Common Law World Review

The Use of Financial Services Law to Regulate Emissions Trading

by
Paul Latimer *
-----

Associate Professor, Department of Business Law and Taxation, Monash University,

Melbourne, Australia; e-mail: Paul.Latimer@monash.edu.au. Research for this article
was funded by an Australian Research Council grant for the project Carbon Offests:
Regulation for Success DP 120101485, with Professor Christopher Arup and Dr
George Gilligan.

24 April 2014
Abstract:
This article examines the use of financial services law (securities regulation) to regulate and
to reduce emissions trading to reduce the causes of climate change with reference to
Australias use of financial services law from 2012. The Australian financialisation model,
introduced by the previous Australian (Australian Labor Party) government, is planned to be
repealed mid-2014 (depending on votes in the upper house of the Australian parliament) by
the conservative (Liberal-National Party coalition) government as its first order of business.
At the time of writing in April 2014, the carbon price is in full operation. The government
won office in September 2013 partly in the wake of a electoral backlash against the carbon
tax. Australias climate change model was based on defining emission reduction units as
financial products under the Corporations Act, which resulted in the regulation of the market
for trading emissions reductions becoming the responsibility of the financial services
regulator, the Australian Securities and Investments Commission. This article examines the
financial services model which treats emissions as financial products, regulated by financial
services laws which provide inter alia for trading on regulated markets, the licensing of
advisers, the expectation of high standards for secondary trading, the recognition of consumer
rights under consumer laws and the continuous disclosure of information to financial
markets.
Keywords: carbon markets, emissions units, financial products, financial services, securities
commission

Electronic copy available at: http://ssrn.com/abstract=2646256

I. INTRODUCTION
i. Australias Carbon Pricing Mechanism
When Australias conservative Liberal-National Party Commonwealth government was
elected on 7 September 2013, it stated that its first order of business would be to honour its
election promise to axe the tax by repealing Australias clean energy legislation. The
legislation established the carbon price commonly called the carbon tax which required
the biggest polluters to buy emissions units from the government (the Clean Energy
Regulator) for their greenhouse gas emissions, and to surrender them to satisfy their
emissions liability. Australias carbon price, which had been passed in 2011 by the former
minority Australian Labor Party Commonwealth government, with the assistance of three
independent members of parliament, came into force on 1 July 2012. The carbon price had
been vigorously opposed by and vilified by the then conservative Oppostion, and its leader
Tony Abbott had promised to repeal the carbon tax as a blood oath1 if the then Opposition
won office. Before the election there was empirical evidence that 40 per cent of respondents
expected the carbon-pricing mechanism to be repealed.2
In the words of the second reading speech for the legislation to repeal the carbon pricing
mechanism delivered by new Prime Minister Tony Abbott:3
This bill delivers. It delivers on the coalition's commitment to the Australian people to scrap this toxic
tax ... The first impact of this bill will be on households, whose overall costs will fall $550 a year on
average. Thanks to this bill, household electricity bills will be $200 lower next financial year without
the carbon tax Household gas bills will be $70 lower next financial year without the carbon tax.

Critics had described the carbon price as a toxic tax, as a reverse tariff, and it was said to be
discriminatory against Australian businesses wishing to compete overseas because there was
no carbon tax on imports. With the proposed abolition of the carbon price has come or will
come changes to some of the associated programmes, climate iniatives and relevant
government departments of the previous government, the dismissal of bureaucrats and
climate change experts, and reducing or ending research into climate change and carbon in
Australia.4 The carbon price is planned to be replaced by, inter alia, government subsidies in
the Direct Action plan to fund emissions-reducing projects to lower pollution.5
1

M. Grattan and D. Wroe, Abbotts Blood Oath to Repeal Carbon Tax, The Age (Melbourne), 13 October
2011.
2

F. Jotzo, T Jordan and N Fabian, Policy Uncertainty about Australia's Carbon Price: Expert Survey Results
and Implications for Investment (2012) 45(4) Australian Economic Review 395.
3

Tony Abbott, Prime Minister, Second Reading Speech, Clean Energy Legislation (Carbon Tax Repeal) Bill
2013 (Australian Parliament, Canberra: 13 November 2013) 12.
4

The hit list includes the abolition, adjustment, reduction or restructure of the Australian Renewable Energy
Agency, the Biodiversity Fund, the Carbon Farming Futures Program, the Clean Energy Finance Corporation,
the Clean Energy Regulator, the Clean Technology Program, the Climate Change Authority, the Climate
Change Commission, the Coal Sector Assistance Package, the Jobs and Competitiveness Program, the Energy
Security Fund, the Renewable Energy Target, the Steel Transformation Plan and the reduction in research staff
at the Commonwealth Scientific and Industrial Research Organisation (CSIRO). Some proposed closures are
awaiting passage of the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (Cth.) and related bills in the
upper house in mid-2014, below n. 6. Announcment of the closure of the Climate Change Commission, set up

Electronic copy available at: http://ssrn.com/abstract=2646256

The Australian legislation includes issuing different classes of carbon units, defining them as
financial products under company law, and providing for them to be traded voluntarily on
over-the-counter (OTC) markets and/or for them to be traded on financial markets (including
the stock exchange). Australias carbon pricing6 was in line with existing carbon price
mechanisms7 such as the European Union Emissions Trading Scheme,8 the Regional
Greenhouse Gas Iniative9 and the emissions trading schemes actual and planned in China.10
Evidence shows that Australias carbon pricing is already working, and that Australians are
now using cleaner energy. For the year to December 2013, annual greenhouse gas emissions
have shown a 0.8% decline compared with the previous year, and annual emissions from
electricity generation have fallen by 5%.11 Evidence from the current minister12 - and some
to provide independent and reliable information about the science of climate change, was made 12 days after the
election on 7 September 2013. Within days of its abolition, the Climate Change Commission was relaunched as
an independent non-profit Climate Council, funded by public donations.
5

Discussed below in Part I(ii) Australias Direct Action Plan from mid-2014; its coming into law will depend
on votes in the upper house.
6

The Clean Energy legislation of 18 Acts passed the lower house of the Australian Parliament (House of
Representatives) on 12 October 2011 with the support of the Greens and the independent members of
parliament. The legislation passed the upper house (Senate) on 8 November 2011. See for example A.
Macintosh and L. Waugh, An Introduction to the Carbon Farming Initiative: Key Principles and Concepts
(2012) 29 Environmental and Planning Law Journal 439. The Clean Energy Legislation (Carbon Tax Repeal)
Bill 2013 (Cth.) and related bills, introduced in the lower house on 13 November 2013, were rejected by the
upper house on 20 March 2014. They come before the new upper house in mid-2014 where they may or may not
be passed.
7

