Durban COP 17IETA Side EventJennifer Lauber PattersonDecember 2011
Contents Carbon Price Mechanism Market Based Mechanisms Impacting Australia Offsetting Options Who are the buyers? Factors impacting liquidity Will there be a liquid market?
Carbon Price Mechanism Fixed Price Floating Price$ AUD TBD - $20 above expected international price $40 Market Cap $30 $25.40 $24.15 2.5% Increase + CPI $23.00 $16.24 2.5% Increase + CPI $15.60 4.0% Increase + CPI $20 $15.00 4.0% Increase + CPI Market Floor Time July July July July July July July 2012 2013 2014 2015 2016 2017 2018 # The collar arrangement will be in place for 3 years, following this the collar will be reviewed
Market Based Mechanismsimpacting Australia Voluntary offset market Renewable NZ Energy Carbon Australian Scheme Market Carbon 20% target by 2020 Farming (National) Initiative (CFI) Kyoto Flexible Price Mechanisms Australian Energy Carbon Pricing Efficiency Mechanism Schemes (CPM) (State Based)
Offsetting Options Free Permits Permits (auctioned) Products Eligible CFI International Units units
Who are the buyers? Electricity generation Transport Industry: Fuel Tax Credit or Excise Industrial Landfill increase and Opt In processes Gas arrangement Liable Agriculture, Forestry and entities Fisheries: excluded, however able to create Transport credits Mining incl. Aviation Large Gas purchasers Opt in Arrangements Energy utilities Over 60% to be covered
Key issues that will delay trading Political uncertainty Fixed Price Period 3 years other immediate priorities Finalisation of regulations (i.e. Application of floor price) Carbon Market Knowledge
Will there be a liquid Market?Factors DriversProviding Investment Certainty transition from fixed to floating price period Establishment of Caps - 5 year rolling caps will be announced (table regulations with the caps no later than May 2014) or default CapsAbility to trade in the market to 5%) and then unlimited during the flexible phase (only Kyoto CFI) International linking with the ability to purchase up to 50% of international units in the second phase Plans for Government to auction future vintage permits in the fixed price phase Over 60% of emissions market is covered on the demand sideBuilding trading market Development of exchange traded marketsinfrastructure Growth of OTC broker activity AFMA Provision of pricing data Domestic/international banks building capability Establishment of a registryDocumentation & AFMA documentation carbon working group including Carbon Addendum,training/development trading protocols, D accreditation, Establishment of the Carbon Market Institute, IETA presence
Conclusions It will take time for trading to commence in Australia There are a number of uncertainties that will delay activity Liable entities have a number of other priorities to ensure they meet requirements for fixed price period commencing 1 July 2012 Australia has the ability to develop a liquid Market quickly if there is regulatory certainty Jennifer Lauber Patterson Mobile: +61 431 263 000
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