The document summarizes Australia's carbon pricing mechanism and the development of its carbon market. It discusses the fixed price period for carbon from 2012 to 2015, as well as factors that will impact the development of a liquid carbon market in Australia. Key points include that political uncertainty and the need to finalize regulations will delay trading. However, if regulatory certainty is provided, Australia has the ability to develop a liquid market quickly, given plans to link internationally and auction future permits. It will still take time for robust trading to commence.

1. Durban COP 17
IETA Side Event
Jennifer Lauber Patterson
December 2011

2. Contents
Carbon Price Mechanism
Market Based Mechanisms Impacting
Australia
Offsetting Options
Who are the buyers?
Factors impacting liquidity
Will there be a liquid market?

3. Carbon Price Mechanism
Fixed Price Floating Price
$ AUD TBD - $20 above expected international
price
$40
Market Cap
$30
$25.40
$24.15
2.5% Increase + CPI
$23.00 $16.24
2.5% Increase + CPI
$15.60 4.0% Increase + CPI
$20 $15.00 4.0% Increase + CPI Market Floor
Time
July July July July July July July
2012 2013 2014 2015 2016 2017 2018
# The collar arrangement will be in place for 3 years, following this the collar will
be reviewed

4. Market Based Mechanisms
impacting Australia
Voluntary
offset
market
Renewable NZ
Energy Carbon Australian
Scheme Market Carbon
20% target by
2020
Farming
(National) Initiative
(CFI)
Kyoto Flexible
Price
Mechanisms Australian
Energy Carbon Pricing
Efficiency Mechanism
Schemes (CPM)
(State Based)

5. Offsetting Options
Free Permits
Permits (auctioned)
Products
Eligible
CFI International
Units units

6. Who are the buyers?
Electricity
generation Transport Industry: Fuel
Tax Credit or Excise
Industrial Landfill increase and Opt In
processes Gas arrangement
Liable Agriculture, Forestry and
entities Fisheries: excluded,
however able to create
Transport credits
Mining incl.
Aviation Large Gas purchasers
Opt in Arrangements
Energy
utilities
Over 60% to be covered

7. Key issues that will delay trading
Political uncertainty
Fixed Price Period 3 years
other immediate priorities
Finalisation of regulations (i.e. Application of
floor price)
Carbon Market Knowledge

8. Will there be a liquid Market?
Factors Drivers
Providing Investment Certainty transition from fixed to floating price period
Establishment of Caps - 5 year rolling caps will be announced (table
regulations with the caps no later than May 2014) or default Caps
Ability to trade in the market
to 5%) and then unlimited during the flexible phase (only Kyoto CFI)
International linking with the ability to purchase up to 50% of international
units in the second phase
Plans for Government to auction future vintage permits in the fixed price
phase
Over 60% of emissions market is covered on the demand side
Building trading market Development of exchange traded markets
infrastructure Growth of OTC broker activity
AFMA Provision of pricing data
Domestic/international banks building capability
Establishment of a registry
Documentation & AFMA documentation carbon working group including Carbon Addendum,
training/development trading protocols, D accreditation, Establishment of the Carbon
Market Institute, IETA presence

9. Conclusions
It will take time for trading to commence in Australia
There are a number of uncertainties that will delay activity
Liable entities have a number of other priorities to ensure they
meet requirements for fixed price period commencing 1 July
2012
Australia has the ability to develop a liquid Market quickly if
there is regulatory certainty
Jennifer Lauber Patterson
Mobile: +61 431 263 000

10. Disclaimer and Legal notices
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presentation is believed to be correct, and Frontier Carbon believes it has been
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