See for example Environment and Energy Study Institute, Fact Sheet, Carbon Pricing Around the World,
October 2012, available at: http://www.eesi.org/fact-sheet-carbon-pricing-around-world-17-oct-2012.
8

Launched in 2005. See, for example, F. Melville, E. E. Freedman and V. C. Edwards, Mandatory Greenhouse
Gas Emission Trading Schemes Operating in Australia, California, European Union and Qubec (2013) 28
Australian Environment Review 738.
9

The first mandatory US cap-and-trade programme for carbon dioxide, originally launched in 2005, involving
nine of the northeastern states of the US.
10

See, for example, H. Zhang, Design Elements of Emissions Trading Regulation in China's Pilot Programs:
Regulatory Challenges and Prospects (2013) 30 Environmental and Planning Law Journal 342. In China, the
city of Shenzhen commenced emissions trading in June 2013; Beijing and Shanghai commenced in December
2013; Tianjin, Chongqing and the provinces of Guangdong and Hubei are preparing pilot cap and trade projects.
China plans to implement a national emissions trading scheme by 2015.
11

Department of the Environment, Quarterly Update of Australias Greenhouse Gas Inventory: December
2013, Australias National Greenhouse Accounts (Australian Government: April 2014). The former Climate
Change Minister had stated that emissions in the National Electricity Market had fallen by 7.7% in the first nine
months of carbon pricing: Greg Combet, Minister for Climate Change, Industry and Innovation, 8 May 2013,
cited by Frontier Economics at Post hoc ergo propter hoc, Federal Government Claims Carbon Price Success,
July 2013, available at: http://www.frontier-economics.com/_library/publications/frontier%20australia%20%20impact%20of%20carbon%20price.pdf.
12

Greg Hunt, Minister for the Environment, Planning for the Future of Our Cities and the Coalition
Government's Plan to Repeal the Carbon Tax and Tackle Climate Change, Paper to the State of Australian
Cities Conference, Sydney, 27 November 2013, available at:
http://environment.gov.au/minister/hunt/2013/sp20131127.html.

economic research13 - has also confirmed that emissions have fallen, but that the fall was not
the result of carbon pricing and that the main effect of the carbon price has been to increase
the cost of electricity and gas. However, as public perceptions and therefore the politics
change, there is an expectation that it is inevitable that a different market model for carbon
pricing will return in a future political cycle; there is further empirical evidence that 80% of
an Australian sample do have a strong expectation that carbon pricing will be a feature of
Australia's economic policy framework in the medium-to-long term and that a market-based
carbon price will be in effect at 2020.14
There are many different ways to reduce emissions, such as by environmental taxes,15 direct
action subsidies (as discussed below in Part I(ii)), regulation by command-and-control
directives such as bans on emissions intensive activities (like motor vehicle emissions
standards),16 transnational and international sector agreements, and voluntary reductions.
Australia has implemented all of these to different degrees but the emphasis has been on the
use of financial markets and the financialisation model for emissions reduction under which
financial markets and financial services regulation (securities regulation in the US) provide
for the trading and the regulation of carbon markets.17 Under the Australian market model,
the government has placed a price signal on carbon pollution and allowed market forces - the
choices and investment decisions of individual businesses, investors and consumers - to drive
the economic changes needed.18

13

See for example Frontier Economics, Why the Carbon Price will have a Limited Impact on Reducing
Electricity Emissions (Melbourne, August 2013), available at: http://www.frontiereconomics.com/_library/publications/frontier%20australia%20paper%20-%20overpowering.pdf. Reasons for
emissions reductions included closure of some brown coal generation, shifting the reporting of emissions
between years, and falling demand for electricity.
14

See Jotzo, Jordan and Fabian, above n. 2.

15

S. Dickey, Emissions Trading Schemes: What Works?, chapter 4 in W. Gumley and T. DayaWinterbottom, Climate Change Law: Comparative, Contractual and Regulatory Considations (Law Book
Company: Sydney, 2009) 70-71.
16

Arguably, command-and-control may lead to inefficient outcomes by imposing costs and diverting
investment from other economic activities.
17

This article uses carbon markets to include emerging carbon trading schemes, emissions trading schemes,
environmental commodities markets, primary environmental markets, secondary allowance markets and
derivatives environmental markets. Financialisation and financial services regulation is Australias answer to
the fifth of the questions of the Commodities Futures Trading Commission (US) (CFTC) in its Public Input for
the Study Regarding the Oversight of Existing and Prospetive Carbon Markets, Federal Register, Vol. 75, No.
227, 26 November 2010, available at:
http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-29780a.pdf. The fifth question
was What regulatory methods or tools would be appropriate to achieve the desired regulatory objectives? On
financialisation, see for example O. Orhangazi, Financialization and the US Economy (Edward Elgar:
Cheltenham, U.K., 2008) 3.
18

G. Combet, Minister for Climate Change and Energy Efficiency The Role of Markets in Tackling Climate
Change, 22 October 2012, available on the website of the Australian Government, Department of the
Environment, available at: http://www.climatechange.gov.au/ministers/hon-greg-combet-am-mp/mediarelease/role-markets-tackling-climate-change.

At the outset, an emissions trading scheme is a not a market for carbon. It is a market for
trading permits to pollute. The government creates the right to emit carbon (the right to
pollute) and then limits the availability of this right to create scarcity so that markets will
develop where the right can be traded. A party which does not use all of its allowable
emissions can trade its emissions permits. Australias prime minister Tony Abbott, when
Leader of the Opposition in 2013, had famously described an emissions trading scheme as a
'so-called market in the non-delivery of an invisible substance to no one.19 It is true that, like
financial products, intellectual property, radiation or water licences, you cannot see carbon
dioxide. It is also true, as Bates has acknowledged, that the difficulty with authorising a cap
and trade system is that the commodity being traded carbon manifests no physical form;
it is an invisible substance, the value of which lies solely in its absence.20
Australias financialisation model for the regulation of carbon trading has aimed to reduce
greenhouse gas emissions by providing for the trading of carbon credits as financial
products in fair, orderly and transparent21 financial markets with market integrity promoted
by financial market regulation by the financial market regulator, the Australian Securities and
Investments Commission (ASIC).22 Market integrity includes promotion of an educated and
competent financial services industry which operates efficiently, honestly and fairly.23
A compliance-based system aims to prevent unlawful behaviour by imposing legal controls
followed up by penalising and punishing wrongdoers for failure to meet expected behaviours.
One success in a market-based financial market system will be compliance with government
regulatory control, which would include effective sanctions and penalties for non-compliance
to ensure that market participants adhere to the rules of the market.24 There is evidence that
the certainty that non-compliance will be punished by law gives confidence in the future of
the market to both early and later participants in the market. Effective enforcement will
ensure that the possibility for rent seeking is low if the system includes the imposition of
penalties without negotiation and discretion.25
ii Australias Direct Action Plan from 2014
The new Australian government plans to replace the current market-based carbon trading
under financial services regulation with its proposed Direct Action Plan, a targeted approach
19

