Australia takes small step to global carbon market

By Nina Chestney

LONDON (Reuters) - Australia's planned emissions trading scheme provides little excitement for investors in low carbon technologies and is unlikely to drive the emergence of a global market, experts said.

Australia on Monday presented a broader cap and trade scheme than the only existing market in Europe, to cap the emissions of about 75 percent of the country's greenhouse gases.

But the plan's overall ambition was far weaker, both because of a proposed price cap of just A$40 ($60) per tonne of carbon dioxide and emissions targets for 2020 which fall far short of Europe's and of what scientists say is needed to avert dangerous global warming.

Those differences make it difficult to link the scheme directly with the European Union market, which has no price cap.

"It is possible that when the scheme starts, the price of European emissions permits will be higher than the Australian price cap. Europe will not want its industry to be able to buy cheap credits in Australia, so linking is more difficult," Professor Donald MacKenzie at Edinburgh University said.

However, the Australian scheme does allow companies to meet their targets by funding emissions cuts in developing countries like China through a program under the Kyoto Protocol, bringing closer the prospect of a global carbon currency.

Under the Clean Development Mechanism (CDM), companies can invest in clean energy projects in poorer nations, and in return receive offset credits.

In Europe, companies can import these offsets, called carbon emissions reductions (CERs), to help meet around half of their required emissions cuts.

LESS INCENTIVES

Businesses like cap and trade schemes because they are more flexible than a carbon tax, allowing participating companies to sell surplus permits if they exceed their emissions goals.

The main purpose of a cap and trade scheme is to tilt competitiveness in favor of low carbon technologies -- such as renewable energy or low-carbon gas rather than high-carbon coal.

The broader the scope of the scheme, the more likely it will include some businesses which can cut carbon emissions very cheaply, which can then sell their extra emissions permits to big polluters.

Putting a price on carbon emissions also gives more incentive for investment in cutting-edge technology that includes burying emissions from coal-fired power plants, called carbon capture and storage (CCS).

That is why a global carbon market is considered so important. But some are concerned that the Australian scheme will not do enough for much-needed investment.

"The price cap is below a level which can incentives more expensive technology. You are not going to get much CCS investment at A$40," Trevor Sikorski, head of carbon research at Barclays Capital, said.