Companies make CO2 trade moves

DESPITE the official start of the Carbon Pollution Reduction Scheme being two years away, trading on the unofficial carbon market is already under way.

Late last month, a deal for 100,000 Certified Emissions Reduction (CER) units took place between Australian-based commodity trader Arcadia Energy Trading and Latrobe Valley coal power generator Loy Yang Power.

While the details of the over-the-counter transactions, including the unit price, remain unknown, the deal shows that companies are already starting to actively manage their carbon liability.

A CER is a credit derived from Clean Development Mechanism (CDM) projects - those in developing countries that are recognised and verified by the United Nations - and can be used to offset emissions liabilities under the Australian trading scheme.

In a statement following the transaction, Arcadia Energy Trading general manager, trading, James Gillard said the deal showed that companies were recognising the need to be in a strong position prior to the introduction of the CPRS.

"Parts of the market are probably a year or two behind where they need to be, and this deal will encourage some of the country's larger emitters to take proactive steps to manage their liabilities," he said.

The deal follows another major and well-publicised trade last May, when AGL Energy sold 10,000 tonnes of emissions units to Westpac for $19/t.

Perth-based Australian Climate Exchange managing director Tim Hanlin said trades of emissions units ahead of the start of the formal national scheme could be premature.

Without knowing the rules of the CPRS, Mr Hanlin said trades made before the scheme were likely to be highly conditional.

"They have made the transaction on the rules that they think are going to be the rules of the CPRS," Mr Hanlin told WA Business News.

"Without any legislation passed we can only speculate on what may occur.

"It could have been conditional upon legislation actually going through. That's part of the risk environment companies are trading in at the moment."

Mr Hanlin said the 12-month delay in the scheme's start-up date and the $10/t cap on emissions permits was only adding to the uncertainty for business.

"One of the biggest issues is the first year of the scheme cap of $10 a tonne fixed price for carbon permits. That effectively delays the scheme by two years," he said.

"It's effectively going to be a carbon tax for one year, which will increase the compliance costs, because at the end of the day you have to set up systems for that particular year and systems for the rest of the CPRS.

"My concern is that all the delay does is give companies an excuse not to do anything in preparation.

"There's a whole heap of companies saying they don't think the CPRS is going to get through.

"While there is this uncertainty whether or not the passage of the bill is going to occur it's enough of an excuse for companies not to do anything."