On August 28th, Australia and the European Union have agreed to fully integrate their respective cap and trade schemes by 2018. Also, Australia has decided to drop its planned A$15 per tonne carbon credit floor price. The combined effect is that cheaper EU carbon credits will be available for Australian emitters. Under the integrated scheme, Australian business will be able to source 50% of their carbon liabilities from the EU, starting 2015. A similar allowance will be available for European emitters by 2018.
This is a welcome announcement for the EU trading scheme. Problems with oversupply have driven the cost of carbon credits to record lows. Currently, EU carbon trades at around US$10 per tonne. Opening the market to Australian demand should alleviate this oversupply. With a carbon tax fixed at A$23 per tonne, Australian emitters are welcoming the integration which will offer them a cheaper alternative to the relatively high tax. However, the Australian government is standing by its projections that carbon prices will reach A$29 per tonne by 2015 and 2016.
This formation of an international carbon trading bloc is of interest to other jurisdictions considering a carbon trading scheme, including Canada. If successful, it could serve as the model for other nascent international and regional cap and trade blocs, such as the Western Climate Initiative between California, BC, Manitoba, Ontario and Quebec.