Today Australia announced the opening of the National Authority for the Kyoto flexibility mechanisms - the Clean Development Mechanism (CDM) and Joint Implementation (JI).
Until now, Australian companies that have acquired overseas emissions units in anticipation of the CPRS have been forced to warehouse their portfolio offshore in the registries of other nations. The proposed CPRS laws allow companies to use international credits to meet their permit obligations, and some companies have already started purchasing emission units to reduce their uncertainty over carbon costs. Treasury modelling shows that emission units created offshore will play a major role in the CPRS.
The market price of carbon credits generated under the CDM dropped substantially due to the global financial crisis, but found support in February and has recovered since then, currently trading around 11-12 Euro. China hosts around 70% of CDM projects.
The Australian National Registry of emissions units is now operational. Any entity can apply to open an account. The Registry will be used to track all emissions units, and will be used by ACCRA (the Australian Climate Change Regulatory Authority - the proposed regulating body under CPRS) to track compliance with CPRS obligations.
Under the Kyoto Protocol, each country requires a Designated National Authority (DNA) and a Designated Focal Point (DFP) to approve and monitor participation in CDM and JI projects. These bodies are now operational.
Units generated under the CDM are called Certified Emissions Reductions (CERs). Investors can choose to invest in either primary or secondary CERs. Primary CERs have a delivery risk, and are therefore lower in cost, while secondary CERs are already generated and issued by the CDM Executive Board and are therefore risk free, but also more expensive.
Australian companies can now submit applications for approval to participate in CDM and JI. The time required to develop a project and receive permits is typically several years. Organisations interested in developing a healthy portfolio of emission units in time for the CPRS should begin investigating their options as early as possible.