See for example J. Ireland, Emissions Scheme a Trade in the 'Invisible': Abbott, The Sydney Morning
Herald, 15 July 2013.
20

G. Bates, Environmental Law in Australia (LexisNexis Butterworths: Sydney, 8th ed, 2013) para. 16.13.

21

Corporations Act 2001 (Commonwealth), s. 760A(c).

22

ASIC is Australias national regulator, set up by the Commonwealth government under the Australian
Securities and Investments Commission Act 2001 (Cth.). The forerunners of ASIC replaced State and Territorybased companies commissions in 1982.
23

Corporations Act 2001 (Cth.), s 912A(1)(a).

24

E. de Wit and A. Wills, The Impact of Policy on Regulation: Should Certainty Trump the Need for
Flexibility? (2013) 28 Australian Environment Review 668 at 668.
25

See, for example, Zhang, above n. 10 at 354.

based on the new Emissions Reduction Fund of AUD1.55 billion. Direct Action is expected
to be in place in the second half of 2014.26 It is planned to connect with the proposed repeal
of the carbon price, and is to replace the discipline of emissions trading on the market with a
new system of subsidies from the Emissions Reduction Fund. The Direct Action Plan will
reward those who reduce emissions. Emissions reduction projects will be able to be submitted
to the Clean Energy Regulator in a competitive bidding process. Companies will be able to
win money for projects that reduce emissions such as projects to finance the planting of 20
million trees, one million solar roofs, and the Solar Towns and Solar Schools iniatives.27 The
Clean Energy Regulator will select the bids with the lowest cost per tonne, and it will
purchase those emissions reductions on behalf of the government. This will reward those
who reduce emissions by the purchase of the lowest cost abatement through a reverse
auction. This is designed to reduce Australias emissions by 5% by 2020 from 2000 levels.
The Direct Action Plan is designed to be a less complicated and less costly way to reduce
greenhouse gas emissions by providing a market based mechanism to reduce carbon dioxide
emissions with incentives for abatement activities for businesses to reduce their greenhouse
gas emissions. Supporters of the Direct Action Plan say, for example, that (t)here's no point
in giving up (carbon dioxide) in Australia only to find that it's going to be emitted less
efficiently elsewhere.28

II. AIMS OF REGULATION OF CARBON MARKETS

Like trading in all markets, markets for emissions trading are susceptible to non-disclosure
and other information asymmetries, conflicts of interest, deceptive practices and fraud, and
market manipulation and other market failures which call for market regulation to ensure the
integrity of the market. Carbon market regulation should promote the confident and informed
participation of investors and consumers in the financial system 29 to ensure broad market
participation so that entities with emissions compliance obligations may meet their
obligations efficiently and that offset credit providers may bring those credits to the market.
Regulation should be green light and should ensure high liquidity by encouraging maximum

26

Australian Government, Department of the Environment, Emissions Reducation Fund Green Paper
(Canberra, 2013), available at:
http://grattan.edu.au/static/files/assets/abf7f66f/521_public_seminar_hunt_speech_outline_130716.pdf ;
effectiveness of the proposed policy queried by, L. Gates, A New Year, a New (But Somewhat Familiar)
Direction for Climate Change Policy (2014) 29 Australian Environment Review 2. The Coalitions Direct
Action Plan, Environment and Climate Change (2013) is available at:
http://www.greghunt.com.au/Portals/0/PDF/TheCoalitionsDirectActionPlanPolicy2010.pdf.
See also Greg Hunt, Choosing the Right Market Mechanisms for Addressing Environmental Problems:
Incentives for Action Under the Coalitions Direct Action Plan for the Environment and Climate Change,
Speech to the Grattan Institute Public Seminar, Melbourne, 16 July 2013, available at:
http://grattan.edu.au/static/files/assets/abf7f66f/521_public_seminar_hunt_speech_outline_130716.pdf.
27

Emissions Reduction Fund Green Paper, above n. 26 at 16.

28

A. McKenzie, CEO of BHP Billiton Ltd., Anglo-Australian mining company, quoted by P. Ker, BHP in
Talks with Government to Help Formulate Carbon Policy, The Age, 22 November 2013.
29

For example Australian Securities and Investments Commission Act 2001 (Cth.), s. 1(2)(b).

participation in the market. High liquidity may add more demand to the market and may lead
to higher prices.
In the words of the International Organization of Securities Commissions (IOSCO, the
international association of regulators), the regulation of carbon markets aims to fulfil the
three objectives of financial market regulation as the protection of investors; ensuring that
markets are fair, efficient and transparent, and the reduction of systemic risk. 30 Anti-fraud is
an obvious aim of regulation so that carbon markets are free of manipulation, fraud and other
market abuses. As carbon dioxide emissions will come from a wide variety of sources and
may be hard to measure, regulation must ensure the truthfulness of emissions reporting.
Equally, the legislation setting up the Australian Securities and Investments Commission sets
out the objects of the regulator as to maintain, facilitate and improve the performance of the
financial system and the entities within that system in the interests of commercial certainty,
reducing business costs, and the efficiency and development of the economy. 31 Promoting
efficiency of the economy also connects with the first objective of the Commodities Futures
Trading Commission (US) (CFTC), namely, the facilitation and the protection of price
discovery in carbon markets, and to ensure that the regulation should ensure the meeting of
the forces of supply and demand.32 This was the result of the CFTC consulation which
indicated that the goals of regulatory oversight should be to ensure that carbon markets are
efficient, secure and transparent. The question remains open as to what other regulatory
objectives, if any, should guide the oversight of such markets?33
In addition, all of these different versions of market credibility should fulfil the four core
principles of regulation for an effective carbon trading scheme set out by Bluestein,34 namely
(1) a set of strategically selected legal instruments, (2) flexibility, (3) intrinsic legal coherence
and (4) quantifiable and achievable targets for the reduction of greenhouse gas intensity. To
these can be added the importance of having noncompliance identified and addressed
through stringent penalties and make good provisions.35 Financial services authorities
have the power to intervene in the market to take corrective action if needed in the public
30

IOSCO, Objectives and Principles of Securities Regulation (IOSCO: Madrid, 2003) Foreword and Executive
Summary.
31

For example, Australian Securities and Investments Commission Act 2001 (Cth.), s. 1(2)(a).

