Abstract
Australia is establishing an economy-wide emissions trading scheme, with a detailed proposal tabled by the government in December 2008 and a scheme start planned for mid-2010. The proposal provides for unilateral linking through the Clean Development Mechanism and Joint Implementation, but not for initial bilateral linkages. Concerns about permit prices rising too high are prominent, and are reflected in a ban on permit sales and a price cap provision. This paper evaluates the proposed Australian scheme with regard to international emissions trading and linkages. Different scenarios for the Australian permit price under unilateral linking are considered. Options for bilateral linking with the European Union and New Zealand schemes are evaluated, including regarding access to hot air units. The paper argues that Australia should dismantle obstacles to linking such as the price cap, and move toward bilateral linking with suitable schemes.