Reports out of Europe this week suggesting the average EU carbon price has been slashed to A$10.92 per tonne for 2012 has exposed a vast gulf of difference in valuation of carbon offset pricing between Australia and other parts of the world.
The report from Societe Generale on Tuesday also suggested the EU carbon price was not likely to rise above A$18.41 before 2020.
That’s a far cry from the $23/t that will be imposed on large emitters, including some beef processing operations by the Federal Government from July this year.
The Government’s carbon tax would put Australian businesses at a stark competitive disadvantage against global competitors, the Federal Opposition said this week.
“Today state governments (including Queensland are crying foul, saying the cost of Prime Minister Gillard's broken promise on a carbon tax will be billions of dollars more than Federal Labor admits,” a spokesman for Nationals leader Warren Truss said.
Societe Generale cited an over-supply of emission units, a worsening EU economic outlook and an expansion of low-carbon energy sources as reasons behind its lowered forecast on EU carbon price.
The Paris-based bank said in a research report that front-year EU Allowances (EUAs, the price for a tonne of carbon dioxide emissions in the 27-nation bloc's emissions trading scheme) would average €8.9 (A$10.92) a tonne in 2012, down 28 percent from an earlier estimate in November. It did not expect the price to rise above 15 euros a tonne before 2020.
The bank also cut its average 2012 price outlook for Certified Emission Reductions (carbon credits issued to clean energy projects) under the UN's Clean Development Mechanism, by 36pc pointing to flagging demand from the EU, home to the world's biggest carbon market and main buyer of the UN offsets.
The financial stagnation in the euro zone was one factor driving CO2 emissions down. EU emissions would also be curbed by improvements in energy efficiency and a faster-than-expected penetration of renewable sources, such as hydro, wind and solar, into the bloc's energy mix through 2020.
Carbon prices have more than halved since June, as demand has been choked by flagging growth prospects at a time when carbon supply has an estimated surplus of hundreds of millions of permits and UN-backed offsets.
Australian beef processors exposed to the Federal Government’s direct carbon tax can theoretically buy carbon permits in Europe, but under current legislation they have to pay the difference in value between Australian and the EU prices (in this year’s case, about A$12.92) directly to the Federal Government.
Recently there has been speculation that some large Australian beef processors might consider short-term closures of abattoirs around mid-year in a desperate bid to sneak under the 25,000 tonne carbon emissions threshold, where the direct $23/t payments become enforceable.
Some large Australian processors are facing carbon emissions cost of $2 million a year or more in direct carbon tax from July this year. It is widely anticipated that this cost will be passed back to the production sector in livestock pricing.
The processing sector generally is facing mounting cost pressures this year through 100 percent cost recovery on AQIS charges, the direct carbon tax on larger operators (plus indirect taxes on smaller ones through energy usage) and Government-imposed changes to industrial relations practices.
All this is widening the already substantial gap in processing productivity and competitiveness between Australia and major competitors in the US and South America.