Australia will scrap its carbon tax and bring forward an emissions trading scheme a year earlier than planned, Treasurer Chris Bowen said, a policy shift certain to be a focal point in the forthcoming election.
Under current plans, Australia would move from the current fixed price on carbon - essentially a tax assessed on larger companies entitling them to produce carbon emissions - to a floating price in July 2015.
Bowen on Sunday confirmed media reports that the fixed $21.9 per tonne carbon tax would be dumped in favour of a floating price of between $5.5 and $9.1 per tonne from July 1, 2014, to ease cost of living pressure for families and help support the non-mining sectors of the economy.
Australia is among the world's worst per capita polluters due to its reliance on coal-fired power and mining exports and introduced a carbon tax in 2012, charging big polluters for their emissions.
The tax applies to around 300 of Australia's biggest polluters, including mining giant BHP Billiton, Qantas Airways and BlueScope Steel.
The government has always said it would move to an emissions trading scheme after three years with a floating price set by the market, but new Prime Minister Kevin Rudd has now moved that forward a year.
The floating price is expected to be cheaper for big business and the move is set to cost the government billions of dollars.
Bowen said cuts would be made elsewhere to compensate with the Labor Party sticking to its plan to return the budget to surplus in 2015-2016.
With national elections later this year, Labor is hoping the change will see a drop in soaring electricity prices.
"There is a substantial impact on the budget of doing this, of course there is, and it is several billion dollars, but we will be financing that in a fiscally responsible way," Bowen told Channel Ten, adding that full details would be announced over the coming days.
The issue of a carbon tax has been hotly debated in Australia.
Former Labor prime minister Julia Gillard's popularity sunk after she announced plans for the carbon tax in early 2011 - after pledging before her 2010 election that it would not be introduced by a government she led.
The policy backflip prompted protests around the country and conservative opposition leader Tony Abbott, who opinion polls suggest will narrowly win the 2013 election, has vowed to abolish it.
Abbott on Sunday said the shift to 2014 was "just another Kevin con job.
"Mr Rudd can change the name but whether it is fixed or floating it is still a carbon tax," he said, adding that "it's a bad tax, you've just got to get rid of it".