With the Kyoto Protocol winding down, the global carbon market has seen a retraction of capital. However, China’s push forward with its pilot emissions trading project and Australia’s move toward a carbon tax indicate that carbon pricing is still very much alive on the global stage. Today’s GR Energy and Climate Brief assesses the state of carbon markets, focusing on Australia, California, China and Europe.

Though the future global carbon market is an unknown as the Kyoto Protocol winds down, discussions of carbon limits and taxation is driving forward, spurred, as it has been in Australia, by the effort to add to government coffers in dire need of alternative revenue streams. In the US, California continues to move forward with its carbon program, with the first auction date set for August 15, 2012, and on a national level, a cap-and-dividend scheme has been reintroduced as a potential revenue generator for the federal government. Today’s GR Energy and Climate Brief examines the state of global carbon markets and previews the pathways ahead for carbon trading programs around the world.

Australia Finally Breaks Gridlock

The most significant action this year in favor of carbon markets occurred in Australia last month. In a reversal of her election platform, Prime Minister Julia Gillard pushed to impose a carbon tax starting in July 2012 - evolving into a cap-and-trade program by 2015.  She stated that "I either stuck exactly to what I said before the election, got no action on climate change, and did the wrong thing for our nation, or I found a way to get climate change, to do the right thing for our country and to deal with the consequences.” The proposal has three components that could be replicated elsewhere – it is a revenue generator for the government, it provides funding for clean energy technologies, and provides an offset for low income citizens. The Australian government expects to raise A$27.8 billion over three years by charging the nation’s top 500 polluters A$23 per metric ton with 2.5% price increases each year. The government will provide A$10 billion in subsidies to energy-intensive sectors as well as an additional A$47 billion for renewable energy projects through 2020. The revenue generated will also allow a million low-income Australians to forego paying income tax. The unresolved question now is whether the Australian Parliament is going to push the scheme through by the end of this year, but it is considered likely as Gillard seems to have the support of the Greens in Parliament and the government needs revenue generated by the tax.

Echoes of Australia in Cantwell Proposal

Echoing the moves by Australia was the news in the United States that Senator Cantwell (D-WA) is working to gain support as she looks to introduce a modification of her earlier cap-and-dividend proposal, this time with a debt angle. The Cantwell proposal incorporates a number of the same elements of the Australia plan, with carbon taxation as a government revenue source driving the rationale.

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