Carbon financing and the Australian emissions trading scheme : less emissions, more opportunities?

The introduction by the Australian federal government of its Carbon Pollution Reduction Scheme was a decisive step in the transformation of Australia into a low carbon economy. Since the release of the Scheme, however, political discourse relating to environmental sustainability and climate change in Australia has focused primarily on political, scientific and economic issues. Insufficient attention has been paid to the financial opportunities which commoditisation of the carbon market may offer, and little emphasis has been placed on the legal implications for the creation of a "new" asset and market. This article seeks to shed some light on the discernable opportunities which the Scheme should provide to participants in the Australian and international debt markets.

Emissions trading and the GATS financial services provisions : a case study of the Australian carbon pricing mechanism

Purpose The purpose of this paper is to determine whether greenhouse gas (GHG) tradeable instruments will be classified as financial products within the scope of the World Trade Organization (WTO) law and to explore the implications of this finding. Design/methodology/approach This purpose is achieved through examination of the units of the Australian Carbon Pricing Mechanism (CPM), namely eligible emissions units. These units are analysed through the lens of the definition of financial products provided in the General Agreement for Trade in Services (the GATS). Findings This paper finds that eligible emissions units will be classified as financial instruments, and therefore the provisions that govern their trade will be regulated by the GATS. Considering this, this paper explores the limitations that are introduced by the Australian legislation on the trade of eligible emissions units. Research limitations/implications This paper is limited in its analysis to the Australian CPM. In order to draw conclusions on the issues raised by this analysis it is necessary to consider the WTO requirements against an operating emissions trading scheme. The Australian CPM presents a contemporary model of an appropriate scheme. Originality/value The findings in this paper are crucial in a GHG constrained society. This is because emissions trading schemes are becoming popular measures for pricing GHG emissions, and for this reason the units that are traded and surrendered for emissions liabilities must be classified appropriately on a global scale. Failing to do this could result in differential treatment that may be contrary to the intentions of important global agreements, such as the WTO covered agreements.

Effect of Oil Price on Emissions Trading Market: VAR Analysis

In this study, we investigated the relationship of European Union carbon dioxide CO2 allowances EUAs prices and oil prices by employing a VAR analysis, Granger causality test and impulse response function. If oil price continues increasing, companies will decrease dependency on fossil fuels because of an increase in energy costs. Therefore, the price of EUAs may be affected by variations in oil prices if the greenhouse gases discharged by the consumption of alternative energy are less than that of fossil fuels. There are no previous studies that investigated these relationships. In this study, we analyzed eight types of EUAs EUA05 to EUA12 with a time series daily data set during 2005-2007 collected from a European Climate Exchange time series data set. Differentiations in these eight types were redemption period. We used the New York Mercantile Exchange light sweet crude price as an oil price. From our examination, we found that only the EUA06 and EUA07 types of EUAs Granger-cause oil prices and vice versa and other six types of EUAs do not Granger-cause oil price. These results imply that the earlier redemption period types of EUAs are more sensitive to oil price. In employing the impulse response function, the results showed that a shock to oil price has a slightly positive effect on all types of EUAs for a very short period. On the other hand, we found that a shock to price of EUA has a slightly negative effect on oil price following a positive effect in only EUA06 and EUA07 types. Therefore, these results imply that fluctuations in EUAs prices and oil prices have little effect on each other. Lastly, we did not consider the substitute energy prices in this study, so we plan to include the prices of coal and natural gas in future analyses.

Emissions Trading and WTO Law: A Global Analysis

Emissions trading schemes have been introduced throughout the world in order to achieve an environmental end. In the pursuit of reducing greenhouse gas emissions, these schemes will have a direct impact on the global economy. This book examines the details of emissions trading schemes through the lens of the World Trade Organization (WTO) law. Emissions trading schemes both implemented and proposed will be deconstructed to understand whether they will have a single uniform legal status within the WTO law, or indeed whether the legal status of the units of trade will differ on a case-by-case basis. This book examines non-discrimination provisions and exceptions within four significant WTO ‘covered agreements’. This analysis will be undertaken with a goal to understand how emissions trading scheme measures may be labelled and treated by WTO dispute settlement bodies. Moreover, the narrative of this publication demonstrates where decisions must be made by WTO Members in relation to the legal treatment of emissions trading units and liabilities. The aim of the book is to consider the issues associated with emissions trading that arise within the existing WTO law. This monograph will consider emissions trading schemes through the lens of WTO law to establish how these schemes will be defined, where they may potentially breach the non-discrimination provisions of the law and, whether the WTO law should be amended through Member agreement in order to accommodate these schemes. The book is an adaptation of a PhD thesis, which is an analysis of one emissions trading framework – the Australian Clean Energy Package – using WTO law as the theoretical framework. The aim of the proposed monograph is to increase the scope of analysis from the Clean Energy Package to emissions trading schemes more generally. It is envisaged that to do this effectively, examples of frameworks that have been proposed and implemented by various WTO members must be used as case studies for both WTO compliance and non-compliance.

