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Australia Carbon Tax Rekindles Wind Momentum

Key Takeaway: effective July 1 2012, the new scheme will impose a fixed carbon tax of A$23/ton on the country’s top 500 polluters, which will then be supplanted by a market-based cap and trade mechanism from July 2015 onward.

Australia’s parliament recently enacted landmark Clean Energy Act legislation designed to set a price on carbon emissions.

Australia boasts the most emissions-intensive developed economy, but sources less than 10% of electricity generation from renewables.

The legislation favors wind investments above all, as wind offers the most direct path to carbon abatement in Australia’s power sector.

To date, Renewable Energy Certificate (REC) oversupply, low wholesale power prices, and carbon pricing uncertainty have constrained substantive RE adoption. Over the next several years, however, the government anticipates a 50% escalation in wholesale electricity prices (to A$45/MWh) and up to a 60% rebound in REC prices (to A$55−65/MWh).

Coupled with the carbon tax value (equivalent to roughly A$23/MWh), this will move renewable ventures into a more profitable realm. The Clean Energy Act also calls for an A$10 billion fund to facilitate utility-scale RE project execution from 2013–2014 onward. These combined elements strengthen the business case for RE investment.

Proposed Carbon Tax

  • To start on 1 July 2012
  • 500 companies affected
  • Agriculture, forestry and land are exempt
  • Compensation for polluters
  • Market-based trading scheme kicks in from 2015
  • Target to cut 159m tonnes of CO2 by 2020
  • That said, low power purchase agreement prices (falling below A$100/MWh) have recently frozen wind pipelines of leading IPPs (i.e. Acciona, Infigen). While utilities/retailers are currently better-positioned to capture Australian wind market share, few are able or willing to leverage balance sheet financing.

    These trends suggest that prior to a REC price rebound and Clean Energy Fund disbursement (2013-2014), balance sheet/joint financing should drive most investment.

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    Australia Passes Landmark Carbon Price Laws

    In one of the biggest economic reforms in a decade, Australia has passed new laws to impose a price on carbon emissions.

    Australia accounts for just 1.5% of global emissions, however its heavy reliance on coal has made it the developed world’s highest per capita emitter.

    Australia is now the second major economy behind the European Union to pass carbon-limiting legislation.  New Zealand also has a similar carbon scheme.

    The carbon laws are intended to encourage energy efficiency and new power generation from gas and renewable energy sources.   The government expects the scheme to catalyze a multi-billion dollar investment rush in new, cleaner energy sources, including natural gas and renewable power stations, as replacements for Australia’s aging coal-fired plants.  Canberra has already committed more than A$13 billion for renewable and low emissions projects, including a A$10 billion independent Clean Energy Finance Corporation.  By 2050, approximately A$100 billion investment in renewable energy is expected.

    Australia’s decision may influence other nations considering carbon legislation of their own, such as China and South Korea.  India has a tax on coal, and South Africa has plans to place carbon caps on its top polluters.  In the United States, California will start its carbon scheme in 2013.

    Australia’s carbon market is forecast to be worth as much as A$15 billion ($15.5 billion) by 2015, with sale of permits to raise A$25 billion in the first four years.  Passage of the carbon price laws is expected to ensure the global market continues to expand over the next few years.

    The World Bank estimated the global carbon market was worth about $142 billion in 2010, with the European Union Emissions Trading Scheme accounting for 97% of trade.

     
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    Posted by on November 17, 2011 in Carbon Finance, Policy

     

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    Binding Resolution Approved in UK – 50% Greenhouse Gas Cut by 2025

    Last week the British government took a strong stand towards reducing domestic greenhouse gas emissions, passing a binding resolution to reduce greenhouse gas emissions 50% by 2025 compared with 1990 levels.

    With a firm commitment in place to reduce emissions, the UK will enjoy tremendous opportunities ahead in the new energy economy, said Prime Minister David Cameron.

    “The transition to a low-carbon economy is necessary, real and global.  By stepping up, showing leadership and competing with the world, the UK can prove that there need not be a tension between green and growth.”

    The UK’s binding resolution represents “a world first,” according to David Kennedy, Chief Executive of the Committee on Climate Change (CCC).  No other country has agreed to make binding emissions cuts in the 2020s.  In 2010, Britain’s emissions were 25% lower than 1990 levels and by 2050, the nation aims to cut emissions by 80%.  Read more…

     
     

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    UN Clean Development Mechanism Reaches 3000 Project Milestone

    The United Nations Clean Development Mechanism (CDM) has been growing at a rapid rate.  Last week, the CDM registered its milestone 3,000th project – a wind farm in Mongolia.  So far in 2011, the program has experienced a 17% increase in project initiations from Q1 2010.

