15
Feb
2012

‘Surrender charge’ on international units in the Australian ETS

by


Cameron Hepburn

What is a surrender charge in emissions trading, why does Australia need one, and how should policy makers design it? Grattan Institute’s Visiting Fellow, Dr Cameron Hepburn, is one of the authors of this discussion paper that seeks to explain these questions.

*‘Australia’s Clean Energy Bill includes provisions for a ‘price floor’ in the emissions trading scheme. This is a minimum carbon price established by setting a reserve price in the auctions of emission allowances. The emissions trading scheme also allows liable entities to comply by surrendering international units, such as Certified Emission Reductions. However, the use of international units could potentially undermine the price floor, if the price of such international units is low. A top-up fee, referred to as a ‘surrender charge’, is therefore contemplated to be payable if the price of the relevant international unit is below the price floor’.

The paper presents design options for the surrender charge and a recommended design.