Cameron Hepburn

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Carbon price floor crucial

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FRANK JOTZO, ERWIN JACKSON, TONY WOOD AND CAMERON HEPBURN

While the political noise around the carbon laws continues, we risk losing sight of the fact that a minimum carbon price floor guards against the policy becoming a toothless tiger in 2015.

The government, the Greens and independents agreed to keep the carbon price at or above $15 from 2015 to 2018 to provide some degree of confidence for industry to make low-carbon investments.

In the short-term, this avoids the domestic effort being determined by the projected very low price of international offset credits.

Once global emissions markets mature, there is no case for price constraints. But at this stage, without a price floor or quantitative limits, Australia’s price would only reflect the excess of supply over demand in the international market.

Once global emissions markets are more developed, and linking between markets is likely, the advantages of full international integration may outweigh the arguments for floors and ceilings. In the meantime, it is important to make sure the Australian carbon price will be effective.