    Established in 2005, the CDM is active in 71 countries and reports an additional 2,600 clean energy and carbon reduction projects in the pipeline. To date, these projects have resulted in the issuance of more than 600 million CERs worldwide.

    Through the CDM, global firms can invest in carbon emission reducing projects all over the developing world in exchange for certified emissions reductions credits (CERs).  Delegates at the Cancun climate talks have concurred that the CDM is a valuable mechanism to help fight climate change.

    “The Clean Development Mechanism is still evolving and will continue to do so,” remarked United Nations Framework Convention on Climate Change (UNFCCC) Christina Figueres.  “But from the original concept to now, it has been a success way beyond the initial expectations, not only in the number of projects but also in its ability to attract private sector investment into bettering livelihoods and environments of people in the developing world.”

    Read more here…

     

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    Inaugural Transaction on China's New Carbon Trading Platform

    China’s self-directed “Panda Standard” for carbon trading facilitated its first transaction yesterday, marking a new direction for the world’s largest emitter of carbon dioxide.

    China has long been a supplier of carbon credits to the global market under the Kyoto Protocol, but thus far it has been rare for a developing nation to purchase carbon credits on exchanges.

    With this new “Panda Standard”, China is entering the global carbon trade with its own exchange, which the nation ultimately hopes will help encourage the reduction of overall emissions.  The “Panda Standard” aims to direct money from carbon polluters towards new agricultural and ecological projects in rural areas being affected by climate change.

    The Chinese government has been targeting a reduction in the energy intensity of its economy as measured as tons of carbon dioxide emitted per unit of GDP.

    Click here to watch a video on China’s new carbon trading program

     
     

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    China to Cut Energy & Carbon Intensity by 2015 by Lauralouise Duffy

    China recently announced new targets to increase the energy efficiency of its economy over the next few years.

    A formal announcement from Chinese premier Wen Jiabao detailed plans to reduce energy and carbon intensity by 16-17% from this year to 2015.  Carbon intensity is defined as the amount of energy and carbon dioxide emitted per unit of economic growth.

    China, the world’s leading emitter of carbon dioxide, previously announced long-term plans to cut carbon intensity by 40-45% by 2020 relative to 2005 levels.  The nation has also set a goal of increasing the proportion of non-fossil fuel energy sources to 15% of the total by 2020.

    Last month, China announced it has achieved its goal of reducing carbon intensity by 20% from 2006-2010.  However, the Premier says “serious work” will be required to continue meeting these energy goals, according to statements released to Xinhua news agency.

    It is expected the new targets will be approved by China’s parliament in its full session beginning next week.    Read more…

     

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    Seeking Increased Efficiency, China Explores Domestic Carbon Market Launch

    As part of a nation-wide drive to reduce energy usage and boost business energy efficiency China is seriously considering launching a domestic carbon emissions trading program.

    Since 2005, China has been a part of the United Nations-backed Clean Development Mechanism (CDM).  By undertaking various emissions reductions projects, China has been eligible to earn emissions credits which can then be traded on global carbon exchanges, most prominently the European Union Emissions Trading Scheme (EU ETS).

    However, many European purchasers are moving away from investing in projects in China and towards sponsoring projects in lesser-developed nations.  Although it is not subject to the same standards as other industrialized nations in the existing Kyoto Protocol, China is the world’s second largest economy.  For this reason, many doubt the long term viability of China’s role in the CDM, and advocate instead for the launching of a domestic exchange.

    A China-based carbon exchange may also catalyze energy efficiency initiatives among Chinese businesses.  Officials say increasing energy efficiency will help keep Chinese businesses competitive on the global stage, and also aid China it its pledge to cut carbon intensity by reduction carbon emissions per unit of economic output 40%-45% by 2020.

    China’s energy use is sky high, due to the fact that nearly 70% of China’s energy needs are met with coal, a high-emitting fuel source.  Last summer, Beijing shut 2,000 inefficient factories across the country, a decision which did result in energy savings, but came under fire from a social and employment standpoint.  A carbon exchange may be an effective, market-driven solution to expand energy efficiency in contrast to drastic, state-driven actions.

    Analysts predict China will move fast on this issue.  “Whatever China decides to do, they do it quickly,” notes Ashok Bhargava, senior energy specialist at the Asian Development Bank.  “China has shown a lot of commitments, and interest now in developing domestic carbon trading.  We expect something should be up and running about it very soon.”

    Read the full article

    Read our previous post on China and carbon trading

     

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