32

Commodity Futures Trading Commission, Report on the Oversight of Existing and Prospective Carbon
Markets (CFTC: 2001), available at: http://www.cftc.gov/PressRoom/PressReleases/pr5965-11. Regulation of
carbon markets in the US is the responsibility of the US Commodity Futures Trading Commission (CFTC), the
regulator of the derivatives market for environmental commodity instruments.
33

This is the first of the CFTC Public Input questions, above n. 17, available at:
http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-29780a.pdf.
The question reads Section 750 of the Dodd-Frank oversight should be to ensure that carbon markets are
efficient, secure and transparent. What other regulatory objectives, if any, should guide the oversight of such
markets?
34

S. Bluestein, From the Bottom Up: Redesigning the International Legal Response to Anthropogenic Climate
Change (2011) 32 Adelaide Law Review 305 at 316-320.
35

N. Durrant, Establishing a Legal Framework for an Effective Carbon Trading Scheme (2008) 46(10) Law
Society Journal 72 at 72.

interest. The regulation of emissions trading in Australia is a carbon copy of the regulation of
trading on the other financial markets regulated by the Australian Securities and Investments
Commission (ASIC).36
Hedges reminds us that (m)arket confidence in an emissions trading scheme is based in part
on the extent to which the market forms the view that there is both a capable regulator with
the power to ensure the overarching design is adhered to and that its decisions are not subject
to political interference or likely to be consistently overturned by judicial challenges.37
Effective regulation must be clear and certain. It must have the intention to reduce business
costs, not be too restrictive, and have some flexibility in changing circumstances. Its goals
must be clear, it must enable easy compliance, and it must promote innovation and flexibility
in this fast moving area. Hence efficiency, transparency and security in carbon markets should
have environmental benefit and should promote liquid markets. Critical is carbon market
transparency so as to provide timely and accurate information to carbon market participants.
Transparency and disclosure will increase the efficiency of markets by providing for more
informed decision making by market participants.

III. AUSTRALIAS REGULATION OF CARBON MARKETS BY FINANCIAL

SERVICES REGULATION (2012-2014)
Australia has financialised carbon trading, under which any product or service is reduced to
a tradeable financial instrument. The issue of carbon permits commenced on 1 July 2012 and
continues at the time of writing; emissions trading is due to commence on 1 July 2014. (This
is subject to repeal scheduled for mid-2014, depending on the votes.38) Financialisation
refers to the economic system or economic process that attempts to reduce all value
exchanged either into a financial instrument or a derivative of a financial instrument. 39 It
recognises the importance of financial markets and financial institutions in government and
the economy. Australias carbon pricing scheme was intended to bring a large number of
participants to the carbon market, with the result of a deep and liquid market for carbon
permits.
By relying on financial markets, climate policy in Australia has targeted the banking and
finance sector to encourage and to facilitate capital flow to the new carbon markets.40 The
connections with the banking and finance sector may have provided some leverage to
promote effective climate policy to decision-makers to facilitate climate change mitigation
and transition to a low-carbon global economy. The banking and finance sector is in a

36

ASICs carbon site is available at:

http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Carbon_markets_overview.
37

A. Hedges, The Secondary Market for Emissions Trading: Balancing Market Design and Market Based
Transaction Norms, Ch. 15 in D. Freestone and C. Streck, Legal Aspects of Carbon Trading Kyoto,
Copenhagen and Beyond (OUP: Oxford, 2009) 318-319.
38

See above, n. 6.

39

See above, n. 17.

40

See for example M. Bowman, Nudging Effective Climate Policy Design (2011) 35 International Journal of
Global Energy Issues 242 at 251.

position to facilitate climate change mitigation and transisition to a low carbon economy
through risk assessment, financing and profiteering.41
Carbon credits take the form of carbon permits or carbon offsets:
(1) Carbon permits issued by government through the Clean Energy Regulator42 as
part of its carbon pricing mechanism.
(2) Carbon offsets issued for carbon abatement projects to lower domestic emissions

under schemes such as the Carbon Farming Iniative (CFI). The Carbon Credits
(Carbon Farming Initiative) Act 2011 (Cth.) allows for persons to earn Australian
carbon credit units by setting up domestic emissions offsets projects, set out in the
Preamble as projects to remove carbon dioxide from the atmosphere and projects to
avoid emissions of greenhouse gases. Under the CFI, farmers and land managers are
able to earn Australian carbon credit units by storing carbon or by reducing
greenhouse gas emissions on the land. The CFI also helps the environment by
encouraging sustainable farming and providing a source of funding for landscape
restoration projects.43 The CFI continues under the proposed repeals in mid-2014 in
an expanded form to include a wider range of emissions reduction methodologies
(potentially covering additional industry sectors).
Under the current carbon pricing mechanism, carbon credits can be traded to fulfil obligations
under the clean energy legislation. Australias 370 biggest emitters (polluters) were required
to reduce pollution or to surrender permits they have to pay for carbon permits or to offset
their emissions with carbon credits. The carbon pricing mechanism put a price on the
emissions of the biggest emitters in the first year. It allows trade in the basic unit of
compliance, the carbon emissions permit and in other carbon credits (essentially offsets).
The carbon pricing mechanism first allowed offsets to be sourced domestically,
predominantly in carbon farming. As an alternative to buying and surrendering emissions
units, emitters could also fulfil their obligations by investing in cleaner technologies.
Emitters which could not meet their required limits would have had to buy carbon permits
from businesses which could reduce their emissions, resulting in a tightening of the cap.44
i. The Proposed Repeal of the Australian Climate Change Plan
41

M. Bowman, The Role of the Banking Industry in Facilitating Climate Change Mitigation and the Transition
to a Low-Carbon Global Economy (2010) 27 Environment and Planning Law Journal 448, on SSRN at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1762562 .
42

The Clean Energy Regulator has survived the proposed repeals, outlined above n. 6. Its revised role will be
the administration of the proposed Direct Action Plan (especially verification of Emissions Reduction Fund
projects), the Renewable Energy Target and the revised Carbon Farming Initiative. A Review of the efficiency
and effectiveness of the Renewable Energy Target in reducing emissions was announced in February 2014.
There is scope for a secondary trading market to develop in permits issued by the Clean Energy Regulator, as
permit holders will be able to sell them to the government, keep them, or sell them on voluntary or international
markets.
43

Australian Government, Department of the Environment, Carbon Farming Iniative, available at:
http://www.climatechange.gov.au/reducing-carbon/carbon-farming-initiative.
44

A. Zahar, J. Peel and L. Godden, Australian Climate Law in Global Context (Cambridge University Press:
Melbourne, 2013) 174.

