It has been an eventful month in Australian politics, with Kevin Rudd replacing Julia Gillard as Prime Minister, and the announcement of the Government’s change of carbon pricing policy as flagged in our earlier Market Update. The Rudd Government proposes to transition the Australian Carbon Price Mechanism (CPM) to a market driven price from July 2014, one year ahead of schedule.
The earlier start to the Australian market driven price will change the landscape for the Australian market, notably the Australian domestic emissions profile and demand for permits. The assumption that the Australian carbon price will automatically match the price in Europe overlooks the importance of domestic factors in shaping the Australian market, such as power and LNG emissions, and the setting of the local emissions cap.
Politically, the passage of any amending or repealing legislation is far from secure, with potential for a negotiated outcome likely to further shape any ‘early start’ policy.