Linking with the European Union Emissions Trading System (EUETS): the carbon price evolution

Introduction

Two months into the operation of the fixed price phase of Australia's carbon pricing mechanism (CPM) the Federal Government has announced a major policy change to the design of the CPM. Starting on 1 July 2015, the CPM will be directly linked to the European Union Emissions Trading System (EUETS).

The changes

The details of the arrangement made between the Federal Government and the European Commission to allow this linking are:

• from 1 July 2015 EU emissions allowances (EUAs) will be available for use by Australian liable entities to comply with their obligations under the CPM;
• from 1 July 2015 Kyoto units (emissions units created from emissions reduction projects certified under the Kyoto Protocol) will be restricted to only 12.5% of compliance for a liable entity (while maintaining the limit of 50% for all eligible international emissions units);