4:32AM ET on Monday Sep 03, 2012 by Thomson Reuters
WASHINGTON, Sept 3 (Reuters Point Carbon) - After announcing this week it will link its future carbon market to the EU's, Australia may look to California next as a potential emissions-trading partner, but the U.S. state may be less keen to cement a trans-continental link, analysts said.
On Tuesday, Australia announced it will link its emissions trading scheme to Europe's in 2015, a move hailed as the first union of two major emission markets.
The country's climate change minister, Greg Combet, told reporters that Australia will also pursue links with California, South Korea and New Zealand, which are developing their own carbon markets.
California officials have plans to travel to Australia in October to discuss potential market links with their counterparts, sources said, but some analysts and California officials said a tie-up between the two cap-and-trade systems would be a long way off.
California's reluctance to accept credits from U.N. carbon offset projects, as evidenced in the state's carbon market rules, signals that regulators are likely to be cautious when inking linkage deals with international partners.
"The opposition to CERs (certified emission reductions, or U.N. carbon offsets) and California's 'only in my backyard' approach to offsets will prevent any meaningful linkage with the EU ETS or Australia for the foreseeable future," said Emilie Mazzacurati, head of carbon market analysis at Thomson Reuters Point Carbon.
She said the state has already delayed formalizing what she said would be a much easier link to the Canadian province of Quebec, which is a member of the North American carbon market partnership, the Western Climate Initiative (WCI) with California.
State air regulators put off a planned vote to approve regulations linking the two markets in late June after the governor signed a law requiring that he review any plans to tie California's carbon trading system to similar programs in other states or provinces.
The state is expected to resume the Quebec linkage negotiations in the first half of 2013, a spokesman for the California Air Resources Board said.
"I think it's very unlikely that California would link with anybody outside of the WCI in the next couple of years," she said.
The ARB spokesman echoed that sentiment and said that for now California was solely focussed on getting its own system up and running.
When Australia launches its own emissions trading scheme on July 1, 2015, its emitters will be allowed to use EU Allowances (EUAs) to meet half their carbon emission targets, with the Australian scheme opening up to EU buyers three years later.
The link, as well as a decision to drop the A$15 ($15.56) price floor on carbon permits and ban on using U.N.-issued offsets, were designed to make it cheaper for Australian companies to meet its targets, analysts said.
Green groups said it would put pressure on the EU, which is suffering from record low prices amid an estimated surplus of 1 billion units, to speed up plans to reform its market by permanently cutting supply.
EU policymakers are mulling plans to withhold allowances from the first three years of phase three in a bid to prop up ailing EUA prices, which have halved in the past 18 months on oversupply and slumping demand due to stalled economic growth.
EUAs closed at 8.07 euros ($10.15) on Friday.
Meanwhile, California carbon allowances (CCAs) for delivery in 2013 finished Thursday at $16.30 per ton. Prices are expected to rise significantly after the state's first carbon permit auction takes place in November.
Mazacurati said California may consider a link to Australia and the EU in the more distant future, when both EU and Australian prices stabilize.
"Down the road, I could see California setting up a partial link with Australia and/or the EU ETS, where it might allow a limited amount of allowances from those markets for compliance in California," she said.
"This would lower prices and help with liquidity in the California market."
Others agreed that EU-Australia link can provide a good example for California and others.
"Cooperation like this expands the range of possible emissions reduction opportunities for both parties, and it could bolster the prospects for others to follow their example," said Dirk Forrister, president and CEO of the International Emissions Trading Association.
"We will be closely watching the process unfold between the EU-ETS and Australia and offering support to ARB in its ongoing process of linking with other carbon markets," he said. (Reporting by Valerie Volcovici)