The former Australian government passed its clean energy package of legislation in June
2011.45 The Clean Energy Act 2011 (Cth.) was followed four months later by the enactment
of the emissions trading scheme (ETS) - the carbon pricing mechanism - which commenced
on 1 July 2012.46 Following the change of government in September 2013, legislation to
repeal substantial amounts of the clean energy package was introduced on 13 November
2013, and is proposed to be passed and to take effect as from 1 July 2014, depending on
whether it has support in Australias upper house. The objects of the Clean Energy Act set
out in s. 3 were, firstly, to implement Australias obligations under the UN Climate Change
Framework Convention (UNFCC) and the Kyoto Protocol; secondly, to create incentives for
people to carry on certain offsets projects, and thirdly, to increase carbon abatement in a
manner that is consistent with the protection of Australias natural environment, and that
improves resilience to the effects of climate change.
The Australian scheme commenced with a fixed price period of AUD23 per tonne in
2012/2013, which has risen to AUD24.15 in 2013/2014) and AUD25.40 in 2014/2015. From
1 July 2015, the scheme was planned to move to a fully flexible European-style cap and
trade emissions trading scheme in carbon units with links to international markets at the
current market price. That was expected to see prices fall to around AUD6 per tonne from
2015. The flexible carbon price was to be set by the international price of carbon permits
because of the one-way link to the European Union Emissions Trading Scheme (EU ETS).
The carbon price was expected to affect around two thirds of Australias emissions.47
Emissions in some sectors such as agriculture were exempted from liability.48

ii. Australias Trade in Offsets

The essence of offset trading is to enable purchasers to compensate for their own emissions
by paying others to provide reductions. The market in offsets is one way to place an
economic value on those emission reductions, possibly making activities like forestation
competitive with other uses where they would not otherwise be competitive. The carbon price
creates opportunities in the rural sector to cut pollution, and improve productivity,
sustainability and resilience. As a substitute for reducing ones own emissions, trade in
offsets provide so a compliance-based regulatory system. Offsets trade is not confined to
simple, linear transactions, customised trades or spot markets for immediate delivery of
offsets.
45

Above at n. 6; now facing repeal by the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (Cth.).

46

The background to Australias market based emissions trading scheme was set out by the Australian
Government in its Securing a Clean Energy Future the Australian Governments Climate Change Plan
(Department of Climate Change and Energy Efficiency: Canberra, 2011), Appendix A: Carbon Pricing
Mechanism: Scheme Archtiecture, 2011; Parliament of Australia, Clean Energy Bill 2011, Explanatory
Memorandum (Canberra: 2011). The background up to 2011 is set out by J. Taberner, M. Voros, Y. Carr, R.
Walker and N. Barris, Climate Change Regulation in Australia (2011) 39 Australian Business Law Review
121. The Clean Energy Act 2011 (Cth.) is facing repeal by the Clean Energy Legislation (Carbon Tax Repeal)
Bill 2013 (Cth.): above n. 6.
47

The carbon price does not apply to agricultural emissions, light on-road vehicles, and the on-site use of fuel
by the agriculture, fisheries and forestry industries.
48

Exemptions include household and light commercial transport fuels and the agriculture, forestry and fishing
industries on their off-road fuel uselight vehicle business; see for example Bates, above n. 20 at 16.22.

10

iii. Emissions Units as Financial Products

Australia has regulated emissions units from 1 July 2012 as financial products49 under
financial services legislation - the Corporations Act 2001 (Cth.) and the Australian Securities
and Investments Commission Act 2001 (Cth.) - in the same way as other financial products
like shares and collective investments. As the Explanatory Memorandum explained, the
amendments were designed to provide a strong regulatory regime to protect purchasers of
(units) in a new area where there will not be familiarity with offsets credits issued by
government.50 Emissions units in Australia are defined as registered emissions unitsof
four types (1) carbon units,51 (2) Kyoto units, (3) prescribed international units (EIEUs),52
(4) Australian carbon credit units (ACCUs).53 Emissions units are registered on the

49

Corporations Act 2001 (Cth..), s. 764A(1)(ka) (Australian carbon credit unit); s. 764A(1)(kb) (eligible
international emissions unit); paralleled in Australian Securities and Investments Commission Act 2001 (Cth.),
ss. 12BAA(7)(l), (la). These are facing repeal in the repeal legislation, above at n. 6, which will provide that
carbon units, European Union allowances and an Australian-issued international unit will cease to be financial
products on 9 February 2015 or such later date as determined by the Clean Energy Regulator. The Bill will not
affect the status of Australian carbon credit units (ACCUs) or other types of eligible international emissions
units (EIEUs) as financial products. For background, see for example Department of Treasury, Commentary
Draft Amendments to the Corporations and ASIC Regulations Relating to Eligible Emissions Units as Financial
Products (Department of Treasury: Canberra, 30 October 2009); Department of Climate Change, Carbon
Pollution Reduction Scheme, Eligible Emissions Units as Financial Products, Issues Paper (Canberra: 2009).
See further J. Greig, E. Leske and T. Dalton, Detailed Analysis of White Paper: Carbon Trading (2009) 24
Australian Environment Review 14 at 18.
50

Parliament of the Commonwealth of Australia, House of Representatives, Carbon Credits (Consequential

Amendments) Bill 2011, Explanatory Memorandum (Canberra: 2011), para. 1.2. These four classes of
emissions units are facing repeal by the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (Cth.), s. 13,
above at n. 6.
51

A carbon unit is the domestic unit for compliance with the carbon pricing mechanism: defined in the Clean
Energy Act s. 5 2011 (Cth.) as a unit issued by the Clean Energy Regulator on behalf of the Commonwealth
under s. 94. They are issued by the Clean Energy Regulator to liable entities for a fixed price. The carbon
pricing mechanism also provides for the issue of free carbon units as a form of transitional assistance for five
years as from 1 July 2012. Some carbon units have been issued free of charge to certain emissions-intensive
trade-exposed (EITE) industries as part of the former Jobs and Competitiveness Program under Part 7 of the
Clean Energy Act 2011 (Cth.) and the Clean Energy Regulations 2011 (Cth.), Schedule 1. Some were issued to
some emissions-intensive electricity generators under Part 8 of the Clean Energy Act 2011 (Cth.); much of this
is facing repeal by the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 (Cth.), above n. 6.
52

Eligible international emissions units are certified emission reductions, emission reductions, a removal unit or
a prescribed unit issued in accordance with the Kyoto rules. They are for surrender under the carbon pricing
mechanism, subject to certain restrictions. They are also able to be used to meet liabilities. While liable entities
would have been able to meet fifty per cent of their annual liabilities until 2020 from domestic permits or
credits, this allowance gives considerable scope to the purchase of international offsets.
53

Australian carbon credit units (ACCUs) are issued under the Carbon Credits (Carbon Farming Initiative) Act
2011 (Cth.). They are defined in the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth.) in s. 5 as units
issued under s. 147 by the Clean Energy Regulator on behalf of the Commonwealth and registered in the
Australian National Registry of Emissions Units.

