The units of the new carbon plan follow the CPRS.
If the launch on Sunday 10 July was any indication, Australia’s proposed new carbon plan is new, different and exciting. Not at all like that old Carbon Pollution Reduction Scheme which did not survive the Australian Senate.
However, that is not quite right. The carbon permit, the new unit for compliance with the carbon pricing mechanism, appears to be a lot like the Australian emissions unit from the CPRS.
Which is a good thing for the financial markets. This is because the attributes of the units are fundamental to the ability to transact in them. Many months of detailed discussions between government and industry were involved in settling these matters for the CPRS, the result of which was a mechanical structure (the “plumbing”) which many in the Australian financial markets thought they could work with. For example, like the CPRS units, the new carbon permits:
- are to be personal property
- are to be transferable (other than fixed price units, or units issued under the ceiling arrangements)
- are to be issued on a “vintage” basis (being the first year in which they can be surrendered)
- do not expire
- are to be represented by an entry on a register, rather than any certificate
- are able to be the subject of security (and the Personal Property Securities Act)
- are to be regulated as financial products (so an Australian Financial Services Licence is likely to be needed by many market participants)
Each of these is important to the functioning of the carbon units as an “alternate currency” which can be the subject of trading, and derivatives, in the Australian and international financial markets. It also means that a substantial part of the work of the financial markets industry in preparing for the CPRS may not have been wasted despite the demise of the earlier scheme. For example, it should mean that the trading and derivative documents developed by the Australian industry for the CPRS should be a good base for developing those to be used for the new scheme and preparations which were made by market participants for adhering to the licensing regime should be able to be “dusted off” and used once more.
It's déjà vu all over again, but thank goodness.