By Mark Bendeich SYDNEY, Oct 21 (Reuters) - Australia cannot fence itself off from the world carbon-trading market, a leading industry expert said, despite signs it may attempt to do just that in order to keep costs down for local greenhouse-gas polluters. Australia, which will require polluters to buy carbon emission permits from 2010 in an effort to combat climate change, has hinted it will limit links between its own market and offshore markets for at least the regime's first few years. "You do not want to create artificial limits on the importation of (carbon) credits from outside Australia," said James Cameron, a British barrister who helped negotiate the 1997 Kyoto climate-change treaty before turning to investment banking. "That would be a mistake," he said. Australia has yet to finalise its plans, but the government is widely expected to adopt a scheme that will, in the first few years, effectively value carbon-emission permits at a relatively low price to ensure heavy polluters have time to adjust. The current grey market for carbon permits is betting on a price of around A$20 ($13.80) a tonne when the scheme kicks off, half the prevailing price of about 22 euros ($29.50) per tonne in the European Union, the world's most mature carbon market. For Australia to maintain that price, it would have to ring-fence its market to prevent profiteers selling local permits or credits into the EU system at huge profits -- a mouth-watering arbitrage that would ramp up the price of local permits. Cameron, now vice-chairman of Climate Change Capital, an investment manager with more than $1.6 billion under management, said Australia would lose out on investment, from at home and offshore, if it became an island of low carbon prices. "What we are trying to do, collectively, is try to build a global market where we have scale that matches the scale of the problem," he said. Climate Change Capital invests mainly in projects that help cut greenhouse gas emissions, ranging from wind farms to biomass-fueled power stations, in turn generating carbon credits that can currently be sold onto the European market. Climate Change Capital and funds like it are also looking at projects that can generate credits for other emerging carbon markets, such as Japan, the United States and Canada, but they may avoid Australia if the carbon price is too low. "I am not saying the price alone would determine where the investment would flow," Cameron said, but added: "Once we have caused the reduction (in greenhouse gases), we will obviously look for the best price that we can get for an investment." Australia's climate change minister, Penny Wong, who is due to decide details of the scheme by year-end, has said the government wants ultimately to link its own carbon market with others, recognising the global nature of the greenhouse problem. But Wong wants to impose limits on market linkages in the early stages, in line with official advice that Australia needs to shelter its energy-intensive industries, ranging from power firms to aluminium-makers, from a sharp rise in carbon prices. "Our first priority has to be developing our own market, and ensuring we have a measured and smooth start to the scheme," Wong said in a recent Reuters News interview. Her climate-change advisor, economist Ross Garnaut, has also warned against opening up the Australian market too quickly. "Since the Australian market is relatively small, if it is linked to other, bigger markets it will become a price-taker," Garnaut said in a recent report. "The price would be set by carbon markets in the European Union, the United States, Japan or China should they develop and Australia link to them." ($1=1.452 Australian Dollar) ($1=.7458 Euro) (Editing by Bill Tarrant)
A woman cooks along the banks of Aripuana River in the Juma Sustanaible Development Reserve, 300 km (186 miles) from Manaus, October 17, 2008. In the Juma forest reserve deep in ...
