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European Commission

Joint press release

Brussels, 28 August 2012

Australia and European Commission agree on pathway towards fully linking Emissions Trading systems

The Australian Minister for Climate Change and Energy Efficiency, the Hon Greg Combet MP, and the European Commissioner for Climate Action, Ms Connie Hedegaard announced today that Australia and Europe will be linking their emissions trading systems.

A full two-way link, by means of the mutual recognition of carbon units between the two cap and trade systems, is to commence no later than 1 July 2018. Under this arrangement, businesses will be allowed to use carbon units from the Australian emissions trading scheme or the European Union Emissions Trading System (EU ETS) for compliance under either system.

“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” Mr Combet said.

“The European Union is the first regional emissions trading system and spans the largest part of the European continent. We now look forward to the first full inter-continental linking of emission trading systems” Ms Hedegaard said.

“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."

To facilitate linking, the Australian Government will make two changes to the design of the Australian carbon price. These are that:

  • the price floor will not be implemented.

  • a new sub-limit will apply to the use of eligible Kyoto units. While liable entities in Australia will still be able to meet up to 50 per cent of their liabilities through purchasing eligible international units, only 12.5 per cent of their liabilities will be able to be met by Kyoto units.

In recognition of these changes and while formal negotiations proceed towards a full two-way link, an interim link will be established, whereby Australian businesses will be able to use EU allowances to help meet liabilities under the Australian emissions trading scheme from 1 July 2015 until a full link is established, i.e. no later than 1 July 2018.

“Starting today, Australian liable entities can purchase EU allowances for future compliance in Australia” Mr Combet said.

“These arrangements provide Australian businesses with access to a larger market for cost-effective emission reductions and provide European market participants with enhanced business opportunities” Mr Combet said.

Mr Combet also said the arrangements would provide flexibility to businesses with operations in both Australia and Europe, which could reduce compliance costs.

“I welcome the changes agreed to by the Australian Government which will allow the interim arrangements to proceed. The step-wise linking of the European and Australian market will ease full linking in 2018” Ms Hedegaard said.

The European Commission and Australia will work to agree registry arrangements for the interim link by mid 2013. The Australian Government has agreed to enter into negotiations on a full-linking agreement, and the European Commission will seek a mandate to do so in coming months.

An exchange of letters between Minister Combet and Commissioner Hedegaard to confirm this shared understanding on linking arrangements has taken place.

Further details on the agreed pathway are set out in the Attachment to this press release.

See also MEMO/12/631 (questions and answers)

LINKING OF THE EUROPEAN UNION EMISSIONS TRADING SYSTEM AND THE AUSTRALIAN EMISSIONS TRADING SCHEME

This document embodies the shared understanding between the European Commission (Commission) and the Commonwealth of Australia (Australia) regarding linking of the European Union Emissions Trading System (EU ETS) and the Australian emissions trading scheme established by the Clean Energy Act 2011 (Australian Scheme).

  • The European Commissioner for Climate Action and the Australian Minister for Climate Change and Energy Efficiency will seek mandates from their respective authorities to negotiate and conclude an agreement to facilitate the full linking of their respective carbon markets, whereby European units (i.e. EU allowances) are accepted for compliance with obligations under the Australian Scheme and Australian units are accepted for compliance with obligations under the EU ETS.

  • This agreement should be adopted by the European Union and the Commonwealth of Australia by mid-2015 to facilitate the commencement of full linking no later than 1 July 2018.

  • The agreement will cover, inter alia, the following key policy issues:

    • measurement, reporting and verification arrangements;

    • the types, quantities and other relevant aspects of third party units that can be accepted into either scheme;

    • the role of land-based domestic offsets;

    • implications, if any, for supporting the competitiveness of European and Australian industries in particular sectors exposed to a risk of carbon leakage; and

    • comparable market oversight.

  • After amendments referred to at paragraph 6 are made to the Australian Scheme, and as an interim arrangement, the Commission and Australia will establish a partial link whereby European units can be used for compliance with obligations under the Australian Scheme.

  • The partial link will be a time-limited interim measure with EU allowances able to be used in the Australian Scheme for compliance against liabilities incurred from 1 July 2015. It will continue until the full link is established, no later than 1 July 2018, as referred to in paragraph 1.

  • To facilitate arrangements for the partial link and to simplify the pathway to the full link, Australia will make the following changes to the Australian Scheme:

    • not apply a price floor; and

    • apply an additional quantitative restriction of 12.5 per cent on the use of Certified Emission Reduction Units (CERs), Emission Reduction Units (ERUs) and Removal Units (RMUs) within the overall 50 per cent annual limit on the surrender of international units by liable entities.

Australia will set its price ceiling with reference to the expected 2015-16 price of European units.

Contacts :

Australian Minister Combet: Mark Davis (+61 400 295 560)

European Commission: Isaac Valero Ladron (+32 2 296 49 71)


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