Australian ETS could be worth $11 billion

Thursday, 17 July, 2008

On the basis of proposals outlined in a green paper issued by the Australian government, the annual value of trades in Australian emissions units (AEUs) could amount to as much as $11 billion within the first few years of operation, according to Point Carbon, provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

Point Carbon envisages a relatively lenient cap in the first phase (2010–11 to 2012–13) equivalent to a 2–6% cut in emissions, or between 540-563 Mt Co2e/year. This is in view of the current upward trend in emissions as well as the government's pledge to ensure smooth implementation of the scheme.

The total annual value of AEUs to be released by the government in the first period will be about $10.4b, assuming a 5% cut in emissions and current average market prices of $19/tonne.

Taking the same cap and assuming a level of trading in line with growth seen in the EU ETS, the value of traded credits could reach $11 billion within three years of operation.

"While recognising the proposals laid out in the paper are not final, the carbon pollution reduction scheme represents a major step forward in emissions trading scheme design. It does away with politically driven free allocations by appointing a central, independent regulatory body. Furthermore, its wide coverage and openess to high-quality international carbon credits will ensure that emissions reductions are acheived at least possible cost," William Greene, senior analyst at Point Carbon, said.

Greene added, however, that mechanisms proposed in the green paper for compensating low- and medium-income households would be difficult to implement; "calculating the exact financial impact of the CPRS on Australian households is nigh on impossible. The increased cost of electricity is one aspect but price rises in consumer goods caused by the inclusion of manufacturing industries is far harder to ascertain."

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