The federal government is considering scrapping the $15 minimum price on carbon after 2015 and restricting access to much cheaper international carbon credits.
The change could overcome the administrative complexities of enforcing a floor price while requiring Australian companies to pay far more for the right to emit carbon than in Europe and elsewhere.
When the existing fixed price ends, it will move to a minimum price of $15 a tonne. Under the new plan the government would prop up the price, which is currently $23, by limiting the number of international permits Australian companies can use.
Cabinet hasn’t yet signed off on the plan, which has been hammered out by Climate Change Minister Greg Combet and the Greens.
There are widespread concerns about the workability of a floor price, which is designed to ensure the price stays high long enough to effectively restrict emissions of greenhouse gases.
The new system would assure investors in clean energy assets concerned about the future price of carbon. But it would be a blow to companies planning to purchase cheap international carbon permits and offsets, which are now as low as $4.
The move would also muddy the government’s strategy of shifting the blame for electricity price rises on expensive transmission network upgrades.
Under the deal reached by the cross-party committee that agreed on the tax, companies have to pay a top-up fee on international permits if the permits are worth less than $15. The floor-price system starts when the fixed-price changes to flexible emissions trading in 2015.
But power companies, which will be the main purchasers of international offsets, are concerned the price floor will add an extra $5 to each permit because of the need to buy costly financial hedges.