BREAKING: Combet announcement on floor price and EU link

Editor's note: At the press conference Mr Combet confirmed the floor price will be scrapped, one-way link with EU ETS to start on July, 2015 and two-way link with EU ETS hopefully to begin by July, 2018.

The Minister for Climate Change and Energy Efficiency, Greg Combet, has issued a media alert announcing he will hold a press conference at 2pm today to discuss progress on linking with the European Union Emissions Trading System.

Considering the current legislated design for the Australian carbon price presently allows unconstrained use of international credits, known as CERs, as well as use of EU emission allowances, there would appear to be little to report. Therefore a press conference on this subject is likely to only have been called because it will involve an announcement of more widespread changes to the carbon trading scheme. These are suspected to include removal or watering down of the carbon price floor, but also the introduction of greater constraints over the use of CERs.

These changes could have a profound influence over prices for Australian permits once trading commences in 2015-16.

With CERs currently trading below $5 and largely unconstrained, it was anticipated that the Australian carbon price would drop to the $15 floor. Industry groups were pushing for the floor price to be dropped altogether which would then mean the carbon price would plummet to $5. However if the government heavily limits the use of CERs but also drops the floor price, then permits will be most likely set by the price of EU allowances, presently trading at €8.15. The price of these allowances is not expected to rise significantly over the next ten years unless the European Commission moves to tighten-up the scheme to remove a large overhang of surplus allowances.

Further reports will follow once the government makes its announcement.