study in 2010 registered an 11.6% fall in emissions, in 2008-9, boosted by impacts of the global financial crisis.

Ms Hedegaard said the EU had shown it could run “a functioning trading system, driving emission reductions even during a recession.”

See EUAustralia Online, “Carbon Trading – Steps Backward And Forward”, 1.3.11; also “Climate Change: Australia’s 80/50 Plan; Modelled On EU’s 20/20”, 11.7.11; “EU drive to end petrol products …”, 27.1.11, and “Europe claims climate gains with its emissions trade”, 22.6.10.

Further information on the European ETS:
http://ec.europa.eu/clima/policies/ets/index_en.htm;  http://ec.europa.eu/clima/policies/ets/registries_en.htm

The Commissioner was optimistic this time, saying on 28.8.12 the agreement with Australia was “further evidence of strong international cooperation on climate change and will build further momentum toward establishing a robust international carbon market.”

TEXT OF JOINT ANNOUNCEMENT – 28.8.12

Australia and European Commission agree on pathway towards fully linking emissions trading systems.

The Australian Minister for Climate Change and Energy Efficiency, the Hon Greg Combet MP, and the European Commissioner for Climate Action, Ms Connie Hedegaard announced today that Australia and Europe will be linking their emissions trading systems.

A full two-way link, by means of the mutual recognition of carbon units between the two cap and trade systems, is to commence no later than 1 July 2018. Under this arrangement, businesses will be allowed to use carbon units from the Australian emissions trading scheme or the European Union Emissions Trading System (EU ETS) for compliance under either system.

“Linking the Australian and European Union systems reaffirms that carbon markets are the prime vehicle for tackling climate change and the most efficient means of achieving emissions reductions.” Mr Combet said.

“The European Union is the first regional emissions trading system and spans the largest part of the European continent. We now look forward to the first full inter-continental linking of emission trading systems.” Ms Hedegaard said.

“This would be a significant achievement for both Europe and Australia. It is further evidence of strong international cooperation on climate change and will build further momentum towards establishing a robust international carbon market.”

To facilitate linking, the Australian Government will make two changes to the design of the Australian carbon price. These are that:

•    the price floor will not be implemented.
•    a new sub-limit will apply to the use of eligible Kyoto units. While liable entities in Australia will still be able to meet up to 50 per cent of their liabilities through purchasing eligible international units, only 12.5 per cent of their liabilities will be able to be met by Kyoto units.

In recognition of these changes and while formal negotiations proceed towards a full two-way link, an interim link will be established, whereby Australian businesses will be able to use EU allowances to help meet liabilities under the Australian emissions trading scheme from 1 July 2015 until a full link is established, i.e. no later than 1 July 2018.

“Starting today, Australian liable entities can purchase EU allowances for future compliance in Australia,” Mr Combet said. “These arrangements provide Australian businesses with access to a larger market for cost-effective emission reductions and provide European market participants with enhanced business opportunities,” Mr Combet said.

Mr Combet also said the arrangements would provide flexibility to businesses with operations in both Australia and Europe, which could reduce compliance costs.

“I welcome the changes agreed to by the Australian Government which will allow the interim arrangements to proceed. The step-wise linking of the European and Australian market will ease full linking in 2018.” Ms Hedegaard said.

The European Commission and Australia will work to agree registry arrangements for the interim link by mid 2013. The Australian Government has agreed to enter into negotiations on a full-linking agreement, and the European Commission will seek a mandate to do so in coming months.

An exchange of letters between Minister Combet and Commissioner Hedegaard to confirm this shared understanding on linking arrangements has taken place.

TEXT OF THE AGREEMENT

Linking of the European Union Emissions Trading System and the Australian Emissions Trading Scheme.

This document embodies the shared understanding between the European Commission (Commission) and the Commonwealth of Australia (Australia) regarding linking of the European Union Emissions Trading System (EU ETS) and the Australian emissions trading scheme established by the Clean Energy Act 2011 (Australian Scheme).

The European Commissioner for Climate Action and the Australian Minister for Climate Change and Energy Efficiency will seek mandates from their respective authorities to negotiate and conclude an agreement to facilitate the full linking of their respective carbon markets, whereby European units (i.e. EU allowances) are accepted for compliance with obligations under the Australian Scheme and Australian units are accepted for compliance with obligations under the EU ETS.

This agreement should be adopted by the European Union and the Commonwealth of Australia by mid-2015 to facilitate the commencement of full linking no later than 1 July 2018.

The agreement will cover, inter alia, the following key policy issues:
•    measurement, reporting and verification arrangements;
•    the types, quantities and other relevant aspects of third party units that can be accepted into either scheme;
•    the role of land-based domestic offsets;
•    implications, if any, for supporting the competitiveness of European and Australian industries in particular sectors exposed to a risk of carbon leakage; and
•    comparable market oversight.

After amendments referred to at paragraph 6 are made to the Australian Scheme, and as an interim arrangement, the Commission and Australia will establish a partial link whereby European units can be used for compliance with obligations under the Australian Scheme.

The partial link will be a time-limited interim measure with EU allowances able to be used in the Australian Scheme for compliance against liabilities incurred from 1 July 2015. It will continue until the full link is established, no later than 1 July 2018, as referred to in paragraph 1.

To facilitate arrangements for the partial link and to simplify the pathway to the full link, Australia will make the following changes to the Australian Scheme:
•    not apply a price floor; and
•    apply an additional quantitative restriction of 12.5 per cent on the use of Certified

Emission Reduction Units (CERs), Emission Reduction Units (ERUs) and Removal Units (RMUs) within the overall 50 per cent annual limit on the surrender of international units by liable entities.

Australia will set its price ceiling with reference to the expected 2015-16 price of European units.

Reference

Greg Combet, Minister for Climate Change and Energy Efficiency, “Australia and European Commission agree on pathway towards fully linking emissions trading systems”, joint media release, Canberfra, 28.8.12. http://climatechange.gov.au/minister/greg-combet/2012/media-releases/August/JMR-20120828.aspx, (8.9.12).

Phillip Coorey, “Emissions trading easier to sell when it goes global”, SMH, Sydney, 29.8.12.

Commonwealth of Australia and the European Commission , “Linking of the European Union Emissions Trading System and the Australian Emissions Trading Scheme”, Agreement , 28.8.12. http://climatechange.gov.au/minister/greg-combet/2012/media-releases/August/JMR-20120828.aspx, (8.9.12).

European Commission , Brussels, “Emissions Trading System (EU ETS)”. http://ec.europa.eu/clima/policies/ets/index_en.htm, (8.9.12).

Institute of Chartered Accountants in Australia, and Ernst and Young, “Australia’s proposed emission trading scheme – The tax policy dimension”, Sydney, 19.6.12. http://www.charteredaccountants.com.au/Industry-Topics/Tax/Publications-and-tools/Publications-and-tools/Australias-Proposed-Emission-Trading-Scheme-The-Tax-Policy-Dimension, (9.9.12)
Rod McGuirk, “Australia to join EU emissions trading scheme”, Bloomberg – Business Week/ AP, 28.8.12. http://www.businessweek.com/ap/2012-08-28/australia-to-join-eu-emissions-trading-scheme, (8.9.12).

Marcus Priest, Carbon price set to plunge, AFR, Sydney, 28.8.12.http://afr.com/p/national/carbon_price_set_to_plunge_kLbP9Bi0bx9M6gViWdrzdL, (9.9.12).

Pictures ec; CofA

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