11

Australian National Registry of Emissions Units (ANREU), a registry which tracks the
location and ownership of ACCUs.54

IV.

TRADING IN EMISSIONS UNITS ON REGULATED MARKETS

i. Financial Services Regulator

The Australian financialisation model for emissions trading brought emissions units under the
Corporations Act 2001 (Cth.) by adding carbon units, carbon credit units and eligible
international emissions units to the definition of a financial product.55 As financial
products, they are regulated like other financial products by Australias regulator of financial
services and financial markets, the Australian Securities and Investments Commission
(ASIC). The amendments were intended toprovide a strong regulatory regime to protect
purchasers of ACCUs in (what was to be) a new area where there will not be familiarity with
offsets credits issued by government. It was also intended to reduce the risk of misconduct in
the market.56
The scope and powers of ASIC fulfil the IOSCO model of a financial services regulator,
namely, a government regulatory commission whose responsibilities are clearly and
objectively stated, operationally independent, with the powers and resources to carry out its
functions.57 As discussed above, a major role of ASIC in the area of financial services and
financial markets is to promote confident and informed investors and financial consumers,
and fair orderly and transparent markets.58 The powers of ASIC are extensive, including the
power to monitor behaviour in emissions markets and where necessary, the power to
investigate breaches, prosecute breaches and/or to impose other administrative and civil
remedies. Australian financial services regulation builds on common law principles when it
proscribes conduct involving financial markets such as misleading or deceptive conduct,59

54

The ANREU tracks the location and ownership of emissions units issued under the Kyoto Protocol,
Australian carbon credit units (ACCUs) issued under the Carbon Farming Iniative and carbon units issued under
the carbon pricing mechanism. Emissions units are an electronic entry in the Register. The registered holder of
an emissions unit (or its authorised representative) is able to transfer an emissions unit by giving an assignment
by electronic notice to the Regulator.
55

This amendment to the Corporations Act 2001 (Cth.) is facing repeal by the Clean Energy Legislation
(Carbon Tax Repeal) Bill 2013 (Cth.), ss. 105, 106; above at n. 6.
56

Parliament of the Commonwealth of Australia, House of Representatives, Carbon Credits (Consequential

Amendments) Bill 2011, Explanatory Memorandum (Canberra, 2011), para. 1.12.
57

IOSCO, Objectives and Principles of Securities Regulation, clauses 1 to 5 (Principles relating to the
regulator); above n. 30.
58

Corporations Act 2001 (Cth.), s. 760A (Object of Chapter).

59

Corporations Act 2001 (Cth.), s. 1041H (misleading or deceptive conduct [civil liability only]); Australian
Securities and Investments Commission Act 2001 (Cth.), s. 12DA (Misleading or deceptive conduct).

12

market manipulation (including collusion),60 making false or misleading statements61 and

insider trading.62
Importantly, the responibilities of ASIC recognise that financial markets are markets for
information.63 This raises the question as to what types of data or information should be
required from market participants on environmental matters to ensure that carbon markets are
fully informed.64 In Australia, ASIC regulates corporate disclosure in product disclosure
statements (PDSs) to ensure that they do include information on environmental, social or
ethical considerations.65 This fits the US model under which the Securities and Exchange
Commission (SEC) is required to play a more proactive role, consistent with our mandate
under the National Environmental Policy Act of 1969, to consider the environment in our
regulatory action.66 The National Environmental Policy Act requires the Federal
Government to use all practicable means to, among other things, fulfill the responsibilities
of each generation as trustee of the environment for succeeding generations (s. 101(b)).
ASICs responsibilities include the provision of information to the public67 by way of, for
example, education, media releases, practice notes and regulatory guides. Keeping the
market informed by disclosure is essential in the operation of any market, and participants in
carbon markets large and small - should be under reporting requirements equivalent to other
participants like stockbrokers to ensure that some entities and producers do not have unfair
advantage over or influence in the market. The ASIC Carbon Markets site68 provides
information not legal advice - on ASICs role, licensing of financial markets and carbon
market participants, compliance and training for those in the market.
60

Corporations Act 2001 (Cth.), ss. 1041A-1041D.

61

Corporations Act 2001 (Cth.), s. 1041E.

62

Corporations Act 2001 (Cth.), Chapter 7 Part 7.10 Division 3 (The insider trading prohibitions) (ss. 1042A1043O).
63

P. Latimer, How to Ensure Dislcosure of Information in Securities Markets Post-GFC (2013) 42 Common
Law World Review 111.
64

Further, should reporting requirements differ for separate types of market participants? This is the sixth of the
CFTC Public Input questions, above n. 17, available at:
http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-29780a.pdf. The question reads
What types of data or information should be required of market participants in order to allow adequate
oversight of a carbon market? Should reporting requirements differ for separate types of market participants?
65

Corporations Act 2001(Cth.), s. 1013D(1)(l). Carbon units are excluded from this aspect of PDS content by
Corporations Regulations 2001 (Cth.), reg. 7.9.09B(j).
66

For example SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments
Regarding Climate Change, 27 January 2010, available at: http://www.sec.gov/news/press/2010/2010-15.htm;
discussed by, for example L A. Aguilar, Speech by SEC Commissioner: Responding to Investors' Requests for
SEC Guidance on Disclosures of Risks Related to Climate Change, Securities and Exchange Commission,
Washington DC, 27 January 2010, available at: http://www.sec.gov/news/speech/2010/spch012710laaclimate.htm.
67

68

Australian Securities and Investments Commission Act 2001 (Cth.), ss. 1(2)(e), (f).
The ASIC carbon markets site, above n. 36.

