Full linking of the markets will occur no later than July 1, 2018. Under the full arrangement businesses will be allowed to use carbon units from the Australian emissions trading scheme or the European Union Emissions Trading System for compliance under either system. "Starting today, Australian liable entities can purchase EU allowances for future compliance in Australia," Mr Combet said. "These arrangements provide Australian businesses with access to a larger market for cost-effective emission reductions and provide European market participants with enhanced business opportunities." European Commissioner for Climate Action, Connie Hedegaard, said the EC welcomed the interim arrangements and looked forward to full linking in 2018.

She expected an agreement on carbon market registry arrangements by mid-2013. The EC will seek a mandate to enter into talks for a full linking agreement in coming months, she said. Asked how the federal government could know the carbon price or the state of the European economy in three years, Mr Combet said Treasury modelling of carbon pricing had proven to be accurate, and if anything, conservative. "How about we have a bit of trust in that than some ridiculous allegation made by (Opposition Leader) Tony Abbott about the impact of carbon pricing," he said. "It is three years away. We certainly anticipate a recovery from the financial crisis.

"But there is every reason to believe that carbon markets will recover and we'll stand by the Treasury modelling." Mr Combet repeated he was confident of the Treasury modelling, which predicts a $29 a tonne carbon price in 2015/16. He was asked if the government would face a budget shortfall, in contrast to the $9.4 billion of revenue it had predicted the floating price would generate in the 2015/16 budget. "It is three years away and the Treasury modelling is something that we stand by," Mr Combet said. "We stand by the budget as it was announced in May."

The offshore carbon price had moved as high as $53 a tonne in recent years and its long term average was $23 a tonne, the minister said. The government would not reduce household assistance payments and tax cuts set up to compensate for the price impacts of the carbon tax. "We will not be cutting any household assistance," Mr Combet said. "We committed to it and you might recall that there are further tax cuts that have been legislated from 2015 as well." Mr Combet said the European Union price would drive the carbon price in Australia.

"The European ETS has limitations on access to Kyoto units and that was in discussion with the EU," he said. "We think that is far enough, an eighth of a company's liability under the carbon price arrangement might be met with access to Kyoto units. "There will still be a capacity to access up to 50 per cent of business liability's from international units and they will obviously be European allowances." He said this did not mean there was a loss of faith in the Kyoto units. "We haven't lost confidence in this marketplace," Mr Combet said.

Asked if Australia had a "get-out clause", Mr Combet said treaty level negotiations would continue between the EU and the federal government between now and 2015. "We intend prosecuting that and issues may be raised and addressed in those discussions," he said. Prime Minister Julia Gillard and Mr Combet have previously said a floor price would provide certainty, confidence and stability for businesses engaging in the carbon emissions market. Mr Combet on Tuesday said business chiefs had said they preferred to move to a fully flexible market price as soon as possible. "This delivers certainty to businesses that will have a liability under the Australian scheme because they will have access to largest carbon market in the world," he said.

"There are sophisticated markets that have developed in Europe - futures markets that will give businesses a great deal of confidence, access to financial organisations expert in dealing with those matters to allow them to reliably predict what their carbon price liability might be. "This is the best sort of confidence, a market confidence, that you can deliver." Mr Combet said the changes would require legislative amendment. Asked if he was contemplating any further changes he said: "no". "And they are not major amendments," he said.

Mr Combet said it would not be in Australia's national interest for Mr Abbott to scrap the scheme should he win power in 2013. "This is a manageable, rational, reasonable economic and environmental reform that we can and we are making," Mr Combet said. "And he (Mr Abbott) cannot and will not repeal it - this only demonstrates further why he won't." Mr Combet said businesses would start buying European units from today in order to comply with the scheme from July 1, 2015.