Australia’s new prime minister wants the country to switch to a market-based emission trading system (ETS) next year in order to help reduce the price of carbon. Kevin Rudd has announced plans to bring forward by a year the planned ETS, a cap-and-trade system that had been due to start in July 2015.
The move overturns a key policy of Julia Gillard, whom Rudd succeeded in June. Rudd told reporters in Australia in mid-July that an early switch to an ETS would take" cost of living pressures off Australian families" while still protecting the environment.
Australia currently uses a carbon pricing mechanism under which carbon prices are fixed until July 2015. The fixed price is A$25.4/t while Australian Carbon Units traded on the ETS are expected to start trading at A$9/t, according to market analysts Thomson Reuters Point Carbon.
"We believe the earliest start date for the ETS is July 2014, a full year earlier than originally planned, as the government must decide on caps before starting the cap-and-trade," said Cecile Langevin, Senior Analyst at Thomson Reuters Point Carbon. The Climate Change Authority (CCA) is currently setting the caps for the first five years of the ETS.
According to Thomson Reuters, the new start date is likely to incentivize power producers to start purchasing compliance units to cover their emissions in the following years, in line with hedging strategies common in other carbon markets.
"This hedging will concentrate power sector demand in the first year of the ETS, shortening the market in the first few years of the scheme," said Emil Dimantchev, Analyst at Thomson Reuters Point Carbon.