London, 25 February 2011

Camco: Australia’s PM has announced that Australia will be taking steps towards lowering carbon emissions in its economy; starting with a fixed carbon tax next year which will prepare the industry for a trading scheme in three to five years time.  Australia emitted more than 540MtC02e in 2010 and will need to reduce by 100 to 200MtC02e per annum by 2020 to meet its reduction target. Details of the tax and trading scheme have yet to be determined.  In 2010 Australia ranked as the highest global energy consumer per capita and it has consistently been ranked as having among the highest GHG emissions per capita in the world.

Scott McGregor, Camco CEO, said, “Australia’s announcement is another move on the path to a cleaner world economy. There is a global trend of multiple governments moving towards regional trading schemes to cap their emissions. This is another positive sign for the market and indicates that while waiting for an international agreement, governments will continue to pursue ways to meet their emission reduction targets through a mix of regional regulation.”

After months of discussion and nearly two years of Parliamentary turmoil, Australia’s Multi-Party Climate Change Committee (MPCCC) has just introduced a proposal for Parliament for a Carbon Price Mechanism (CPM). The proposal would set a carbon price for key sectors (excluding land-use and agriculture), following key principles (notably, the polluter should pay), to set the stage, if passed by Parliament (and if supported by studies) for some form of cap-and-trade in 3 to 5 years’ time.  The MPCCC see the period of carbon pricing, and the experience gained, as a way to get business and industry up the learning curve to establish a cap-and-trade system.

Will Australia’s proposed trading scheme pass through parliament?

The Australian government announced a proposed carbon price mechanism on 24 February. The scheme will only begin provided agreement is reached with a majority in both houses of Parliament and legislation is passed this year. We think the announcement is a clear signal from the government that a price on carbon will be established eventually in the Australian economy, according to Mark Pervan Head of Commodity Research at ANZ.

"Lack of detail generates uncertainty. There are many key details missing from the plan, with future discussions required before the scheme is introduced. As such, we expect the news to generate a lot of uncertainty and speculation in the market up until more clarity is provided."

The electricity sector is one that will be significantly impacted by the carbon scheme and price moves provide a good indication of market reactions. Immediately following the announcement, electricity prices jumped between 6-8%, although with key details still to be determined, prices have eased. Current Jul-Dec12 contract prices have now factored in an A$15/t carbon cost.

"Although the announcement is in its initial stages of discussion, we think it is a clear signal from the government that a price on carbon will be established eventually in the Australian economy," says Pervan.

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