By Lenore Taylor – Sourced From
THE global financial crisis could force up the price of the developing-country carbon permits that the Rudd Government is hoping will provide a cheap source of greenhouse gas reductions for Australian companies under its new emissions trading scheme.
Recently released Treasury modelling calculates that overseas-purchased carbon permits will deliver 20 per cent or more of the greenhouse gas reductions demanded of Australian businesses by 2020, because they would be cheaper than many of the options to cut emissions in their domestic operations.
But key participants in the global carbon market have warned the Carbon Forum Asia conference in Singapore that the rapid drying-up of financing for the developing country emission reduction projects (CERS) that generate the credits could result in a shortage, just as the permits are sought by countries introducing emission trading schemes, such as Australia and New Zealand.
The Kyoto Protocol envisaged the establishment of an international market in carbon trading.
Under the Kyoto model, developed country polluters can ameliorate their carbon reduction challenge by buying carbon reduction permits from accredited projects in developing countries. The developing countries would be awarded the credits for setting up carbon reduction projects.
Japan Bank for International Co-operation executive director Fumio Hoshi told the conference that the global credit squeeze in the short term risks a carbon credit shortfall in the medium term, given how long it takes to get developing country carbon credit projects approved under the processes set up through the Kyoto protocol. “This could have a serious impact,” Mr Hoshi said.
“We are getting urgent requests for finance for projects, and projects already under construction are screeching to a halt because of lack of finance.”
International Emissions Trading Association chief executive Henry Derwent said there were forces at work that would act to reduce demand for the developing country-generated permits.
“Probably at the margins, the cost of these things will go up because there will be fewer of them, but another very important part of the global calculation is the fact that for reasons best known to itself, the European Union is radically reducing the scope for CERS to come into its own market from 2012 to 2020.”
Mr Derwent said that even if there was a short-term increase in the price of the developing country permits, accessing these markets would still drive the total cost of the carbon reduction challenge down in a country such as Australia.
New Zealand has recently decided not to put any restrictions on the extent to which it uses international permits in its emissions trading scheme, in a push to minimise the cost. And Europe — until now the major buyer of the permits — is seeking to restrict their use after 2012 to force its industries to change their behaviour more.
The Rudd Government will announce the specific restrictions it has in mind in its final emissions trading policy — to be released by the end of the year — but the Treasury analysis assumed no more than 50 per cent of required permits could be bought overseas.
Mr Derwent — formerly climate change director for the British Government — cautioned the Australian Government against accepting the recommendation of Ross Garnaut to cap the price of carbon for the first two years of its emissions trading scheme, until 2012.
Lenore Taylor travelled to Singapore as a guest of Carbon Forum Asia and the Koelnmesse
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