Emergency carbon tax compensation for power plants

COAL-FIRED power stations facing losses as a result of the $20-$25 a tonne carbon price to be announced this weekend will be offered immediate access to emergency federal government loans to head off financial failure and ensure energy supplies for southeast Australia.
But compensation for the coal industry, which faces a carbon tax bill of $18 billion to 2020, has been cut by $275 million from Kevin Rudd’s offer under the carbon pollution reduction scheme.

Labor has long flagged that its carbon pricing plan, to be unveiled on Sunday, would be “budget-neutral”, with compensation to help households and business cope with higher costs fully funded by the money raised from the tax.

But political decisions to exempt petrol and lift household compensation – along with the Greens’ insistence that carbon tax revenue not be used to compensate “big polluters” – means the government is being forced to rely on its taxpayer-funded budget contingency fund to support power plants.

The move marks a departure from previous policy for Julia Gillard. In late January, the Prime Minister declared the contingency fund was not a “rainy-day fund” when asked why the government did not tap it for the Queensland flood reconstruction.

“The contingency reserve is necessary to keep the budget on track,” she said.

“Now, we model the best estimates of what that is going to cost the budget, but you don’t have to be too far wrong in those assumptions – more people going to the GP in a year, for example – for more money to be needed. So the contingency reserve is there to meet occasions like that.”

In recent weeks, Wayne Swan has also appeared to change tack, declining to provide a definitive declaration that the carbon-pricing package would be budget-neutral.

Under pressure from mining unions and the coal industry, the government will provide $1.275bn to the coal sector to protect jobs and compensate for the carbon tax over five years, down from $1.55bn under Mr Rudd’s original emissions trading scheme.

Greens leader Bob Brown said under the package “we’re not going to be able to see the end of the coal industry in the near future”.

“If it had been left to the Greens, there wouldn’t be compensation for the polluting coal industry, which is so damaging to the future of the economy, but give and take in there, and you will see that it is not off the board at all, and the coal industry is going to continue in this country.

“I think it will be growing,” Senator Brown said.

“This is going to be a better outcome than the CPRS, if you ask me,” he added.

Senator Brown last night told the ABC’s Lateline that while the package was a “positive game-changer” it was not a “Greens outcome”.

In a speech today to the National Press Club, Australian Coal Association executive Ralph Hillman will accuse the government of not having listened during the negotiations for the carbon price.

He will also accuse Ms Gillard of seeking to redistribute wealth in the compensation package and warn that poor economic decision-making risks creating an ever smaller economic pie.

Mr Hillman will also take aim at the government’s climate change adviser, Ross Garnaut, arguing that his approach will cause lower economic growth, and call for a package that protects the nation’s trade competitiveness.

On electricity, the Gillard government has agreed to be a lender of “last resort” for the “dirtiest” coal-fired power stations and is providing more generous compensation than the original scheme for the total closure of some brown coal-fired power plants in Victoria and South Australia. The offer of compensation and loans to power companies that cannot finance their debt because the carbon tax damages their asset values is designed to guarantee energy supplies, prevent “financial contagion” within the electricity sector and encourage the highest carbon emitters to shut down their plants or transform to gas.

Industry sources say at least one power station could be forced to seek the loan guarantee – backed by the contingency fund – once the carbon tax is announced, depending on the availability of bank finance.

The loans will be on offer before the carbon tax legislation is scheduled to be introduced in September, amid fears high carbon-emitting power stations such as Loy Yang in the Latrobe Valley in Victoria and Playford in Port Augusta in South Australia will be hit hard by the carbon price and will be unable to refinance their debts, maintain their generating plant or continue profitably.

Power industry sources last night said the loan guarantees did nothing to protect investors’ equity in the assets, and an impairment of equity could represent a sovereign risk issue and deter future investment.

The full details of the carbon plan will be released on Sunday in Canberra as part of the Prime Minister’s orchestrated political and advertising campaign directed at regaining public support for the carbon tax and lifting the government’s standing.

The Australian understands that the government is following a strict timetable, looking to release draft legislation within weeks, ahead of an introduction into parliament in September and passage by November.

Yesterday, Ms Gillard, the Treasurer and Climate Change Minister Greg Combet refused to release more detail of the plan, despite a general endorsement from the Greens and independent MPs on the multi-party climate change committee working on the legislation.

Independents Tony Windsor and Rob Oakeshott, who sit on the committee, signalled they would back the legislation, with Mr Windsor saying if it reflected the deal, he would vote for it.

In parliament, the Ms Gillard foreshadowed a major campaign to sell the tax after its release, declaring she would be “travelling the country” promoting the package ad and “wearing out my shoe leather”.

Ms Gillard was overnight telling the premiers she had postponed the Council of Australian Governments meeting scheduled for July 15, avoiding a clash with the Liberal premiers on climate change.

But Tony Abbott challenged Ms Gillard to recall parliament next week to debate the package, rather than seeking free air time from commercial TV networks to talk about the carbon tax.

The Opposition Leader’s taunt came after the Nine and Seven networks rejected an approach from Ms Gillard to air an address to the nation on the tax.

The tax will be introduced from July 1 next year with a fixed price of about $23 a tonne of carbon emissions for three years and then move to a market price. There are limits on the move to a market price, with the Greens and government pushing for a floor and ceiling prices respectively.

Greens deputy leader Christine Milne, speaking to the Australian Youth Climate Coalition, tempered expectations from her supporters on the final package, saying “Don’t expect perfection”.

“Perfection doesn’t come out of a situation which is a negotiated outcome,” she said.

“So there will be things you are delighted about, there will be things that you are disappointed about that reflects what happens when you have a negotiated agreement.”

Senator Brown said the deal was “pretty well there” and the “essence of the package has been agreed to”.

But he flagged that there could be fine points of detail that would need to be negotiated as the package went through parliament.