Government scraps plans to shut dirty power stations

Updated

The Prime Minister says Australia will still meet its carbon pollution reduction target despite the collapse of talks aimed at closing some of the country's dirtiest power stations.

The Government had been negotiating contracts to close five high-polluting power generators - three of them in Victoria - as part of its plan to cut the nation's carbon emissions.

But the talks have failed to agree on an appropriate level of compensation and negotiations have been abandoned.

We asked for your reaction to this news. Read your comments below.

The move undermines a key element of the Government's carbon tax package, and the Greens say it will make it harder for Australia to reach its goal of cutting carbon emissions by at least 5 per cent below 2000 levels by 2020.

But Julia Gillard insists the emissions reduction target will be met through the price on carbon which came into effect on July 1.

"The reduction strategy is right on target and we will reduce carbon pollution by minus 5 per cent by 2020," Ms Gillard told reporters in Perth.

When it was announced in July last year as part of the Clean Energy Future Package, the 'Contract for Closure' program seemed like a political no-brainer - easy to sell, and with few obvious losers. Rather than wait for a carbon tax or emissions trading to do the job, Labor decided to simply buy out 2,000 megawatts of the most emissions intensive generating capacity. The promised pay-off was meant to be a quick and substantial cut in Australia's carbon pollution, perhaps 1 or 2 per cent, with either gas or even renewables stepping into the breach. But with brown coal booming and a lower anticipated carbon price, the asset values of brown coal generators are worth more than 12 months ago - and threaten to torpedo Labor's scheme. ABC Environment's Greg Borschmann writing last month. Read the full piece here

"That means that we will reduce the carbon pollution that's in our atmosphere by 160 million tonnes - that's the equivalent of taking 45 million cars off the road."

Resources Minister Martin Ferguson says the talks with power generators fell over when it became clear the two sides could not agree on a price.

"The real issue was a difference in value from the Government's point of view and the operators' point of view, with respect to what they thought we should pay [them to close down]," Mr Ferguson told ABC Local Radio in Victoria.

"I've said all along that there was no bottomless pit in terms of the amount of money available from the Government's perspective to actually buy out electricity generation.

"On the basis of the outcome of discussions to date, I simply say there's no value for money for the Government in continuing this process."

And he said it was now up to the power stations' operators to decide their future.

"In terms of the Latrobe Valley [in Victoria], there's a large degree of certainty as to the future," Mr Ferguson said.

"Those coal-fired power operations will continue to operate on a commercial basis, and the companies themselves will make their own commercial decisions as to their future over time."

The operator of the Hazelwood power station in Victoria, which participated in the negotiations, has released a statement saying: "We will continue to focus on providing competitive and reliable base load power to the National Electricity Market."

The Government had been hoping to close down 2,000 megawatts of carbon-intensive power generation by 2020, although it never disclosed how much money it was willing to put on the table.

The offer was only available to high-polluting power stations, including those that rely on brown coal, which is relatively inefficient because of its high moisture content.

Mr Ferguson said recent forecasts showing declining energy demand in Australia raised questions about the value for money attached to closing down the coal-fired power stations.

He said the decision to link Australia's carbon pricing scheme to the European Union and abandon the carbon floor price was only a "minor factor" in the final outcome.

The Victorian Government has welcomed the decision, because its Hazelwood and Loy Yang power stations in the Latrobe Valley were considered the most likely to close under the scheme.

Premier Ted Baillieu says while he is happy the stations will stay open for now, he is disappointed with how the process has been handled.

"It was the state Labor government who wanted to close the Hazelwood Power Station and they put the Latrobe Valley through all the trauma of that and then they changed their minds," he said.

"And then the Commonwealth stepped in and said they were going to close Hazelwood, and they've put the Latrobe Valley and many Victorians through the trauma of that, and now they've changed their minds."

'Breach of faith'

Sorry, this video has expired Video: Martin Ferguson explains the decision to abandon the power station talks (ABC News)

But the Greens have described the decision to abandon talks as a "serious breach of faith" on behalf of the Government and has accused Mr Ferguson of only making a half-hearted attempt at getting a deal.

"This is a breach of faith with the Australian community, a breach of faith with the Multi-Party Climate Committee, and it really goes against the spirit of everything we've been trying to do and that is close down the dirtiest power stations in Australia - particularly Hazelwood in Victoria," Greens leader Christine Milne said.

"You've got a minister who will be smiling all the way to the next coal pit... and really thumbing his nose at global warming and at the efforts that have gone in around the country to the transition out of fossil fuels.

"Keeping the dirtiest coal-fired power stations in Australia operating longer is going to make it harder to meet our greenhouse gas emission targets.

"It also means that it will be an excuse the Government uses for why they can't lift the (emissions reduction) targets."

Senator Milne says the collapse of talks show the level of compensation for the power industry is evidently too generous, and she will be asking the Productivity Commission to bring forward a review of the amount of industry assistance.

The Opposition says the latest development shows the carbon tax was poorly designed and believes the decision to abandon negotiations is more about trying to deliver a budget surplus.

"I think what we have seen today from the Government is a desperate attempt to patch up the budget," Tony Abbott told reporters in the regional Victorian city of Bendigo.

"It's a desperate attempt to preserve the microscopic budget surplus by failing to spend the money that it had previously promised on carbon tax closures."

Conservation groups have also criticised the move.

"Certainly with the big assistance package they've got and with a fairly modest carbon price they'll continue operating and continue polluting for years to come," Tony Mohr from the Australian Conservation Foundation said.

"That's really unfortunate and it's really slow progress towards making Australia's energy networks clean and green."

The five generators that participated in the negotiations include Alinta Energy in South Australia, HRL in Victoria, Hazelwood power station in Victoria, RATCH-Australia in Queensland and the TRUenergy plant in Yallourn, Victoria.

Sorry, this video has expired Video: Christine Milne reacts to the announcement (ABC News)

Topics: emissions-trading, climate-change, business-economics-and-finance, coal, electricity-energy-and-utilities, environment, federal-government, australia, qld, sa, vic

First posted