Carbon markets update July 2013

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The carbon pricing mechanism put in place under the Clean Energy Act 2011 (Cth) moved into its second year on 1 July 2013. It is uncertain whether the mechanism will reach its third year or what form it will take if it does. For now, compliance obligations continue, changes made over recent months are coming into effect and a secondary market is evolving.

Recent developments

From 1 July 2013, the fixed price under the carbon pricing mechanism is $24.15 for each tonne of CO2-e (up from $23/tCO2-e for 2012/2013). The floating price period is not due to start until the 2015/2016 compliance year. Legislative amendments would be needed to move that date forward.

New rules about liability relating to LPG and LNG have come into effect. In the 2012/2013 year, LPG and LNG for non-transport use have had an equivalent carbon price applied through the fuel price excise mechanism. From 1 July 2013, the arrangements will change and a carbon price will be applied under the Clean Energy Act.

New rules about liability for natural gas supply also came into effect on 1 July 2013. Suppliers and large users of natural gas have been liable entities since the mechanism started last year but some smaller, direct emitters fell outside the liability net. Section 35B of the Act was introduced in late 2012 to enable coverage to be extended. The general effect of the regulations made under the section is to impose liability on a person who uses natural gas in a facility where the gas has embedded emissions of 10,000 tCO2-e per annum and the emissions are not otherwise caught by the Act.

The process and timetable for the auctions to be conducted by the Clean Energy Regulator have been published, in the Clean Energy (Auction of Carbon Units) Determination 2013. An electronic trading platform will be used to auction carbon units in an ascending clock auction format. The Determination provides for the first auctions to take place this financial year, for carbon units to be surrendered in future flexible price years.

Regulations have been made under the Australian National Registry of Emissions Units Act 2011 (Cth) to implement a link to the EU emissions trading scheme. In May, then-Minister Combet directed the Clean Energy Regulator to open the EU registry account which will be used as the basis for the link.

The Australian Financial Markets Association Inc (AFMA) has published its standard form documentation for trading forwards and options for eligible emissions units. AFMA's documents are based on ISDA's form of documentation for trading EU emissions allowances.

In secondary markets, some trading of free carbon units has been taking place. Australian Carbon Credit Units issued under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) have also been traded, with over 1.7 million ACCUs surrendered for the 17 June 2013 surrender date under the Clean Energy Act.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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