The Federal Government is digging in over its commitment to compensate Latrobe Valley’s brown coal fired generators, amid increasing calls for the handouts to be dropped.
The $5.5 billion compensation scheme, designed to offset the future financial impacts of the carbon price, came under further scrutiny last week after the European carbon priced plummeted close to $3 per tonne, well below Australia’s current fixed price of $23.
As Australia’s carbon pricing scheme is set to link into the fluctuating European carbon market in 2015, the Federal Government has been forced to review its budget projections, which were based on a future carbon price of $29.
Under the Clean Energy Act, 41.705 million in free carbon permits will be distributed across brown coal fired generators in the next round of compensation each September until 2016, on top of a collective total of $1 billion paid to Latrobe Valley generators last year.
In a statement to The Express last week, Federal Climate Change Minister Greg Combet re-affirmed the government’s commitment to the compensation scheme, stating the next round of compensation was due to go ahead as planned on 1 September.
Environment Victoria campaigns director Mark Wakeham said Mr Combet’s steadfast commitment to the compensation scheme was ignoring economic realities.
“The government is refusing to acknowledge the changes which are taking place in the world around us; it is not very good policy making when the amount of compensation was assuming a carbon price of $29 per tonne in years to come, (and) it’s clearly not going to be anything like that,” Mr Wakeham said.
“Given the hit they are going to take in the budget over this, you would have hoped they would be making some hard questions on compensation.”
Opposition climate action minister Greg Hunt said a Coalition government would not try and claw back compensation already paid.
“We can’t change what has occurred or will occur under this government but if elected the Coalition will repeal the Carbon Tax immediately,” Mr Hunt said in a statement.
“We will honour those contracts that have already been signed but we will repeal the legislation as quickly as possible.”
The renewed focus on the compensation comes two months after an Environment Victoria commissioned report found power generators could reap up to $5 billion in ‘windfall profits’ from the compensation scheme, by passing on extra carbon price costs to customers.
However the study was resoundly rejected by the lobby group representing power stations, the Energy Supply Association of Australia, and Mr Combet himself, who argued the report was driven by an “ideological opposition” to brown coal, dismissing the report’s analysis as “simplistic” and “partial”.
However in a renewed counter-claim last week, the report’s author, Bruce Mountain, of Carbon+Markets Consultancy, said he stood by his report, stating he was impartial to the use of brown coal, and saw no merit in the government’s criticism of his study.
A spokesperson for EnergyAustralia, owner operator of Yallourn Power Station, said its operation had sustained a $350 million asset write-down as a result of the carbon price.
“We scaled down generation at the power station last year and have taken on a more flexible approach to how we operate the station in the future,” the spokesperson said.
“Any future compensation is in permits so the value of compensation fluctuates with the permit price; this is likely to be set by the European permit price.”