Combet to axe carbon floor price from 2015 in deal with Europe

THE Gillard government faces a multi-billion dollar budget hit following its announcement today that it will axe its carbon floor price from 2015.

THE Gillard government faces a multi-billion dollar budget hit following its announcement today that it will axe its carbon floor price from 2015 under a deal with the European Union to link the Australian and EU carbon trading schemes.

Climate Change Minister Greg Combet said the move would not prompt a revision of federal budget figures, despite the low carbon price in Europe which has fluctuated between 3-10 Euros in recent times.

The budget forecasts $9.4 billion in revenue from carbon permits in 2015-16, based on a predicted $29 carbon price.

Mr Combet said the EU carbon price had been hit hard by the eurozone financial crisis, but it would recover.

“It is three years away,” Mr Combet said. “The treasury modelling is something we stand by.”

He said household assistance payment rates arrangements would not change.

Tony Abbott said the announcement would blow a huge hole in government revenue.

“If you can't take the price for granted you can't take the revenue for granted,” he said.

“If you can't take the revenue for granted you can't rely on the compensation. No one can count on the compensation this government has promised them.”

But Greens leader Christine Milne backed the change, saying Europe had such a stake in the success of its scheme that it would manipulate the market to drive up the carbon price.

“I'm confident the Europeans are going to take quite a lot of action to restore their floor price ... because all those economies are seeing their future in terms of economic growth associated with a low-carbon economy and that transformation,” she said.

The decision to abandon the $15 floor price means the European carbon price will set the carbon price in Australia.

Mr Combet said the change meant Australians would be covered by the same emissions trading scheme as that covering 530 million people in 30 other countries.

Australian businesses will be able to buy European permits from today to emit carbon dated from July 2015.

Two-way trade in carbon permits will occur from July 2018.

The change will require legislative amendments. As well as the Greens, Mr Combet said he briefed independents Rob Oakeshott and Tony Windsor, and expected their support for the move.

Mr Combet said the government was not considering any other changes to the scheme.

He said the linkage of the schemes would make it more difficult for Mr Abbott to axe the carbon price if the Coalition were elected.

The dramatic change to the carbon price structure comes just months after the scheme came into effect.

Mr Abbott said it showed the scheme was fundamentally flawed.

''You can't fix it you just have to scrap it and the message here is that the government just doesn't know what it is doing when it comes to this tax,'' he said.

But Mr Combet said the government had always intended to link the Australian scheme with the EU scheme, which is the world's largest carbon market.

Businesses affected by the carbon price had been calling for a drastic cut in the floor price to ease the burden of the new tax on Australian companies competing globally.

The mandated floor price meant Australian businesses faced a likelihood of having to pay more for carbon credits than companies under the European scheme where there is no floor price.

Labor had been negotiating with the Greens on the floor price and has been considering moving to an emissions trading scheme earlier than the scheduled start date of 2015.

Just four days after the carbon tax was introduced, The Australian confirmed talks between Mr Combet and the Greens on the final shape of the floor price.