SINGAPORE, Nov 10 (Reuters) - Australia's parliament on Tuesday approved the world's third national carbon pricing scheme and the second largest outside Europe to control emissions growth and fight climate change.
It allows trading overseas through imports of U.N.-backed carbon offsets and will likely have future links to neighbouring New Zealand's carbon trading programme.
While Australia's scheme formally starts next July, trading is not expected to pick up until about 2014.
In a boost to the market, Australia's main bourse said on Thursday it plans to introduce carbon futures trading before the full emissions trading begins in 2015.
It sets a fixed carbon tax of A$23 ($23.25) a tonne on the top 500 polluters from July 2012, then moves to an emissions trading scheme from July 2015. Companies involved will need a permit for every tonne of carbon they emit.
About 60 percent of the nation's emissions, currently about 570 million tonnes a year, will be covered and the scheme aims to cut emissions by 5 percent from 2000 levels by 2020 -- a reduction of 160 million tonnes by 2020 based on government growth forecasts.
Carbon trading begins in 2015, subject to a three-year price ceiling of A$20 above the international price for 2015-16, rising by 5 percent in real terms for the next two years. There will be a price floor of A$15, rising 4 percent per annum.
The scheme allows for the import of large amounts of approved carbon offsets from clean energy projects, and possibly projects that prevent deforestation, in developing countries.
Australia's carbon market is forecast to be worth as much as A$15 billion ($15.5 billion) by 2015, with sales of permits to raise A$25 billion in the first four years. Passage of the carbon price laws is expected to ensure the global market continues to expand over the next few years.
Barclays Capital carbon analyst Trevor Sikorski estimates total Australian demand for approved U.N. offsets, called certified emission reductions , to 2020 at between 450 and 500 million tonnes -- roughly 3.1 billion to 3.4 billion euros ($4.2 billion to $4.6 billion) at current CER prices.
He says that by 2016 or 2017, Australia could overtake the European Union as the main buyer of CERs because of quantitative limits on CER imports for use in Europe's emissions trading scheme. However, CER demand might also come from South Korea and China since both are working on emissions trading schemes.
The main currency of the Australian programme will be pollution permits that big polluters surrender annually to account for their emissions or can be bought at auctions.
-- Fixed-price period from 2012-15.
Liable companies buy the permits from the government and these must be automatically surrendered. They cannot be traded or banked.
Large amounts of free permits will also be issued to some sectors, such as steel makers and aluminium smelters. These can either be surrendered or traded until the true-up date for the compliance year. They cannot be banked for future years.
But polluters can buy domestic offsets called Australian Carbon Credit Units to cover up to 5 percent of their liabilities under the scheme. ACCUs can be issued from Australian projects that soak up and lock away CO2, such as tree planting, or curb greenhouse gas emissions, such as capturing methane from landfills or from farm animal waste.
CERs can't be used during this period.
-- Emissions trading from July 2015
Up to 100 percent of a polluter's emissions liabilities can be met by buying ACCUs from emissions reduction projects that meet guidelines under the United Nation's Kyoto Protocol.
Companies can also import Kyoto units such as CERs or Emission Reduction Units up to 50 percent of their emissions reduction obligations.
These can be bought and banked for future years, making them a useful hedging tool.
Yes, but there is limited demand. Because of the three-year fixed-price phase and restrictions on use of ACCUs and U.N. offsets, there is little incentive for banks and polluters to step into the market now and sit on these offsets for the next three to four years. In short, there is little immediate potential for hedging.
There is also still uncertainty over the future of the U.N. scheme that governs projects in poorer nations that generate CERs. A recent plunge in the value of CERs and European emissions allowances because of weak economic growth has also unsettled investors, leading to uncertainty over prices.
It is also unclear what Australian carbon market prices will be from July 2015. However, there has been some forward buying of ACCUs and CERs. The U.N. offsets have nearly halved in value since April.
The government will also auction forward-dated carbon permits during the 2012-2015 fixed-price phase to help with price discovery.
(Editing by Miral Fahmy)