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CARBON EMISSIONS TRADING SYSTEMS
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A comparative study: CEF - AB32 - EU ETS

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MACRO DATA COMPARISON
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Population 22.5 million (2011) 37.5 million (2011) 502.5 million (2011)
(=12% of USA)
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GDP US$ 1,507 billion (2011) US$ 1.900 billion (2010) €12,257 billion (2010) (pg. 3)
=13% of USA US$ 14,500 bio = US$ 15,934 billion
Nat. GHG inventory 543 million tCo2e (2010 ex LULUCF) 457 million tCo2e (2009) 4,614 million (2009 ex LULUCF)
(pg. 4) (=2nd biggest emitting state) 4,182 million (2009 incl)
600 million -2009 incl LULUCF
Co2e per capita 27.3 tCO2e p.c / year (2009 incl LULUCF)) 10.4 tCO2e / p.c (2007 incl LULUCF) 8.6 tCo2e / p.c (2009-incl LULUCF)
Energy production in Petajoule 17,769 PJ (2008-09) 2605 trillion BTU (2009) (=2,748 PJ = 32% 812.2 TOE (2009)
= 2.4% of world production of total consumption) (=34,000 PJ = 47.7% of total
consumption)
Energy consumption in Petajoule 5773 PJ (2009-09) (=32% of total 8006 trillion BTU (2009) (=8447 PJ) 1,703 TOE (2009) (=71,300 PJ)
production)
Exported energy value / A$68.5 bio / A$244.5 bio = 28% (2010) (2605 trillion Btu produced / 8006 trillion (812 million TOE produced / 1703 million
Total Exports (page 18) Btu consumed) TOE consumed)
GHG intensity of economy 841 t Co2e incl LULUCF / US $1 million 245t Co2e incl LULUCF / US$ 1 million 382 t CO2e incl LULUCF / US$ 1 million
(2005) (2007) (2005)
Carbon intensity of electricity 863.1 g Co2e / kWh (2005) 237.3 g CO2e / kWh (2007) 337.5 g CO2e / kWh (2005)
production

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AUSTRALIA’S EMISSIONS PROFILE 2009
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Waste 3%
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Deforestation & Forestry 3%
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Industrial Processes 3%
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Fugitive Emissions 7%
Electricity Generation
37%
Transport 15%
Agriculture
15% Direct fuel
combustion
15%
stationary energy excluding electricity

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CALIFORNIA’S EMISSIONS PROFILE 2008
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Not specified 3%
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Commercial 3%
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Agriculture & Forestry 6%
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Residential 6%
Year 2008
Total Gross emissions: Transportation
477.7MMT CO2e 36%
Electricity Generation
(In State)
12%
Electricity Generation Industrial
(Imports) 21%
12%

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EU27 EMISSIONS PROFILE 2008
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Other 0.2%
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Waste 2.8%
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Agriculture
9.6%
Industrial Processes Energy Supply
8.3% 32.6%
Transport
19.5%
Stationary Energy
27%

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ETS COMPARISON
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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General Focus Focus: Stationary energy, Focus: electricity + transport Period I-II: power generation, oil
industry,landfills and fugitive emissions refinery, steel, cement, lime, paper,
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(mainly coal mining + nat gas pulp, board, ( aviation 2012)
extraction) Period III: +CCS + more gases
(pg 7)
2020 target Min 5% to Max 25% on 2000 level Reach 1990 level (=427 million tCo2e) Min 20% - Max 30% on 1990 levels
(=483m incl LULUCF)
2050 target 80% on 2000 level 80% on 1990 level 80% - 95% on 1990 level
Covered GHG inventory Reporting (NGER): 6 GHGs ; Scope 1 + 2 Reporting: 6 GH Gasses Period II: CO2 only (+ some N2O opted-
Trading (CEF): 4 GHG direct + 2 Cap and trade: 6 Kyoto GHGs + NF3 = in)
indirectly; Scope 1 = 60% of national 85% of state inventory SCOPE 1 only
inventory Period II EU ETS = 40% of EU27 GHG
inventory
Period III: Reporting & trading CO2
+N2O +PFC
Reporting threshold Scope 1+2: Registration, reporting (Scope 1 Monitoring, reporting and verification
Facility: emit 25 ktCO2e or consume +indirect energy purchases) and compulsory for installations with
100 TJ verification compulsory thermal input > 20MW or activity
Corp: emit 50 ktCO2e or consume 200 25,000 MTCO2/yr except for electricity specific capacity thresholds
TJ (co)generation (2,500 MTCO2/yr)

