EU and Australia to create single carbon market

The EU emissions trading system (ETS) is to be linked to the recently launched Australian carbon price mechanism to create the world’s largest carbon market, the European Commission has confirmed.

The European and Australian authorities have announced they are working to connect the two cap-and-trade schemes enabling companies subject to the EU ETS to sell excess credits to Australian firms to meet their emissions obligations and vice versa.  The systems will be fully linked by July 2018, but from today (28 August 2012) participants in the Australian trading system are able to begin buying EU ETS credits to meet their liabilities from 1 July 2015, when the Australian system becomes a wholly cap-and-trade scheme.  The move means EU firms are provided with a wider market to sell excess allowances and Australian firms can benefit from cheaper credits.

As well as helping to simplify compliance for firms based in both continents, the commission and the Australian government argue that the joining of the two systems is also a signal to the rest of the world how greater international collaboration is possible to tackle greenhouse-gas emissions.

“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,” said Greg Combet, Australian climate change minister.  “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.”

Connie Hedegaard, European commissioner for climate action, said the collaboration would help to build momentum towards establishing an international carbon market.

To allow the systems to be linked the Australian government has decided to not introduce a carbon price floor as planned.

Meanwhile, the commission continues to consult on its proposed changes to the management of the EU ETS that would see it able to postpone the sale of allowances in phase III. The proposals are aimed at combating the effects of a surplus of credits in the ETS which have seen the price of carbon fall as low as €5.99 during 2012.