Businesses will be allowed to use carbon units from the Australian emissions trading scheme or the European Union Emissions Trading System (EU ETS) for compliance under either system, under the new agreement reached between Australia and European Commission.

In a joint statement, the Australian Minister for Climate Change and Energy Efficiency, the Hon Greg Combet MP, and the European Commissioner for Climate Action, Ms Connie Hedegaard announced thatAustralia and Europe will be linking their emissions trading systems. Thus, no later than 1 July 2018, a full two-way link, by means of the mutual recognition of carbon units between the two cap and trade systems, is to commence. The Commission announced last May that emissions of greenhouse gases decreased by more than 2% in 2011 in the EU.

The Australian Government will make two changes to the design of the Australian carbon price to facilitate linking, which are that the price floor will not be implemented; and a new sub-limit will apply to the use of eligible Kyoto units. While liable entities in Australia will still be able to meet up to 50 per cent of their liabilities through purchasing eligible international units, only 12.5 per cent of their liabilities will be able to be met by Kyoto units.

In recognition of these changes and while formal negotiations proceed towards a full two-way link, an interim link will be established, whereby Australian businesses will be able to use EU allowances to help meet liabilities under the Australian emissions trading scheme from 1 July 2015 until a full link is established, i.e. no later than 1 July 2018. The European Commission and Australia will work to agree registry arrangements for the interim link by mid 2013. The Australian Government has agreed to enter into negotiations on a full-linking agreement, and the European Commission will seek a mandate to do so in coming months.