In the past two days, Europe's carbon market has crashed, with the carbon price collapsing to $4 per tonne. Australia's carbon tax (fixed at $23 per tonne) is due to be replaced by a trading scheme, in 2015, linked to Europe's. When this happens, it is assumed that carbon-trading revenues will fall far below those currently projected ($29 per tonne), closer to the collapsed European price, leaving a multi-billion dollar hole in the federal budget.
But this assumption is tenuous for a number of reasons. At this stage, Europe's carbon trading system is flooded with permits, due to an initial oversupply and depressed economic conditions.
There is no sure way of predicting either general economic conditions or the specifics of carbon trading, in the EU or elsewhere.
But more importantly, we can only guess what our own situation will be. The Coalition is still talking about 'direct action', and if this becomes government policy all carbon pricing mechanisms will be irrelevant, as will revenue forecasts, because there won't be any. The budgetary implications of this are, needless to say, unclear.
Nick Feik Politicoz Editor
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