Brown coal power to stay under carbon price

September 5, 2012
The federal government has reneged on a promise to pay to close down Victoria's brown coal-fired power plants, such as Hazelwood

Three Victorian coal-fired power stations slated for closure will now stay open, resources minister Martin Ferguson said on September 5. He said he ended talks to buy out the three Latrobe Valley plants because the owners had asked for too much.

Labor and Greens agreed to pay owners to close down six coal-fired power plants under their Clean Energy Future package. The package also includes the new carbon price scheme.

Ferguson said he had walked away from the buyout plan because “there is no value for money for the government”. But he said the decision “gives some certainty to the [Latrobe] Valley. The Valley now knows that there is no intended closure of any of the coal-fired power operations.”

The three huge Latrobe Valley coal-fired plants will keep the $5.5 billion in compensation payments they receive under the Clean Energy Future package. They burn brown coal: the most polluting fossil fuel. One of these — Hazelwood power station — is considered the dirtiest in the industrialised world.

Environment groups that campaigned for the Clean Energy Future package reacted to the news with shock. Environment Victoria’s Mark Wakeham said: “We're gutted by the announcement, it's a betrayal of the carbon price package.” Environment Victoria has called for the $5.5 billion compensation payments to be cancelled.

The Australian Youth Climate Coalition demanded the government “go back to the negotiating table, and get this done”. 100% Renewables spokesperson Lindsay Soutar said the government should use the funds reserved to buy the coal-fired plants to “build big solar” plants instead. The Australian Conservation Foundation said the power plant owners were “greedy” and urged the government to “add 2000 megawatts to the existing renewable energy target”.

Conservation Council South Australia chief executive Tim Kelly said: “This announcement comes on the tail of the news that we will lose the $15 floor price in order to link Australia’s carbon trading scheme with the European Union … and now we are not even going to see our dirtiest power stations closing up shop.”

Greens leader Christine Milne said the power station owners and the Labor government should share the blame. She said the decision was “a breach of the commitment made to the public and to the planet to close down our dirtiest coal-fired power stations … with people like Martin Ferguson running the show, you simply can't trust Labor to protect the environment.”

Milne called for cuts to the compensation for coal-fired power stations and said the Greens will ask the Productivity Commission to bring forward its planned review of compensation levels.

However, the decision was not a surprise. For weeks, industry insiders had warned that the buyout plan was about to fall over.

The ABC’s Gregg Borschmann said on August 8 that the brown coal-fired power plants were worth more now compared with a year ago because of a “lower anticipated carbon price”. Because the carbon price scheme allows polluters to buy much cheaper carbon credits from overseas, the power plants are now more valuable than what the Treasury had first assumed.

That is, the low carbon price and big compensation handouts have helped price brown coal back into the market. For their owners, these once-ailing coal-fired power plants have become lucrative cash cows.

The September 6 Sydney Morning Herald said economic modelling company Frontier Economics estimated the brown coal-fired power plants were between $400 million to $1 billion “better off than if the Gillard government carbon pricing scheme had never been implemented”.

“It’s one of the great ironies of the brave new era of pricing carbon pollution,” said Borschmann. "Dirty brown coal is emerging as the great survivor of Australia's energy mix.”

Writing in on September 5, Giles Parkinson said the buyout plan “was always bad policy”. He said: “Once the government said in its Clean Energy Future package that it would compensate the generators to ensure they should stay open, as well as negotiate with some to pay them even more to ensure that they eventually close (in an orderly fashion), the policy looked an absurdity and was doomed to failure.”

Beyond Zero Emissions’ Matt Wright told ABC's The Drum that the outcome “showed the government hasn’t got a plan for real climate action [and] shows that the carbon price package is fairly inept. But it also proves the point … that if you want to close down coal-fired power stations then you build renewable energy.”

He spoke of South Australia, which now generates 30% of its power from renewable energy. This has meant the Playford coal-fired power station has been mothballed and the Northern coal-fired power plant's operations have been scaled back.

He said: “But if you have this idea that you are going to put the cart before the horse and close coal-fired power stations without building renewable energy then it’s not going to work, and that’s why these crazy ideas keep unravelling. And it was the Liberal party’s idea, which Labor co-opted.”

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