The Australian Government today announced that it would implement a one-way link between Australia’s Carbon Price Mechanism (CPM) and the European Union Emissions Trading Scheme (EU ETS) from 1 July 2015.  The Australian Government and European Commission (EC) would then negotiate a two-way link between the schemes to commence from 1 July 2018.

Consequent on linking, the Australian Government will make two changes to the operation of the CPM in the flexible price period.  First, the $15 floor price for carbon units during the first three years of the flexible price period will no longer apply and the price for carbon units will be set by the market price – reflecting an international market price. Second, the current limit on the use of Kyoto units will be limited to 12.5% of a liable entity’s total liability.  The limit on the use of eligible international units will remain at 50%, however, this limit will include both European Union Allowances (EUAs) and Kyoto units (CERs, ERUs and RMUs) and possibly future credits such as those from REDD projects.  As a result of these changes, the proposal to implement a top-up arrangement for eligible international units to the floor price will no longer be required.

To implement these changes, consequential amendments will need to be made to the Clean Energy Act 2011 and its associated Acts.  It is understood that these amendments have the support of the Greens and Independents.

Minister Combet’s press release can be accessed here.