Jun 2007 - Australian Institute of Energy

Emissions Trading: International
and domestic developments
Summary by Tony Vassallo, AIE Sydney Branch
Presentation to Sydney Branch (hosted by Blake Dawson Waldron) on 2 April 2007
Tony Beck, Coordinator of the Australasian Emissions Trading
Forum (AETF), had just returned from the Point Carbon
Conference in Copenhagen in mid-March. He started the
presentation with a summary of the global emissions market,
which has seen explosive growth since early 2006. This growth
has been driven by the Kyoto Protocol coming into force, the EU
emissions trading scheme (Phase 1) and both state and voluntary
schemes in the USA and Australian markets. In millions of
tonnes of CO2 equivalent, the 2006 total of 1,600 was double
the 2005 total, with a value of over A$35 billion in 2006. The
EU scheme comprised 62% and the CDM (Clean Development
Mechanism) just under 35% of the CO2 equivalent totals.
The EU scheme covered more than 12,000 installations. The
Phase 1 pilot scheme is now over-supplied, but the Phase 2
scheme (2008–2012) has much tighter caps and is trading at
about A$27/tonne at the moment. In 2006, between three and
five million tonnes per day were traded. The Phase 3 scheme
is due to continue beyond 2012, and early trades have already
started with a 2013 delivery of A$32/tonne.
The CDM scheme has approximately 570 registered projects
delivering 780 million tonnes of abatement. There are another
1,000 projects in the pipeline. There is a diverse mix of
projects, with biomass energy, hydro, wind, energy efficiency
and agriculture accounting for three-quarters of the projects.
There is strong demand for the CDM projects, especially from
the EU, Japan and Canada, and capital markets are already
responding. The majority of projects are in India (33%), Brazil
(16%), Mexico (13%) and China (8%). The main countries
investing in these projects are the UK (35%), The Netherlands
(17%) and Japan (11%).
Figure 1: Australia’s emissions profile
Mr Beck also covered activities in the USA, where the cap
and trade scheme across nine north-eastern states is set to
start on 1 January 2009. Five other states (California, Oregon,
Arizona, Washington and New Mexico) are also planning a
similar scheme. The Chicago Climate Exchange is operating a
voluntary trading scheme, which the Australian company AGL
has already joined. There is a substantial change in attitude
occurring in the USA and, coupled with congressional pressure,
there is likely to be a greater engagement in emissions trading
in the United States in the next three to five years.
Anthea Harris, Project Leader for the National Emissions
Trading Taskforce (NETT) provided an update on the progress
on the state-based National Emissions Trading Scheme (NETS)
design. The scheme is supported by all Australian state and
territory premiers and chief ministers. On 9 February 2007,
they announced that NETS will commence by the end of 2010
if the Commonwealth does not agree to implement an alternative
scheme. The states and territories, as well as the Labor Party at
a national level, are committed to a 60% reduction in national
emissions by 2050.
The scheme will initially apply to all power generation facilities
emitting more than 25 thousand tonnes of CO2 equivalent
per year from 2010, with expansion to cover all stationary
energy systems above 25 thousand tonnes, as well as fugitive
emissions (underground coal mines, gas production, processing
and transport) and gas retailers (imputed emissions) in 2013. A
review of non-covered sectors will be undertaken in 2014.
The scheme is essentially a ‘cap and trade’ design, where
emissions are capped at some level in each period and permits
to emit greenhouse gases are issued for that period. There is a
penalty for non-compliance which
underpins a value for emissions,
and scheme participants can trade
these permits among themselves
with prices set by the market.
The scheme is likely to be based
on 10 years of known firm caps
with gateways for 10 further years
beyond firm caps. The firm caps
will be extended annually, with
gateways updated every five years,
extending them for a further five
years. These gateways provide the
limits within which firm annual
caps may be extended. The permits
will be an annual, secure property
right, date stamped with the year in
which it first became valid. While
unlimited banking of permits will
be allowed, borrowing is not.
33 EnErgy nEws Vol 25 no. 2, June 2007