Policy uncertainty is dogging emissions-trading schemes. On 1 July, Australia introduced the largest carbon-pricing scheme outside the European Union, with a higher price for carbon permits than in the EU carbon market (F. Jotzo Nature Clim. Change 2, 475–476; 2012).
When we surveyed a sample of Australian large emitters, carbon financiers and carbon-market experts (see go.nature.com/jlehiy), we found that 79% think there will still be a carbon price in 2020. But 38% expect that the current scheme will be repealed by the end of 2015, in line with the opposition's pledge. Of those who expect repeal, half think that a carbon price will be reinstated in Australia by 2020.
According to our survey, the average expected carbon price for the first three years of Australia's scheme is predicted to start near the 'fixed' (legislated) price of Aus$23 per tonne of carbon dioxide equivalent. It then falls to an expected Aus$11 per tonne for 2016 before rising to Aus$22 per tonne in 2025.
Assessments of future prices vary greatly between experts, indicating pervasive uncertainty. Low-carbon investments depend on expectations about future prices, and can be hampered by too much uncertainty. Managing prices in emissions-trading schemes could help. One way would be to use a fixed price, as in Australia, or a price band. Another would be to vary the supply of permits, as proposed for the EU carbon market, in which prices have dropped following economic troubles.
Setting carbon prices in line with domestic policy ambitions may be an attractive option for other countries, including for China's planned emissions-trading schemes. It will not alleviate policy uncertainty, but it can reassure businesses that low-carbon investments will pay off financially and make revenues more predictable.
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International Journal of Production Economics (2015)