Suppliers plan to pass buck on carbon

Sydney Morning Herald
Thursday 7/8/2008 Page: 3

THE electricity industry is planning to pass on most of the costs of carbon trading to the public, even though it is set to receive taxpayer compensation from the Federal Government, documents seen by the Herald show. The move to fix a carbon price into some future energy contracts signals the industry intends to do what many opponents of compensation feared: accept any cash compensation and free carbon permits, but raise prices anyway.

A clause saying a "carbon adjustment" would be added to fixed prices in new energy contracts was discussed at a meeting of the Australian Financial Markets Association, minutes of a meeting held in December show. A business customer negotiating a contract for future electricity supply, who asked to remain anonymous, said the electricity supplier had insisted on a "pass through" clause, which would send carbon costs directly down the line to consumers.

'A large amount of cash is going to be given to the coal-fired sector under the Rudd Government's green paper, yet there will be no discount to consumers," said Jeff Angel, the director of the Total Environment Centre, which obtained the documents.

"There's a simple way out of this - don't give the coal-fired generators any subsidies." In the discussion paper it released last month, the Federal Government proposed providing financial help to some power generators once carbon trading comes into force, to lower the risk of scaring off investors. "In addition, every cent raised from the carbon pollution reduction scheme will be used to help Australians - households and businesses - adjust to the scheme and to invest in clean energy options," said a spokeswoman for the Minister for Climate Change, Penny Wong.

"The point of the green paper is to generate discussion. .. and we welcome feedback on it from business and the community." Some economists have joined environmental groups to argue that compensating high polluting power generators could undermine an emissions trading scheme, by removing incentives to invest in renewable energy.

Most household electricity bills are protected from huge rises by price caps set by state governments, though the energy industry is lobbying to remove the caps. The main NSW power generators, Delta Energy, Eraring Energy and Macquarie Generation, referred inquiries about passing on carbon costs to the industry body, the Energy Supply Association of Australia. It said the costs of carbon trading would inevitably be passed on to some extent, but that a competitive marketplace would protect consumers.

"It wouldn't surprise me if it was being written into contracts now," said the association's chief executive, Brad Page. 'At the moment there's a period of extreme uncertainty until we have a sense of what the carbon price will be." The compensation proposed in the discussion paper was aimed at helping generators survive the introduction of carbon trading, but they would still have to buy emission permits to cover their generation, the cost of which they were unlikely to fully pass on to consumers, Mr Page said.

"The issue is not about how you keep these generators operating by sheltering them from the carbon price. The issue is how you financially support their transition so that Australia protects its reputation as a safe investment destination."