Optimising Australia’s Position in International Carbon Markets

bradkerin Market Intelligence

The Paris Agreement has set the stage for action on climate change into the second half of the century, and there now exists for Australia an opportunity to optimise its position in international carbon markets as they rapidly evolve.

With the Paris Agreement entering into force on November 4, we head towards the next Conference of Parties in Marrakech with the knowledge that this Agreement will have a profound impact on the way governments and business globally connect, compete, and collaborate in order to mitigate the effects of climate change. Of the 189 nations signatory to the Paris Agreement more than 90 have highlighted that their level of commitment is conditional upon having access to international carbon markets, so for government the discussion becomes about design of the rules, and about implementation.

“For business and the global economy, the discussion now focuses on how Article 6 of the Paris Agreement will breathe new life into rapidly evolving carbon carbon markets.”

Our latest report Optimising Australia’s Position in International Carbon Markets, published in conjunction with the International Emissions Trading Association (IETA) and supported by Baker & McKenzie examines the provisions of the Paris Agreement, key policies enacted by other major emitters and the implications of these measures for Australian trade.

There are many international and domestic factors influencing the development and design of global carbon markets, and these will have increasing impacts on the Australian economy in coming years. Australia has already expressed its support for the use of market mechanisms to combat climate change. At the COP22 meeting in Paris in December 2015, Australia supported the Ministerial Declaration on Carbon Markets that was endorsed by 17 other countries.

“We have reached a critical time here in Australia, as the Australian Government looks to set the terms of reference ahead of the 2017 Climate Policy Review.”

It is the view of Australian business that the Australian Government’s 2017 Climate Policy Review review should consider alignment of climate policy implementation with the development of international carbon markets. There are many factors to consider, and our latest report Optimising Australia’s Position in International Carbon Markets recommends that Australia considers (among other things):

  • the impact of trade competitiveness and the prospects for the development of an export market for Australian carbon credits;
  • the opportunities presented by use of international emissions units, by linking to other markets and open up the prospect of export of Australian Carbon Credit Units (ACCUs);
  • how the use of carbon credit instruments from other jurisdictions might support meeting Australia’s domestic targets under a tightening of domestic policies;

As the world shifts towards low-carbon development, Australia’s energy-intensive, export oriented economy will become increasing exposed to markets where there is an explicit carbon price; a changing fossil fuel energy mix; and competition from countries whose policies may not be in alignment.

The Paris Agreement surprised many with the strength of its commitment to market mechanisms as a tool to combat climate change. In this next phase, the global community will need to work together to maximise the potential for markets, and ensure that this process is carried out in a timely manner to guarantee as much predictability as possibility.

The task remains for individual Parties to decide how to build and link markets, and how to ensure they achieve the greatest ambition at lowest cost. Australia can play a pivotal role in this discussion and in the global carbon market economy that will evolve.