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Government To Scrap Carbon Floor Price


The Age, 28 August 2012:

After weeks of secretive talks between the Gillard government and the Greens, Climate Change Minister Greg Combet is set to announce he is scrapping the planned $15 floor price on carbon permits in a major overhaul of the carbon pricing scheme. After intense lobbying from business and threats by the independent MP Rob Oakeshott to block the floor price, the government will ditch the mechanism and instead restrict the purchase of cheap overseas permits from developing countries.

A limit on the amount of United Nations-backed permits that Australian companies can buy will effectively prop up the price at home. Mr Combet will also announce plans to link Australia's scheme to Europe's emissions trading scheme from 2015, which is likely to have the effect of matching the two prices.

Advertisement Australian companies that pay the carbon price would then be able to buy European permits, which are now trading at about $9.80. This could make the carbon price cheaper overall for Australian businesses, though the European price is likely to rise by the end of the decade as the European Union moves to make restrictions of its own. The floor price would have taken effect when the carbon tax shifts to a market-based emissions trading scheme in 2015.

It intended to create certainty for potential investors in clean energy. But businesses complained it would be an administrative headache. Without a restriction of the UN-backed international permits, the Australian price could crash to as low as $3 or $4. The Greens have been concerned that a very low carbon price would not be enough to drive investment in cleaner energy such as wind, solar and wave power.

Today's announcement is also likely to have an effect on negotiations between Energy Minister Martin Ferguson and electricity generators who could be paid billions of dollars to phase out their dirtiest power plants. The likely price of carbon over the next decade is one factor in deciding the value of these power plants. They may argue that scrapping the floor price raises the value of their assets.

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