Australia and the European Union will be linked in what will become the world's largest carbon market under a deal announced by Climate Change Minister Greg Combet today.
Mr Combet said Australia was ditching its earlier plans to impose a floor price on carbon when the current fixed-price carbon tax moves to a floating market mechanism in July 2015.
Instead, he said the Australian market would be linked to that which operates in Europe, where more than 500 million people are covered by carbon trading schemes, meaning the two blocs' carbon price would be "effectively the same".
A tonne of carbon in Europe currently only costs about $10, while Australia's carbon tax is set at $23 a tonne.
Some business analysts say $10 a tonne is not high enough to force big polluters to curb emissions, but Mr Combet says he is confident the price will rise.
"It's moved as high as $53 a tonne in recent years, in fact its long-term average over the previous four years has been $23 a tonne." Australian businesses will be able to buy carbon credits in Europe when the scheme kicks off in 2015.
But the linkage will be one-way only until 2018, with European businesses unable to buy Australian carbon units until the initial three-year trial period has elapsed.
"Australia's carbon price will effectively be the same as that that operates in our second largest trading bloc, and effectively the same as that of 30 other countries, and the same carbon price that will cover 530 million people," he said.
"The EU carbon market with which we will link is the largest carbon market in the world and the EU collectively is the third largest greenhouse gas emitter internationally.
"This is a very good move for our economy and a very good move for our environment." He said there would be no change to the Government's carbon tax household assistance packages.
Mr Combet said the deal would pave the way for similar agreements with other economies in the Asia-Pacific.
And Mr Combet took aim at Opposition Leader Tony Abbott and his enduring opposition to the carbon tax.
"I want to make one point about Mr Abbott in particular, because he has had this to say about international action on climate change, and I quote: 'At the moment there is no sign whatsoever that the rest of the world is going to do things like introduce carbon taxes or emissions trading schemes'," he said.
Today's agreement between the Australian Government and the European Union exposes the audacity of that lie." Mr Abbott says the change comes less than two months after the carbon price scheme started.
"They said that they had the tax absolutely perfect in every detail and now 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," he said.
"It shows that this is a government mired in chaos and confusion, and I have a simple message for the Australian people; this is a dog of a tax.
"You can't fix it.
You've just got to scrap it." 'International cooperation' A $15-per-tonne minimum floor price had been due to come into effect once the carbon tax transitions to a fluctuating market-based scheme in 2015.
But the Government had been under increasing pressure to alter the agreement it struck through the Multi-Party Climate Change Committee because of concerns about linking the Australian scheme to the international market.
Last month or significantly modifying it, despite public reassurances from Mr Combet that "we intend proceeding with what we agreed".
The Government has been in negotiations with the Greens and other MPs about the change.
Greens leader Christine Milne says it is good news and proves the argument that Australia was alone in pursuing carbon pricing is nonsense.
"That means that the Australian scheme will be linked with 500 million people in the EU," she said.
"It advances the cause of global emissions trading which is ultimately what we have all been hoping for and ultimately it means actually improving the scheme that we legislated." Mutual benefits An EU memo released in Brussels said the deal "benefits both parties and provides an example ofÂ how, through international cooperation and the use of markets, countries can work together to reduce carbon pollution".
It said the ditching of the Australian floor price "provides investors with long-term certainty on the price of carbon pollution, which largely removes the need for a price floor in the flexible price period".
"By connecting markets that would otherwise be isolated, linking will create a more liquid carbon market that reduces carbon pollution at a lower cost.
"A more liquid carbon market will offer a more stable carbon price signal.
It also provides businesses with more opportunities to trade, as businesses with excess units will have access to more buyers and businesses that need more units can purchase them from a wider range of sellers."