The Impact of Emissions Trading on the Price of Electricity in Nord Pool : Market Power and Price Determination in the Nordic Electricity Market

The objective of this thesis is to find out how dominant firms in a liberalised electricity market will react when they face an increase in the level of costs due to emissions trading, and how this will effect the price of electricity. The Nordic electricity market is chosen as the setting in which to examine the question, since recent studies on the subject suggest that interaction between electricity markets and emissions trading is very much dependent on conditions specific to each market area. There is reason to believe that imperfect competition prevails in the Nordic market, thus the issue is approached through the theory of oligopolistic competition. The generation capacity available at the market, marginal cost of electricity production and seasonal levels of demand form the data based on which the dominant firms are modelled using the Cournot model of competition. The calculations are made for two levels of demand, high and low, and with several values of demand elasticity. The producers are first modelled under no carbon costs and then by adding the cost of carbon dioxide at 20€/t to those technologies subject to carbon regulation. In all cases the situation under perfect competition is determined as a comparison point for the results of the Cournot game. The results imply that the potential for market power does exist on the Nordic market, but the possibility for exercising market power depends on the demand level. In season of high demand the dominant firms may raise the price significantly above competitive levels, and the situation is aggravated when the cost of carbon dioixide is accounted for. Under low demand leves there is no difference between perfect and imperfect competition. The results are highly dependent on the price elasticity of demand.

UK Power Sector Challenge to National Allocation Plan Under the EU Emissions Trading Scheme Refused by the European Court of Justice

In Case T-130/06 Drax Power and others v European Commission, the Court of First Instance held that an application by Drax Power and others for annulment of Commission Decision (C(2006)426 final of 22 February 2006 concerning a proposed amendment to the National Allocation Plan notified by the UK in accordance with the EU Emissions Trading Directive was inadmissable. The Court ruled that the applicants could not be considered to be 'directly concerned' by the contested decision within the meaning of the fourth paragraph of Article 230 of the European Treaty, on legal standing: 'Any natural or legal person may, under the same conditions, institute proceedings against a decision addressed to that person or against a decision, which, although in the form of a regulation or a decision addressed to another persion, is of direct and individual concern to the former...'

European Union emissions trading scheme impact on the Spanish electricity price during phase II and phase III implementation

The European Union Emissions Trading Scheme (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. The purpose of the present work is to evaluate the influence of CO2 opportunity cost on the Spanish wholesale electricity price. Our sample includes all Phase II of the EU ETS and the first year of Phase III implementation, from January 2008 to December 2013. A vector error correction model (VECM) is applied to estimate not only long-run equilibrium relations, but also short-run interactions between the electricity price and the fuel (natural gas and coal) and carbon prices. The four commodities prices are modeled as joint endogenous variables with air temperature and renewable energy as exogenous variables. We found a long-run relationship (cointegration) between electricity price, carbon price, and fuel prices. By estimating the dynamic pass-through of carbon price into electricity price for different periods of our sample, it is possible to observe the weakening of the link between carbon and electricity prices as a result from the collapse on CO2 prices, therefore compromising the efficacy of the system to reach proposed environmental goals. This conclusion is in line with the need to shape new policies within the framework of the EU ETS that prevent excessive low prices for carbon over extended periods of time.

The evolution and consequences of the EU Emissions Trading System (EU ETS)

"Jon B. Skjaerseth, professeur associé, Fridtjof Nansen Institute (Norvège), a présenté dans le cadre du panel Gestion des risques environnementaux par les institutions financières,  une conférence intitulée ""The evolution and consequences of the EU Emissions Trading System (EU ETS)""."

Hitting emissions targets with (statistical) confidence in multi-instrument Emissions Trading Schemes

A means of assessing, monitoring and controlling aggregate emissions from multi-instrument Emissions Trading Schemes is proposed. The approach allows contributions from different instruments with different forms of emissions targets to be integrated. Where Emissions Trading Schemes are helping meet specific national targets, the approach allows the entry requirements of new participants to be calculated and set at a level that will achieve these targets. The approach is multi-levelled, and may be extended downwards to support pooling of participants within instruments, or upwards to embed Emissions Trading Schemes within a wider suite of policies and measures with hard and soft targets. Aggregate emissions from each instrument are treated stochastically. Emissions from the scheme as a whole are then the joint probability distribution formed by integrating the emissions from its instruments. Because a Bayesian approach is adopted, qualitative and semi-qualitative data from expert opinion can be used where quantitative data is not currently available, or is incomplete. This approach helps government retain sufficient control over emissions trading scheme targets to allow them to meet their emissions reduction obligations, while minimising the need for retrospectively adjusting existing participants’ conditions of entry. This maintains participant confidence, while providing the necessary policy levers for good governance.

The Clean Development Mechanism as ethical development? Reconciling emissions trading and local development

This paper examines the ethics of the Clean Development Mechanism (CDM) in its architecture, processes and outcomes and its potential to allocate resources to the poor as ‘ethical development’. Two specific examples of CDM projects help us to explore some of the quandaries that seem to be quickly defining operating procedure for the CDM in its efforts to bring entitlementsto the poor. The paper concludes with reflections on the normative and social complications of the CDM and closes with three key areas of further investigation.

Responding to the EU Emissions Trading Scheme: an empirical analysis of corporate carbon disclosure strategy

The purpose of this paper is to explore how companies that hold carbon trading accounts under European Union Emissions Trading Scheme (EU ETS) respond to the climate change by using disclosures on carbon emissions as a means to generate legitimacy compared to others. The study is based on disclosures made in annual reports and stand-alone sustainability reports of UK listed companies from 2001- 2012. The study uses content analysis to capture both the quality and volume of the carbon disclosures. The results show that there is a significant increase in both the quality and volume of the carbon disclosures after the launch of EU ETS. Companies with carbon trading accounts provide greater detailed disclosures as compared to the others without an account. We also find that company size is positively correlated with the disclosures while the association with the industry produces an inconclusive result.