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ETS COMPARISON II
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Nr of entities reporting 777 (2010) 531 facilities (Oct 2011) 2011: 11,000
Trading threshold In general 25,000 tCO2e scope 1 but ALL cement plants Thermal input > 20MW
10,000 tCO2e for certain landfills (page Electricity generation & cogen if ≥ 1MW or activity specific capacity thresholds
105) AND ≥ 2,500tCO2e/yr
Other: if ≥ 25,000 tCO2e / year
Nr of entities trading 294 facilities Approx 350 businesses, 600 facilities 2011: 11,000
Start date 1st July, 2012 01/01/13 for electric utilities +large Period I: 01/01/2005
industry Period II: 01/01/2008
01/01/15 for nat.gas + fuel suppliers 01/01/12: Aviation
Period III: 01/01/13
Phases 1st: July12 - June15 1st: January13 - December14 1st: 2005 - 2007
2nd: July15 - June18 2nd: January15 -December17 2nd: 2008 - 2012
3d: July18 - … 3d: January18 - December20 3d: 2013 – 2020
Allowances issuance Caps May14: announce 2015-19 caps 2013: 162.8 Mio t (=2012-2%) 2008-2012 = 2,086 Mio t
June16: announce 2020 cap 2014: 159.7 Mio t (=2013-2%) 2013-2020 = 2,039 Mio t
June17: announce 2021 cap 2015: 394.5 Mio (=-3% to 2020) - 37 Mio t per annum
AT MINIMUM meet 5% target

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ETS COMPARISON III
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Carbon Unit denomination EEU: Eligible Emissions Unit = permits CGGA : Cal GHG Allowances = tradable EUA = EU Allowances = tradable units
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ACCU: Aus.Carbon Credit Unit: units Permits set out monitor/ reporting
Kyoto ACCU = compliance ACCU ARB Offset Credits requirements for installations
Non-Kyoto ACCU = voluntary ACCU
Price (Px) 2012-15: Fixed px of $23 + 5%/yr Flexible with cap and floor (Auction Flexible
2015-18: Flex but cap and floor Reserve Px and cost control px)
2018-… : Fully flexible px
Cap / Floor Price 2015-2018 only: CAP: 3 tiers: $40, $45, $50 + 5%p.a. + N/A
CAP: “Expected international px” + $20 + inflation
5% per annum FLOOR: $10 reserve price +5% p.a.
FLOOR: A$15 + 4% per annum +inflation
Domestic Offsets/ credits FIXED px period: can only use compliance Max 8% per facility, initially NAFTA ONLY (Theoretically): credits from projects
ACCUs for up to 5% of liability w/ quant. and qualitative restrictions: reducing emissions not covered by the
FLEX px period: Min 50%up to max 100% ARB offsets ETS (Q22)
of compliance must be met with domestic Sector offsets (incl forestry)
credits or permits Early action credits
Importing international CERs, ERUs and RMU’s will be acceptable The possibility for linkage to external ETS’ JI / CDM credits but (increasing)
units subject to qualitative and quantitative and their approved offsets has been left qualitative and quantitative restrictions
restrictions (like EU ETS). open.

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ETS COMPARISON IV
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Exporting domestic units/ CFI credits: if Kyoto compliant -yes “Probably yes” : Compliance instruments The new rules allow for linking with any
allowances Permits: and ARB offsets may be used for country with a cap-and-trade though no
FIX px period: no voluntary purposes by “Voluntarily linkages have been established yet (Q24)
CAPPED px period: limited Associated Entities” and possibly for
FLEX px period: yes compliance in approved linked ETS - (pg
209)
Banking/borrowing FIX px period: no banking/borrowing of Unlimited banking but holding limits. Banking between period II and period III
permits except CFI credits =bankable. (Pg 144 -152) allowances is allowed (Q23)
FLEX px period: unlimited banking; Limited Borrowing e.g. only to cover Borrowing: unclear: probably allowed
limited borrowing: max 5% of current excess emissions (=shortfalls). (pg 92) within each period (pg7)
compliance requirement
Cycle Annual: July-June; Annual/Triennial; (pg 72) Period III:
Report by October 31; Report April 10th / June 1st 8 year period (Jan-Dec)
Partial surrender by June 15; Fulfill obligations by November 1st - for 28Feb: receive allownces
Full surrender by Feb 1st years with annual compliance obligation 31Mar: verify+report
(pg 93) 30Apr: surrender allow.

