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Market News

 February 15, 2012
UK carbon market expertise in demand ahead of Aussie trading scheme

 Australia is targeting UK companies' expertise to help launch its first carbon trading system and make the most of the significant commercial opportunities the scheme offers.

The country's top 500 polluters will have to pay for their carbon emissions from the beginning of July this year after Prime Minister Julia Gillard finally won approval for the controversial scheme after five years of heated debate.

The new levy covers all installations producing over 25,000 tonnes of greenhouse gases, which accounts for about 60 per cent of the country's liability.

The A$16bn (£11bn) scheme fixes the carbon price at A$23 (£16, €19) for three years before emissions trading begins in 2015 and the price is allowed to float in line with supply and demand. At that point the scheme is expected to link with international markets, a move that could put downward pressure on prices as most other markets currently value carbon significantly lower.

Mike Tournier, executive director of the Melbourne-based Carbon Market Institute (CMI), told BusinessGreen that passing the legislation for an emissions trading scheme (ETS) in November had prompted "a bit of a scramble" as businesses prepare for the new market, adding that the expertise UK and European companies have built up working within the EU ETS is now in huge demand in Australia.

"There are some real opportunities for UK-based companies," he said. "You've got your classic carbon-broking, but beyond that you get into really interesting areas about low-carbon technologies, about waste technologies, about manufacturing processes."

Tournier predicted the scheme should force many businesses to assess their carbon emissions and step up investment in clean technologies, particularly given that the most emission-heavy, trade-exposed businesses could receive 94.5 per cent of the credits they need for free, providing them with a potentially significant windfall.

"Now that you've got a price of carbon, that's going to encourage businesses to look internally and say, 'well what abatement processes can we do, how can we change our plant machinery processes to reduce our liabilities?' There's funding to help them achieve that," he said. "So for companies that are involved low carbon technologies there's a real opportunity."

The Australian ETS sparked fierce opposition from some business groups and resulted in a major political row with the opposition pledging to reverse the plan. But while Tournier admitted the public were fatigued by the debate over the ETS, which has been subject to numerous changes since being originally devised in 2007, he insisted many businesses were now taking steps to prepare for the new scheme.

"Australian industries are quite pragmatic," he said. "They think: it's here, it's law and it's time to get on with it. For the majority of Australians, the first of July will come and go and the sun will still come up."

The overall goal is for the scheme to reduce emissions five per cent against 2000 levels by 2020, with a view to delivering a cut of 60 per cent to 80 per cent by 2050, although there is an option to accelerate progress depending on the economy and international commitments.

The legislation also permits trading of international credits and the possibility of linking to other schemes, such as New Zealand's ETS or the proposed carbon markets in South Korea and some Chinese provinces. Most interestingly for UK firms, European Commission president Jose Manuel Barroso has also expressed interest in merging EU ETS with Australia.

"In December, the Australian government announced it formed negotiating teams and terms of references and were discussing linking with NZ and also Europe, but that's a long game," Tournier said. "Right now the Australian ETS does allow for international credits (CERs) to be traded, so by proxy you do have a form of linking automatically.

"The legislation has within that an option for other environmental units to be traded, which gives opportunities for interesting discussions in terms of bilateral [agreements]."

Australia's carbon capture and storage (CCS) market is also tipped to expand, which could again benefit those UK and European companies invovled in the emerging sector. Around A$70m of Federal funds and A$30m from the Victorian State Government has been awarded this month to the CarbonNet project in Victoria, Australia's second CCS project.

"It's fair to say there's a lot of demand and need for the expertise that's being developed [in Europe]," Karla Lampe, UK and Europe investment manager for the state government of Victoria, told BusinessGreen, adding that Australia may prove a more lucrative carbon market than the depressed EU ETS.

"Companies here are looking at what's happening in the European ETS [and] it's not such a buoyant market," she added. "Australia is seen as a bit of a shining light. So there is real opportunity."