The unprecedented collapse in European carbon prices is shattering Australia’s budget assumptions just as corporate resistance to the market weakens in the developed world’s biggest per capita polluter.
The cost of permits on Europe’s ICE Futures Europe exchange, fast becoming the benchmark price for Australia as the nation prepares for market-based trading in 2015, fell to a record 2.75 euros ($3.60) a metric ton last month. That’s about 12 percent of the $A29 ($29.50) Prime Minister Julia Gillard’s government was counting on in its latest spending estimates, meaning the budget will have to be revised before it’s delivered on May 14, according to Climate Change Minister Greg Combet.
The drop in prices is strengthening the hand of Tony Abbott, a carbon-market opponent who is standing against Gillard in the Sept. 14 election, at a time when governments from California toChina are pressing ahead with plans to introduce emissions-trading systems. It’s also making it less expensive for emitters to comply with the caps.
“Abbott is going to jump all over anything that can be used against carbon trading,” said John Davis, a London-based trader at CF Partners LLP who sells EU permits to Australian emitters. “The plunge in EU prices and the implications for Australia will be very well exploited by Abbott and his team.”
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