13

ASIC has the full range of sanctions to ensure disclosure, addressing queries whether market
legislation can be relied on to ensure disclosure. For example, as pointed out by Baker-Jones,
there is a concern as to whether the courts are best equipped to decide whether corporate
disclosure requirements under the Corporations Act 2001 (Cth.) require climate legal risk
disclosure, and, if not, what further measures are required to promote risk disclosure in the
market.69
ii. Consumer Protection
Consumer protection laws such as the prohibition of unfair contract terms, unconscionable
conduct, misleading conduct and false or misleading representations are an important part of
financial services regulation of emissions trading. Some investors and consumers may be
attracted to corporations and investments on false and/or misleading claims of for example
biodiversity, carbon neutrality, fair trade, forestation, green benefits and preservation of
endangered species. Consumer protection laws must ensure that investors and consumers can
have confidence in the integrity of the offsets.70
Consumer protection in Australia is divided between two Commonwealth Government
regulators. Claims for misconduct such as unfair contract terms, unconscionable conduct,
misleading conduct and false or misleading representations involving financial products and
financial services are in the hands of the financial services regulator (ASIC);71 the equivalent
in areas other than financial products and financial services are dealt with by the consumer
regulator, the Australian Competition and Consumer Commission (ACCC).72
iii. Licensed Markets and OTC Markets
The financialisation of emissions trading in Australia has resulted in emissions trading taking
place in existing financial market structures. The emissions market operates in the same way
as the other financial markets in equities and derivatives, with two differences identified by
speakers from the Financial Services Authority (now the Financial Markets Authority) - the
market's political links and, arguably, its contrived underlying.73
The fact that existing financial services regulation governs emissions trading practices raises
the issue of just what regulatory oversight would market participants and market operators

69

See, for example M. Baker-Jones, Case note: Conventionalising Climate Change by Decree (2013) 30
Environmental and Planning Law Journal 371 at 374.
70

See, for example P. Blazey and B. Connors, Emissions Trading Traps for New Players (2008) 5
Macquarie Journal of Business Law 291.
71

Australian Securities and Investments Commission Act 2001 (Cth.), ss. 12DA-12DN. A financial service,
defined in Australian Securities and Investments Commission Act 2001 (Cth.), s. 12BAB, includes providing
financial product advice, dealing in a financial product and making a market for a financial product.
72

Australian Consumer Law ss. 18-50; Australian Competition and Consumer Commission, Carbon Price
Claims, available at: www.accc.gov.au.
73

J. Hill, T. Jennings and E. Vanezi, The Emissions Trading Market: Risks and Challenges (Financial Services
Authority Commodities Group, Financial Services Authority: London, 2008) available at:
http://www.fsa.gov.uk/pubs/other/emissions_trading.pdf.

14

recommend?74 The Australian Government ETS White Paper recommended that generally
trades should be conducted on organised exchanges rather than in over-the counter (OTC)
transactions75 on the basis that exchange trading enhances transparency and enables regulated
clearance and settlement. Recommendations post-Global Financial Crisis now favour more
trading of derivatives be conducted on regulated exchanges.
Australias carbon market consists of both a voluntary market and a regulated market.
(a) Voluntary market
In the case of the voluntary carbon market, individuals and entities who wish to voluntarily
offset their emissions can buy carbon credits. The voluntary market consists of the voluntary
purchase of carbon credits that are not required by a regulatory scheme.
There are three main classes of voluntary market participants:
(1) providers - businesses that invest in offset projects to generate carbon offsets to
sell (carbon credits),
(2) businesses purchasers - businesses which purchase voluntary carbon credits to use
as a green marketing tool by offsetting emissions from the business and making
carbon claims in an attempt to attract customers (end consumers) into purchasing
goods and services, and
(3) individuals who purchase carbon credits to offset their personal emissions.
(b) Regulated market
Australias regulation of carbon markets, in line with that in the U.K.,76 includes licensing by
the financial services regulator with an Australian Market Licence (AML). The Corporations
Act requires licensing of a person (s. 791A) who operates a financial market (s. 767A)
which trades financial products (s. 763A) including a financial investment (s. 763B) and
who manage financial risk (s. 763C). Direct negotiations do not constitute operating a
financial market and do not require licensing with an AML (s. 767A(2).

74

This is the tenth of the CFTC Public Input questions, above n. 17, available at:

http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-29780a.pdf. The question read

Based on trading experiences in SO2 and NOX emission allowances what regulatory oversight would market
participants and market operators, respectively, recommend?
75

Australian Government, Carbon Pollution Reduction Scheme: Australias Low Pollution Future, White Paper
(Australian Government: Canberra, December 2008).
76

The Financial Services and Markets Act 2000 (U.K.), s. 19 prevents carrying out a regulated activity unless
authorised. Section 22 refers to those set out in Financial Services and Markets Act 2000 (Regulated Activities)
Order 2001 (U.K.), which includes a contract for the sale of a commodity or property under which delivery is to
be made at a future date and at a price agreed on when the contract is made (article 84(1)). See for example K
Anttonen, M. Mehling and K. Upston-Hooper, Breathing Life into the Carbon Market: Legal Frameworks of
Emissions Trading in Europe (2007) 16 European Environmental Law Review 96.

15

Australias financial markets, the Australian Securities Exchange (ASX), Chi-X Australia
Pty. Ltd. (an offshoot of Chi-X Global) and FEX were set to develop emissions trading
before the proposed changes.77 Financial and Energy Exchange Global (FEX) is the new
derivatives market in Australia which received its Australian Market Licence (AML) in April
2013.78 Clearing by derivatives clearing provider LCH.Clearnet Ltd., FEX, an Australian
unlisted public company, is an exchange that develops and lists tradeable energy, commodity
and environmental derivative products.
ASX was on record as planning for a futures market for carbon units before the planned
commencement of the fully tradeable emissions trading scheme in 2014 to enable those in the
industry to manage risk. The stock exchanges had expected that the introduction of a futures
market in emission permits would have underpinned decision making by reducing
transactions costs for participants in the market, providing forward price discovery and
facilitating the transfer of risk. The exchanges saw this as assisting the markets credibility
and providing security for market participants by minimising the potential for counter-party
and settlement default.
iii. Licensed Advisers (Australian Financial Services Licence)
Financial markets create opportunities for financial intermediaries and other service providers
those operating in the financial services sector such as accountants, bankers, brokers, fund
managers and lawyers - to link purchasers with the developers and sellers of financial
products. Investors and consumers require expertise and high standards on the part of
financial intermediaries in financial markets where risk is always a factor, especially as
secondary and tertiary markets continue to develop markets in emissions, futures, and hedge
instruments such as options.
The emissions market will reward those who are reducing emissions by giving them credits to
on-sell. A practical consequence of defining emissions units as financial products is that
carbon brokers who provide financial services must have an Australian Financial Services
Licence (AFSL) issued by ASIC,79 with some exemptions.80 As explained in the Explanatory
Memorandum, defining emissions as financial products has triggered the application of
provisions relating to financial services and markets and product disclosure under the
Corporations Act 2001.81 ASICs Register of Carbon Registrants is a public document which
77

