Before I get into what this will actually mean, I think it’s important to point out that Australia is clearly not going it alone. Parts of the media will have us believe that Australia is breaking new ground in introducing a carbon tax. The fact that we are planning to join up with the EU, proves that this is not the case.
Anyway, back to the story at hand.
The European Union Emission Trading Scheme (EU ETS) was introduced in 2005 (yes, 2005!!) and works in the same way as the Australian Carbon Trading Scheme.
Both systems are what are known as “cap and trade” systems.
“This means there is a “cap”, or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value.
At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.” (from the EU ETS site)
Over time, the total number of allowances is reduced, so that the total emissions fall.
New plans to link the Australian and EU emissions markets is great news for those companies who are required to operate under Australia’s emissions trading scheme.
Companies in Australia who will need to purchase allowances, will be able to purchase these from the EU market, and similarly, surplus allowances will be able to be sold (this reciprocal agreement will come in to play no later than 2018).
This will ensure that Australian companies are not unfairly burdened with excess costs associated with emissions reductions. If, for example, EU allowances cost less than Australian based ones, then companies will be able to purchase the cheapest option, ensuring that they are able to remain financially competitive.
This undercuts one of the key criticisms of Australia’s carbon tax, that increased costs associated with the cap and trade scheme will make Australian companies uncompetitive on the international market. Joining the Australian and EU emissions trading schemes will ultimately make it cheaper for Australia to reach its emissions reduction targets.
I, for one, was really excited to hear this news. It’s a great step towards international collaboration to reduce carbon emissions and I hope that other countries will soon follow suit.
We just have to hope that Abbott doesn’t come in and reverse all this progress!
Find out more here.