Lessons from commodity and financial markets signpost the evolution of Australia’s carbon market

Australia’s peak body for carbon market professionals is adding to its suite of guides for business a report which explores the range of factors that is likely to influence the evolution of the Australian carbon market.

In order to understand the possible pathways, the Carbon Market Institute commissioned PwC to look to the lessons learned in financial and commodity markets and other international carbon markets.

Significant stakeholder consultation was undertaken when researching the topic with AGL, ASX, Carbon Banc, the Department of Climate Change and Energy Efficiency, Financial and Energy Exchange Group, Tullet Prebon Energy, Westpac Institutional Bank and others providing valuable input.

People who already have an understanding of financial and commodity markets will benefit from this report because it draws comparisons from these markets to the carbon market.

“The evolutionary pathway of the carbon market will be watched with interest by market participants and a range of other stakeholders,” says Carbon Market Institute executive director Mike Tournier.

The foundations for Australia’s first national carbon market were laid in November 2011 when the Senate passed the Clean Energy legislative package. The resultant carbon pricing mechanism has been designed to help Australia reduce its greenhouse gas emissions.

“There has been a lot of debate about the design of the carbon pricing mechanism,” says Tournier. “The evolution of the carbon market will be influenced by the design of the carbon pricing mechanism, future political and legislative developments in Australia and overseas, and the behaviour and actions of market participants.”

The development of a successful market is generally predicated on meeting the needs of the market participants and being free to evolve within a supportive and balanced regulatory framework.

The successful evolution of a carbon market is arguably riskier as it is much more dependent on the government, which has to also create and maintain the market need.

“In order for the Australian carbon market to evolve into an efficient and successful market there are a range of interdependent factors that will need to align themselves,” says PwC Sustainability & Climate Change partner John Tomac.

“Ultimately though, for the market to evolve successfully, market participants need certainty regarding its medium to long-term existence and the stability of its design,” says Tomac.

The report is available on CMI’s website and includes:

  • An overview of the Australian carbon market.
  • Characteristics of a successful market.
  • Factors which could support the evolution of a successful carbon market.
  • How the carbon market could evolve.

The Institute will be launching Evolution of the Australian Carbon Market: Lessons from Commodity and Financial Markets at events in Melbourne on 12 July, Sydney on 13 July and Perth on 27 July. Registration is required.

Visit www.carbonmarketinstitute.org for details about the launch events.

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