The development of these financial markets in emissions trading will come to an end if and when the Clean
Energy Legislation (Carbon Tax Repeal) Bill 2013 (Cth.) and related bills are passed; see above n. 6.
78

Available at: http://www.fex.com.au. The market Licence of FEX is available at:

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Fex-global-australian-market-licence.pdf/$file/Fexglobal-australian-market-licence.pdf.
79

ASIC Regulatory Guide 236, Do I Need an AFS Licence to Participate in Carbon Markets? (ASIC: 2013);
see for example J. Greig, E. Leske and T. Dalton, Detailed Analysis of White Paper: Carbon Trading (2009)
24 Australian Environment Review 14 at 18. The financial services laws and the need to have an AFSL (unless
exempt) would cease if and when carbon credits cease to be financial products, as dicussed above at n. 6.
80

For example, individuals who sold their own carbon credits or who bought carbon credits on their own behalf
did not need to hold a financial services licence: Corporations Act 2001 (Cth.), s. 766C(3). There were further
exemptions in Corporations Regulations 2001 (Cth.), reg. 7.6.02AGA.
81

Paliament of the Commonwealth of Australia, House of Representatives, Carbon Credits (Consequential

Amendments) Bill 2011, Explanatory Memorandum (Canberra: 2011) para. 1.1.

16

lists all entities which are registered to provide financial services in relation to regulated
emissions units.82
Australias financial services law distinguishes retail and wholesale clients, with more
onerous obligations for holders of an Australian Financial Services Licence dealing with
retail clients. Entities that trade in units may now limit their business to deal only with
wholesale clients, in which case they must put in place structures to ensure that these entities
do not inadvertently deal with retail clients.

V. FINANCIAL SERVICES LAW AS THE MODEL FOR CLIMATE CHANGE

REGULATION
Australias financialisation of greenhouse gas emissions has provided a market solution for
emissions reduction to avoid the heavy hand of command and control. Tradeable permits
were created to allow for carbon trading on efficient financial markets by the buying and
selling of emission allowances, depending on marginal costs of abatement. Trading in
permits rewards companies which have been able to reduce their emissions, and so provides
motivation and incentives to improve and to develop technologies for energy efficiency. Any
market solution provides the incentives of the market to reduce costs.
Financial regulation recognises that private markets do not function through altruism so it
puts in place the appropriate incentives and regulatory frameworks to fulfil the aims of
financial services regulation.83 Financial regulation targets inter alia the financial market
failures that may reduce environmental protection - such as the risks of information
asymmetries, uninformed markets and non-disclosure, conflicts of interest, misleading or
deceptive practices and fraud, and market manipulation which call for market regulation to
ensure the integrity of the market.
Australias emissions regulation has brought emissions trading under the same rules and the
same regulator as the financial markets in equities and derivatives (functional regulation).
The regulation is not institutional or tailored to individual financial markets (such as banking,
credit unions, insurance) and it has been able to provide for a unified regulatory oversight of
activity in both the secondary carbon market and in the derivatives markets,84 subject to the
addition of requirements unique to carbon markets. In addition, Australia does and continues
to actively promote emissions reductions such as action to promote energy efficiency, the

82

ASICs Register of Carbon Registrants is available at:

http://www.asic.gov.au/asic/asic.nsf/byheadline/Register+of+carbon+registrants?openDocument.
AFSL applications had to be lodged with ASIC by the end of October 2012. ASICs Register of Carbon
Registrants is a public document which lists all entities which are registered to provide financial services in
relation to regulated emissions units.
83

C. Streck and D. Freestone, Summary and Outlook, final chapter in Freestone and Streck, above n. 37 at
633.
84

This is the seventh question of the CFTC Public Input questions, above n. 17, available at:
http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-29780a.pdf. The question read
To what extent is it desirable or not desirable to have a unified regulatory oversight program that would oversee
activity in both the secondary carbon market and in the derivatives markets?

17

uptake of renewable energy sources and the managed sequestration of carbon through
biological and geological storage.85 Every model on climate change must address the future,
if any, for subsidies for fossil fuels.86
Australias legal framework for the regulation of carbon markets includes the range of
financial services laws to ensure that financial markets are fair, orderly and transparent, with
certainty of the legal framework, coherence and clarity of definitions of what is and what is
not regulated.87 These have developed from a grass-roots industry-driven bottom-up approach
with the development of a legislative domestic top-down approach in line with IOSCO
objectives to recognise the needs and the capabilities of industries.88 With Australias current
financialisation model of emissions regulation facing repeal in mid-2014, Australia will then
have to reassess how to best address greenhouse gas emissions and the realities of climate
change.

85

See for example N.A. Durrant, The Australian Response to Climate Change: Business as Usual or Legal
Innovation? (2010) Environmental Law and Management 105, available at:
http://eprints.qut.edu.au/39199/1/39199.pdf; N.A. Durrant, Legal Responses to Climate Change (Federation
Press: Sydney, 2010) 7.
86

F. Jotzo, J. Pickering, P.J. Wood, Fulfilling Australias International Climate Finance Commitments: Which
Sources of Financing are Promising and How Much Could They Raise, Centre for Climate Economics and
Policy, Australian National University, CCEP Working Paper 1115, October 2011, 41, 68, availailable at:
https://publicpolicy.anu.edu.au/sites/default/files/news_attachments/CCEP1115Jotzoreport.pdf; S. Whitley,
Time to Change the Game Fossil Fuel Subsidies and Climate, Overseas Development Institute, London, at
http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8668.pdf.
87

See for example P. Latimer, Futures Market Regulation in Australia: What is it Trying to Achieve? (1990)
13 University of New South Wales Law Journal 370 at 372; P. Ali, Designing a Derivatives Framework for
Emerging Markets: Part I (2011) 29 Company and Securities Law Journal 56 at 56.
88

As recommended by for example B. Zeller, Carbon Reduction Schemes and the Energy Sector: A bottom Up
Approach? (2011) 28 Environmental and Planning Law Journal 332.

18