The Australian government’s announcement on 28 August that the Australian carbon pricing mechanism (CPM) will link to the European emissions trading system (EU ETS), initially through a “one-way” link from 2015, is significant for Australian liable entities, carbon market stakeholders, and for the broader international carbon market. An initial “one-way” link will enable Australian liable entities to use European units (EUAs) to meet up to 50% of their annual liability. This is until a full two-way link is established, which will enable Australian units to be used by European liable entities in the EU ETS.
Partner
Ashurst, Shanghai
The linkage also has implications for Chinese investors that own all or part of liable entity companies in Australia, that operate in the clean development mechanism (CDM) market in China, or that own or invest in renewable energy technologies in China. As the link between Australia and the EU is the first of its kind, it will be of interest to the Chinese public and private sectors, particularly as China develops its national emission trading scheme, and further linkages between schemes are likely to be the main driver in shaping the global carbon market.
What was announced?
In summary:
- Australia’s CPM is linked to the EU ETS. From 1 July 2015, Australian liable entities will be able to meet up to 50% of their liability with European units, and from 1 July 2018 Australian units will be able to be used in the EU ETS when a full “two-way” link will commence.
- The price floor will not be implemented.
- A quantitative restriction of 12.5% will be introduced on the use of eligible Kyoto units within the overall 50% annual limit on the surrender of international units by liable entities.
- The price ceiling will be set by reference to the European unit price.
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Michael Sheng is a partner at Ashurst in Shanghai, and Jeff Lynn is a partner at Ashurst in Melbourne. Katherine Lake, a senior associate at Ashurst in Melbourne, also contributed to this article
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