The international mandated carbon markets (e.g. EU ETS) traded about US$30 billion of emissions credits in 2006, up from US$10 billion in 2005. Volume in voluntary markets is estimated at US$100 million in 2006. The Chicago Climate Exchange trading for 2006 was 10.27 million tonnes of CO2, a total that has already been exceeded in the first 6 months of 2007. i
Although Australia hasn’t ratified the Kyoto Protocol, a number of emissions trading initiatives are taking shape to provide Australian companies with the opportunity to participate in emissions trading.
The New South Wales Government initiated one of the world’s first emissions trading schemes in 2003. The scheme, known as the Greenhouse Gas Reduction Scheme (GGAS), has a specific focus on reducing emissions in the electricity sector.
In January 2004, the Governments of the Australian States and Territories established a National Emissions Trading Taskforce (NETT) to propose a multi-jurisdictional emission trading scheme, the National Greenhouse Gas Emissions Trading Scheme. A discussion paper outlining the NETT's proposal was released in August 2006 and is available at the NETT website together with a large number of submissions from industry, NGOs and individuals.
Subsequently, in November 2006, the Australian Prime Minister appointed a Task Group “to advise on the nature and design of a workable global emissions trading system in which Australia would be able to participate”. On 3 June 2007, the Prime Minister accepted the recommendations of the Task Group and shortly afterwards announced that a national emissions trading scheme would commence from 2011. The national emissions scheme will:
Legislation to give effect to the Task Group’s recommendations in relation to emissions reporting was introduced to the Commonwealth Parliament on 15 August 2007. One of the provisions of the legislation is that the Commonwealth scheme is to operate to the exclusion of all State-based reporting schemes. The recent dramatic fall in the price of tradable abatement certificates under the New South Wales’ GGAS has been attributed to uncertainties arising from the proposed federal scheme.
There are a variety of international market-based emissions trading schemes emerging across all major markets. The European Union’s Emissions Trading Scheme (EU ETS) began in January 2005 and is the world’s largest multi-national trading scheme. The EU ETS applies mandatory emissions targets to specific industries in each EU Member State (27 countries), comprising approximately half of the EU’s emissions.
From the figure below, the EU ETS carbon allowance price has reached as high as €30 (March 2006) but in April-May 2006 the price collapsed, primarily due to Member States of the Scheme giving their industries an over-allocation of allowances. EU data showed that a group of countries (including Germany) were left with 44.1 million tonnes extra CO2 allowances for the year 2005.ii
Under the EU ETS, the European Climate Exchange (ECX) (a subsidiary of Climate Exchange Plc) provides Carbon Financial Instruments (CFIs) in the form of futures and options contracts. The ECX has a membership of 70 leading businesses, including global companies such as Barclays, BP, Fortis, Goldman Sachs, Morgan Stanley and Shell.
EU ETS Phase 1 carbon allowance price
Source: www.environmentaldefenseblogs.org/climate411/wp-content/uploads/2007/06/forward_prices.png
In the US, the Chicago Climate Exchange (CCX) (also a subsidiary of Climate Exchange Plc) has over 120 members (such as Ford and Motorola and from Australia, AGL), who make a voluntary but legally-binding commitment to reduce greenhouse gas emissions. In 2006 CCX experienced record breaking transaction volumes of credits at 10.3 Mt CO2 (seven-fold higher than the previous year) at a value of US$38.1 million (thirteen-fold higher). As noted above, volume in the first 6 months of 2007 exceeded the 2006 total.
Countries like China and India are also undertaking pilot projects in emissions trading, with China leading the CDM market through contracts to supply 61% of the Certified Emissions Reductions (CERs) purchased by industrialized countries since 2002. Asia comprises 80% of the CDM volumes transacted globally.