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ETS COMPARISON V
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Auctions Detailed rules to be announced. First auctions August and Nov 2012; then Period II: max 10% auctioned
Government will advance auction future quarterly
vintages but there will be no double- Reserve price; Purchase limit; covered Period III: about half of all permits to be
sided auctions. and opted-in entities only; single round; auctioned - countries can choose for
(multiple) sealed bids; 1000 unit lots; national or opt into common auction
“double sided” i.e free units auctioned on platform
consignment
Free allowances High “EITE” = Industry avg baseline * +/_ 90% of sector avg emissions; Period II: Min 90% free
94.5% * company production based on company production, not
Moderate “EITE” = Ind. Avg. baseline * 66% emissions; Period III: Auctioning = rule, not
* company production tradable; exception. No free allowances for
Assistance declines by 1.3% p.a electricity producers, (some exceptions).
LNG: 50% of production Sectors at risk of carbon leakage will
EITE = Emiss. intensive trade exposed receive free allowances, but for non-
based on trade share % and CO2e/$ exposed industry such allocations will be
revenue or CO2e/$ value add phased out.

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ETS COMPARISON VI
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AUSTRALIA CALIFORNIA EUROPEAN UNION
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CEF AB 32 EU ETS
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Penalties Shortfall will be charged at: Shortfall charge = uncovered emissions * 4 €100/tonne + make up for shortfall (Article
FIX px period: fixed px * 1.3 16)
Flex px period: annual avg px * 2
Tax “Eligible Emission Units” spot trades = GST No official guidelines avail yet (1 May 2012). No common rules re taxation of allowances:
free (subject to agreement from States) Free allowances mostly not taxed/no
“EEU’s” = Australian permits, domestic No property rights (pg 54) deductions (except a.o. UK which taxes
credits, CERs, ERU’s, RMU’s Important principle of freedom of contract. when received)
Proceeds = assessable income in year of sale Purchased allowances some immediate
Valued at market value (or 0 if free permit) Acid Rain program = precedent but is deduction, some allow deduct. over life
Costs = tax deductible on rolling basis different (e.g auctions, “tax basis”, CGT and time, some only when used. (pg 8)
tax deductions)
Treatment of Fuel Either excluded or included through Fuel suppliers and importers’ obligation Transport sector and household fuel use not
reduced fuel tax credits but there is an opt- includes downstream emissions. included.
in facility: Refineries have similar obligation. Fuel used in any covered activity with total
Households and Light Business excluded rated thermal input >20 MW included.
Heavy transport to be included 2014 (tbc) (Annex1)
Domestic aviation, shipping, rail and non- Aviation included as of 01/01/12
transport use included.

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ETS COVERED SECTORS/ACTIVITIES
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CEF AB 32 EU ETS
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Combustion installations Yes Stationary combustion emissions - 2013 Yes
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Mineral oil refineries Yes Stat, Process, Catalyst, Flares - 2013 Yes
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Coke ovens Yes Yes
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Metal ore roasting/sintering Yes Yes
Pig iron/steel Yes Stationary combustion emissions - 2013 Yes
Cement clinker or lime Yes Stationary and process emissions - 2013 Yes
Glass including glass fibre Yes Stationary combustion emissions - 2013 Yes
Ceramic products by firing Yes Yes
Pulp, paper and board Yes Stationary combustion emissions - 2013 Yes
Agriculture No No No
Land use sector No No No
Transport sector No Yes No
Carbon Dioxide suppliers Yes Supplied CO2 as of 2013 No
Cogeneration Yes Stationary combustion emissions - 2013 Yes
Electricity - first deliverers Yes Stat. emis. From CAL facilities - 2013 Yes
Electricity - Importers N/A Imports from sources >25,000 - 2013 ; ALL emissions (no threshold) -2015 No
Electricity self-generation Yes Stationary combustion emissions - 2013 Yes
Hydrogen production Yes Stationary and process emissions - 2013 Yes
Nitric Acid production Yes Stationary combustion emissions - 2013 2013
Petroleum and Natural gas systems Stat, process, flares -2013 2013
Suppliers of liquefied petroleum gas -LPG “Yes” Combust emis. from total Vol supplied -2015 UK only
Suppliers of Natural gas “Yes” Combust emis. from total Vol delivered to non-covered entities - 2015 Yes
Suppliers of RBOB and distillate fuel oil N/A Combust emis. from total Vol supplied -2015 N/A

