The Federal Government has scrapped its planned floor on the carbon price under a deal which links Australia to the European Union emissions trading scheme, the world’s biggest carbon market.
However, Climate Change Minister Greg Combet said it would not create a budget shortfall and households would still be compensated even if the price falls.
Mr Combet said today that Australia’s price on carbon from July 1, 2015 will be linked to the European Union ETS and the planned floor price of $15 per tonne “won’t be implemented".
He said a second change would put a 12.5 per cent limit on the use of cheap Kyoto carbon units, which can sell for a third of the cost of European units, which are trading around $9.80.
"From 1 July, 2015, Australia’s carbon price will effectively be the same as that that operates in our second largest trading bloc,” Mr Combet said.
Full linkage of the markets will occur no later than July 1, 2018.
Mr Combet was asked if it would create a budget shortfall, rather than the estimated $9.4 billion of revenue a market-based price was predicted to generate in the 2015/16 budget.
"We stand by the Budget as it was announced in May,” he said.
"How about we have a bit of trust in that, than some ridiculous allegation made by (Opposition Leader) Tony Abbott about the impact of carbon pricing."
Mr Combet said the Government would not cut household assistance payments and tax cuts set up to compensate for the price impacts of the carbon tax in the economy.
"We committed to it and you might recall that there are further tax cuts that have been legislated from 2015 as well,” he said.
Mr Combet had previously said a floor price would provide certainty, confidence and stability for business.
But business chiefs wanted to move to a fully flexible market price as soon as possible.
"This delivers certainty to businesses that will have a liability under the Australian scheme because they will have access to largest carbon market in the world,” he said.
"There are sophisticated markets that have developed in Europe - futures markets that will give businesses a great deal of confidence, access to financial organisations expert in dealing with those matters to allow them to reliably predict what their carbon price liability might be."
Under the full arrangement, businesses will be allowed to use carbon units from the Australian ETS or the European Union ETS for compliance under either system.
Mr Combet said businesses would be able start buying European units from Tuesday in order to comply with the scheme from July 1, 2015.
He said it would not be in Australia’s national interest for Mr Abbott to scrap the scheme if the coalition wins power at the federal election due in late 2013.
"This is a manageable, rational, reasonable economic and environmental reform,” Mr Combet said.
"And he cannot, and will not, repeal it - this only demonstrates further why he won’t."
But Mr Abbott said there would be a “huge hole” in the budget as a result of the decision and recommitted to scrapping the tax.
Mr Abbott said the changes showed the Government did not know what it was doing with the carbon tax.
"You can’t fix it. You’ve just got to scrap it,” Mr Abbott said in Rockhampton.
"We haven’t had the carbon tax for two months yet and they’ve admitted there is a fundamental flaw at the heart of the carbon tax."