Australia Carbon Price May Jump Sevenfold by 2020, Analyst Says

By Angela Macdonald-Smith

Aug. 13 (Bloomberg) -- Australia's carbon price may surge sevenfold within 10 years of the start of trading as targets to reduce gases blamed for global warming become more demanding, said New Carbon Finance, an emissions trading analysis firm.

Prices may rise from about A$10 ($8.71) per metric ton of carbon dioxide when emissions trading starts in 2010 to A$40 in 2015 and A$70 by 2020, Jonathan Malsbury, research manager for the firm, said at a seminar in Sydney.

Australia's government has a target to cut greenhouse gas emissions by 60 percent from 2000 levels by 2050 and is due to propose shorter-term targets later this year. Reducing the stringency of emissions targets and increasing the scope for importing international carbon credits are among measures that could reduce forecast prices, New Carbon Finance said.

``Our analysis suggests that by doubling access to international credits the carbon price could be reduced by around A$20 per ton of carbon dioxide-equivalent in 2020,'' London-based Malsbury said at the seminar late yesterday. ``The use of international credits is crucial to avoid very expensive abatement'' and an onerous effect on the economy, he said.

New Carbon Finance, a unit of London-based New Energy Finance Ltd., counts among its clients JPMorgan Chase & Co., Fidelity Investments and Europe's two biggest oil companies, Royal Dutch Shell Plc and BP Plc. International carbon credits include emission reduction units created by projects in developing countries under the United Nations' Kyoto Protocol.

Banking, Borrowing

Allowing the so-called banking and borrowing of permits, as proposed by the Australian government, increases the efficiency and effectiveness of the trading system and helps avoid price spikes, Malsbury said. Banking involves allowing companies to hold permits created in one compliance period for use in a future one, while borrowing involves using permits created for a future compliance period to meet current obligations under the trading system.

New Carbon Finance's base-case forecast assumes the government will use emission caps under the Kyoto Protocol from 2010-2012, requiring ``minimal'' reductions, and ``a much more demanding obligation'' to 2020 on the way to a 60 percent reduction by 2050.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net