Australia to link carbon trading system with EU ETS

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The federal government of Australia and the European Commission have reached an agreement to link their carbon trading platforms in a shared marketplace.

Beginning 1 July 2015, Australia's carbon pricing scheme will be tethered to the EU's Emissions Trading System (ETS) under an interim link that will synchronise carbon prices in the two markets and allow for global permit trading.

A full link between the Australian and EU systems will then occur "no later than 1 July 2018," the Commission says in a statement, creating a "highly liquid carbon market".

In order to facilitate the linking - which marks the first significant expansion of the controversial ETS beyond Europe's borders - the Australian government has agreed to abandon its planned price floor of A$15 (US$15.60) per tonne of CO2 emissions.

The EU free market price currently sits below A$10 due to weak macroeconomic sentiment in Europe, whereas Australia's new carbon levy was introduced at A$23 in July.

Australia had planned to transition its fixed-price carbon tax to a domestic market-based scheme in 2015, but will now instead join up with the ETS.

"Linking the Australian and European Union systems reaffirms that carbon markets are the prime vehicle for tackling climate change and the most efficient means of achieving emissions reductions," says Greg Combet, Australian minister for climate change and energy efficiency.

Connie Hedegaard, European commissioner for climate action, adds: "We now look forward to the first full international linking of emission trading systems.

"This would be a significant achievement for both Europe and Australia. It is further evidence of strong international cooperation on climate change and will build further momentum towards establishing a robust international carbon market."

When the interim agreement comes into force, the partial link will allow Australian airlines to purchase European emissions permits for compliance with the Australian system - effectively creating a one-way carbon offset scheme.

But by 2018 this will become a two-way agreement, capping supply and allowing firms to use carbon permits from Australia or Europe for compliance under either system.

The EU ETS was broadened to include Europe's aviation industry earlier this year, prompting a wave of criticism from the so-called "coalition of the unwilling" - a grouping of around 25 countries led by China, Russia, India and the United States of America.

Detractors of the ETS view it as an extra-territorial tax which risks igniting a trade war, while supporters see it as a precursor to a global climate change solution.