Emis­sions limit to set trade val­ues

The Weekend Australian - Review - - Clean Energy - James Dunn

WITH the re­port of the Gov­ern­ment’s emis­sions trad­ing task group, the process is un­der way that will see a na­tional car­bon emis­sions trad­ing sys­tem op­er­at­ing by 2012. The sys­tem is ex­pected to be a ‘‘ cap- and­trade’’ sys­tem as op­er­ated in the Euro­pean Union’s Emis­sion Trad­ing Scheme ( EU ETS), es­tab­lished in 2005, which ac­counts for about 90 per cent of the value of the world­wide car­bon emis­sions mar­ket.

The EU has es­tab­lished a cap that lim­its emis­sions for its mem­ber states, each of which has been given a spe­cific num­ber of car­bon cred­its. Par­tic­i­pants are free to trade th­ese cred­its in a free mar­ket.

If they emit less than their al­lowance, they have sur­plus cred­its for sale; if they emit more, they must buy cred­its from the mar­ket. Car­bon trad­ing puts a price on emit­ting car­bon and makes the right to emit trade­able.

Car­bon trad­ing is one of the ma­jor global poli­cies for the re­duc­tion of car­bon diox­ide emis­sions agreed un­der the Ky­oto Pro­to­col to the United Na­tions Frame­work Con­ven­tion on Cli­mate Change, ne­go­ti­ated in 1997 and be­gin­ning op­er­a­tion in Fe­bru­ary 2005. Car­bon diox­ide is the first of six green­house gases that sig­na­tory de­vel­oped coun­tries must re­duce, and/ or start a car­bon emis­sions trad­ing sys­tem by 2012.

The Aus­tralian Gov­ern­ment’s emis­sions trad­ing task­force re­port does not set a price on car­bon or name a spe­cific tar­get for green­house gas re­duc­tions, as does the Ky­oto Pro­to­col ( which Aus­tralia has not rat­i­fied). It is ex­pected to use rev­enue from the sale of emis­sion per­mits to as­sist low- in­come house­holds with po­ten­tially higher power bills, as well as to ac­cel­er­ate de­vel­op­ment of new lowe­mis­sion tech­nolo­gies.

Trea­sury is ex­pected to co- or­di­nate the de­tailed de­sign work for the trad­ing scheme, with en­abling leg­is­la­tion ready by 2009, tri­als and per­mit al­lo­ca­tions in 2010, and a no­tional 2012 start date to co­in­cide with the start of any post- Ky­oto agree­ment.

World­wide the car­bon emis­sions mar­ket has de­vel­oped into a new as­set class, cre­ated on the back of the Ky­oto Pro­to­col tar­get to re­duce ag­gre­gate global emis­sions of green­house gases to 5.2 per cent be­low their 1990 lev­els. The tar­gets for dif­fer­ent coun­tries within the pro­to­col dif­fer, de­pend­ing on fac­tors such as cur­rent lev­els or pol­lu­tion and ex­pected level of eco­nomic growth.

The as­set be­ing traded in car­bon mar­kets is not ac­tual car­bon, but the right to emit car­bon diox­ide. Com­pa­nies or en­ti­ties are as­signed the right to emit a stated amount of car­bon diox­ide over a time pe­riod: this is a car­bon ‘‘ credit’’ or ‘‘ al­lowance’’. The ba­sic unit of the mar­ket is the right to emit one tonne of car­bon diox­ide a year.

Ac­cord­ing to a re­port from the World Bank, the global car­bon mar­ket tripled in size in 2006, to reach $ US30 bil­lion. dom­i­nated by the trad­ing of EU al­lowances ( EUAs) in the ETS. More than 1.1 bil­lion tonnes in EUAs were traded in 2006, com­pared with 321 mil­lion tonnes traded in 2005, worth just un­der $ 8 bil­lion.

More im­por­tantly, the mar­ket is ma­tur­ing af­ter ex­pe­ri­enc­ing teething prob­lems last year. On the Euro­pean Cli­mate Ex­change ( ECX), car­bon prices dropped by more than 50 per cent in a week in May 2006 on re­ports that a group of coun­tries in­clud­ing Spain, the Czech Repub­lic, France and the Nether­lands emit­ted far less CO2 in 2005 than ini­tially an­tic­i­pated by the mar­ket. France, for ex­am­ple, ended up with 19 mil­lion tonnes of Con­tin­ued next page

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