Australia Will Lose Out With Fixed Carbon Price, Bankers Says

By Angela Macdonald-Smith

Oct. 31 (Bloomberg) -- Australia will lose investment and trading opportunities should it decide to introduce a fixed price for carbon or limit prices on emissions allowances, Credit Suisse Group's head of carbon trading said.

The ``robustness'' of the country's carbon trading system is at risk should the government allow the financial crisis or objections by industry to persuade it to fix the carbon price in the early years of trading, Paul Ezekiel, the bank's New York- based managing director of carbon trading, said today.

The Australian government plans to start the carbon trading system on July 1, 2010, to help reduce greenhouse gases blamed for global warming and is due to publish details of the system design by the year-end. Australia's liquefied natural gas producers and oil refiners, which compete against rivals in Asian nations that don't place a cost on carbon pollution, are among companies objecting to the proposed design of the system.

``My concern, I hope I'm wrong, is that this short-term economic dislocation is getting a lot of noise from industry with respect to cost,'' Ezekiel said at a conference on Australia's Gold Coast. ``Very large capital is ready and able to mobilize to this market, but market design is everything.''

Money won't be invested in emissions reduction ventures in Australia should prices be capped at a ``too low'' level, said Geoff Sinclair, head of carbon finance & trading at Standard Bank Plc in London.

``Australia is at a critical stage of the policy development at the moment,'' Sinclair said. ``You can see people around here that, quite frankly, would be quite happy to pour money into Australia in emissions abatement, but they'll only do it under the right conditions.''

`No Sense'

Cash and credit is less readily available than a month ago yet still is available for investment under the right conditions, said Ken Newcombe, Washington, D.C.-based chief executive officer of C-Quest Capital LLC, a capital markets advisory firm. Capping returns would prevent ``enormous long-term benefits'' for the Australian economy, he said.

``Australia has got to be careful in capping returns in any way for investors who are looking at what otherwise is a great investment climate,'' Newcombe said. ``The last thing that Australia wants to do is in any way shape or form restrict trade. Anything that looks like price caps or capped returns just doesn't make sense here.''

Trading on international currency markets, at over A$3 trillion ($2 trillion) a day, shows money is available for investment in low-emissions energy and clean technology projects, said Fiona Wain, chief executive officer of Environment Business Australia, an industry group whose members include BP Plc's Australian unit and Merrill Lynch & Co.

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