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RATIONALE
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We started this exercise to understand the upcoming Californian quite certain to proceed. As net energy importers they may have similar
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scheme and naturally compared it to the Australian scheme since that is energy security concerns as the EU. In Australia, a large energy exporter,
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our “home” scheme. However the decision to add the EU ETS was quickly there is bipartisan agreement to a small reduction - which due to
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made because of its importance. growing population will still equate to a 27% reduction on 2000 levels
by 2020. If the Australian ETS makes it through to 2020, which at this
The EU is by far largest market of the three in terms of population, GDP point seems likely but not certain, that figure will be higher. The main
and emissions but California carries implicitly the hope to be expanded point of concern being Australia’s current, cheap, embedded but carbon
one day into the other US states, which together are roughly the size of intensive energy supplies, so fuel switching is arguably more costly than
the EU27. The EU ETS started modestly, then expanded. Australia tried elsewhere and may erode an important competitive advantage.
to be all (too?) inclusive from day one, covering more sectors and more
gasses more completely (e.g. fugitive emissions and own transport are Covered Emissions in the EU equate to 40% of their total emissions, which
included in Australia, not in Europe), which contributed to a difficult is less than Australia’s 60% and California’s 85% coverage. Whereas the
political process and general public fatigue, if not negativity. EU has been trading since January 2005, Australia starts (fixed) pricing
on July 1st, 2012 and California starts trading on January 1st, 2013.
The three schemes were developed in very different political contexts: in Australia will be following suit with flexible pricing and hence trading
the EU there was broad consensus across the political spectrum to reduce proper as of July 2015
greenhouse gases –possibly due to energy security and Keynesian
government led supply creation motivations. Emissions reductions of Various regions use various price control mechanisms: California has
20% have long been accepted and a 25-30% target is being discussed. free allowances, auctions, a reserve price (=price floor) and a cost control
In California the ETS was pushed through by the EPA, unsuccessfully reserve (=price cap). California allows Project offsets, though primarily
challenged by private sector coalitions in the High Court and is now domestic and the compliance cycle is triannual. All three schemes have

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RATIONALE
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free allowances for heavy emitters, ramping down over time. All three to the other ETS’s. Facilities in the Australian context are activities. They
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sovereignties allow banking and restrict borrowing. Only Europe does are not restricted to a physical boundary but they are defined in terms
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not have a price cap and floor. Penalties vary from 1.3*fixed price in of a conceptual activity. Unlike in the EU however, the CEF includes
Australia to €100/t, effectively 15*market price in Europe. emissions from various sources and processes. These fundamental
differences can result in large discrepancies for comparable companies,
With Europe opting for a low key, low coverage start, it did not offer not just internationally but even within Australia depending on their
specific household assistance. It did not include transport fuel either definition of facility.
so probably did not need such sweetener to convince its population.
Europe did however start with significant (over)compensation for Interesting –philosophical- differences are also revealed by the use of
industry in the form of free EUA overallocations. The initial Australian offsets in each regime: In the “new” world, more attention is being paid
to the local opportunities rather than merely the compliance aspect i.e.
scheme from 2008 did cover fuel usage but due to the growing political
domestic land sector based offsets are allowed and international credits
discontent it was left out of the 2012 version, even if household and
are either restricted (California) and/or delayed (Australia).
industry assistance is ample and generous. In “old” Europe CERs are allowed though restricted, and domestic off-
sets are all but inexistent –in part because Europe is more open to link-
Under the EU ETS coverage is defined in terms of “Activities”, thus ing carbon reductions with sending “charity” money overseas.
limiting eligible emissions from covered installations to the emissions
directly related to a particular process and excluding their secondary The Anglosaxon market economies –perhaps because they have learned
or unrelated emissions from their inventory. In California liable entities from the EU’s mistakes- are more concerned with the fairness principle,
sharing the load across their entire economies, limiting the low carbon
are “Facilities”, defined in geographic terms: contiguous land, visible or
transition costs and keeping money in the country.
interconnected pipelines as per US EPA practice. In Australia liability is
determined by “Industry Sectors and Facilities”, neither of which equate

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DISCLAIMER
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808.1864.6940 and by CarbonIntel Pty Ltd, ABN 271.3411.5183. Rubran Pty Ltd is registered with ASIC under Regulation 7.6.02AGA of the Cor-
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porations Regulations 2001.
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General Advice Warning
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