Quote–Carbon Price Set to Plunge

The price of carbon-based energy sources are impacted by supply, demand, and the policies of countries around the globe. Emerson’s Alan Novak, leader of the alternative energy industry team, explores the rapid changes in carbon-based taxes in Australia in today’s guest post.

Emerson's Alan NovakI was in Australia this week and was a bit surprised by the headline Carbon price set to plunge on page one of the 29 August edition of The Australian Financial Review. It was a surprise because I did not realize that Australia had moved forward with implementation of such a tax.

As highlighted in the article, the Australian carbon tax became effective on July 1, 2012 at a fixed rate of AUD$23/ton of CO2. The rate was expected to remain fixed for three years and then move to a “market price” Emissions Trading Scheme (ETS) mechanism in 2015 with a price floor set at AUD$15/ton. The change announced on the 29th eliminated the AUD$15/ton floor price and will instead link the Australian price to the European Union (EU) Emissions Trading Scheme (ETS) allowance price per ton. As noted in the chart below, the current price for carbon credits in the EU is well below the previous floor (roughly AUD$8/ton).

Source: Nature.com

The tax currently applies to the top 500 producers of CO2 in the country. Linking the two markets, Australia and the EU, provides a broader market for companies seeking to acquire credits but also means that there will be no price certainty for them in the future.

So what does this mean for developers of energy projects in Australia?

As we have noted in previous posts (Another Bust in Solar Power, The Struggle of Alternative Fuel IPOs, The Boom and Bust Cycle in Renewable Energy), uncertainty in energy/environmental policy (e.g. the Australia CO2 program changed after only 60 days) can lead to a number of challenges for developers—investor interest, permitting, business plan viability, etc.

Not surprisingly, a follow-up article on 30 August in The Australian, Fear wind energy might be losing its puff, highlights the potential negative impact this change will have on both the economics of new wind farms and their ability to secure financing.

Will the recent policy changes in Australia have an impact on other local energy development? Only time will tell.

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