ETS to make coal plant `white elephant'

Australian
Tuesday 26/8/2008 Page: 4

THE proposed federal emissions trading scheme would turn a $750 million Chinese-backed Victorian power station into a taxpayer-funded white elephant, according to legal advice. Lawyers acting for a coalition of environment groups have told the state and federal governments that the HRL-Harbin plant would not be eligible for assistance under the ETS, costing its backers $50 million a year in pollution charges.

The two governments have pledged $150 million for the Latrobe Valley plant in the hope it can eventually be configured for carbon capture and storage. The 400 MW plant was approved by the Brumby Government on the eve of the release of the Garnaut report into climate change, but legal advice says it has missed the deadline for compensation.

Lawyers from the Environment Defenders Office found that under the Rudd Government's proposal for an ETS, only existing coal-fired plants would win compensation, with the cut-off date set at June 3 last year. "The HRL proposal will not meet the eligibility criteria for compensation as a strongly affected industry' even on the most generous assumption as to the cut-off date," their advice says. Mark Wakeham, the campaign director of Environment Victoria, which commissioned the advice, said the lost compensation rendered the plant uneconomic.

If the carbon price is just $20 a tonne, which is at the lower end of what is likely, HRL would have to buy $50 million worth of carbon pollution permits a year just to operate," he said. "This is likely to make the project uncompetitive against renewable energy and gas-fired electricity generation." Amid the warnings over the HRL plant's future, gas giant Santos has announced a 500 MW, $800 million power plant in Victoria, which could be doubled in capacity by 2020.

Environment Victoria is sending the legal advice to potential financiers of the HRL-Harbin plant. The plant uses gasification and drying technology to reduce CO2, emissions by about 30 per cent compared with a conventional brown coal station. Even accounting for this, Environment Victoria said it would produce up to 2.5 million tonnes of CO2 a year. It would have to buy permits for this output unless geosequestration emerges as a viable option by its 2012 completion date.

Premier John Brumby conceded in an interview with The Australian this month that Victoria, and the rest of the world, faced some major problems if geosequestration did not work. It is believed trials of the technology in natural gas cavities in the state's west are showing promising results, but commercial application is some time away.

HRL, a Victorian company that was formed out of the remnants of the former State Electricity Commission, would not comment except to say: The rules for and the level of assistance under the draft Carbon Pollution Reduction Scheme are not yet finalised." Harbin is a massive Chinese based manufacturer and operator of coal-fired power stations.