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Federal government drops carbon tax floor price

The Australian government has announced it will be altering the carbon tax in order to build towards a planned linking of the Australian and European emissions trading systems by July 2018.

One major aspect of this decision will be the elimination of a floor price, with the carbon tax in Australia instead being determined by where Europe elects to set its tax on emissions.

While this now allows for the possibility that the carbon tax to fall below the previously established minimum of $15 per tonne, it could also lead to more volatility in electricity prices as well as the general cost of living. 

While the current carbon price set by the EU stands at less than AUS$10, the Treasury has estimated that this cost could be upwards of $30 by the time the Australian and European schemes are brought into line.

A sub-limit will also be implemented which will prevent Australian entities from meeting more than 12.5 per cent of their carbon liabilities through Kyoto 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 minister for climate change and energy efficiency Greg Combet yesterday (August 28).

European commissioner for climate action Connie Hedegaard was also present to note that the linking of the two systems was a significant achievement for both Australia and Europe.

"It is further evidence of strong international cooperation on climate change and will build further momentum towards establishing a robust international carbon market," said Ms Hedegaard.

Posted by Charlie Moore