Australia and the EU will link their carbon trading schemes, allowing European and Australian companies to trade carbon permits from 2015, the Australian Minister for Climate Change and Energy Efficiency, Greg Combet, and European Commissioner for Climate Action, Connie Hedegaard, announced in a joint statement this week.

A full two-way link between Australia, the world’s largest CO2 emitter per capita, and the EU will see a ‘mutual recognition of carbon units between the two cap and trade systems’ and is expected to be set up by July 2018. An interim link will be set up from July 2015, allowing Australian businesses to use EU allowances to help meet liabilities under the Australian emissions trading scheme.

Australia currently employs a carbon tax, which charges companies a levy of A$23 (£15), for every tonne of greenhouse gases they produce.

In order to facilitate the linking of the two systems, the Australian Government will not implement a carbon price floor (which was set to be introduced in 2015 at a price of A$15 per tonne) as it would make the country’s carbon permits more expensive that Europe’s, and will apply a new sub-limit to the use of eligible Kyoto units. Currently, companies can meet 50 per cent of their carbon targets through purchasing Kyoto units (which support green projects in developing projects), but under the new scheme, only 12.5 per cent of carbon targets can be met through these units.

“Linking the Australian and European Union systems reaffirms that carbon markets are the prime vehicle for tackling climate change and the most efficient means of achieving emissions reductions", said Australia’s Climate Minister.

"Starting today, Australian liable entities can purchase EU allowances for future compliance in Australia... These arrangements provide Australian businesses with access to a larger market for cost-effective emission reductions and provide European market participants with enhanced business opportunities."

Combet went on to say that the arrangements would also provide flexibility to businesses with operations in both Australia and Europe, as they could reduce compliance costs.

Speaking on the new deal, EU Commissioner Hedegaard said: "The European Union is the first regional emissions trading system and spans the largest part of the European continent. We now look forward to the first full inter-continental linking of emission trading systems.

"This would be a significant achievement for both Europe and Australia. It is further evidence of strong international cooperation on climate change and will build further momentum towards establishing a robust international carbon market."

The two Ministers will now seek mandates from their respective authorities to negotiate and conclude an agreement to facilitate the full linking of their respective carbon markets.

Though one of the principal ways governments use to counteract global warming, carbon markets are not without their critics who view them as ‘licences to pollute’ that work in favour of large businesses, and not the environment. A damning Friends of the Earth report describes the failure of the EU ETS specifically and the danger posed by carbon markets in general, and the Rainforest Foundation released a report this week claiming carbon offset markets could do more harm than good in fighting deforestation.