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Saturday 26/9/2009 Page: 2
Generators have had plenty of planning time; hand-outs should stop.
COMPENSATION for what? The owners of our dirtiest coal-fired power stations have their hand out for another $6.5 billion in public funds, on top of the $3.5 billion they will get to help them adjust to the proposed carbon pollution reduction scheme (CPRS). They may well get it, because the Opposition has made this increased compensation a condition for any deal with the Government. But this is basically the same emissions trading scheme that has been on and off the national agenda since at least 1999, when it was proposed by an Australian Greenhouse Office experts group led by then senior Shell executive Ian Dunlop.
Australia signed the UN Framework Convention on Climate Change in 1992. Yet, somehow, according to the generators' lobby, the introduction of a CPRS next year-accompanied by ever-so-soft emissions reductions targets and ever-so-generous compensation payments would scare off international capital. As if. Which other planet would these flighty investors go to? The Investor Group on Climate Change, representing institutions controlling more than $US13 trillion ($A15 trillion) worldwide, believes climate change risk - including a cost on carbon - should have been incorporated into investment decisions since the mid-1990s.
In a submission on the CPRS, the group's deputy chairman, senior AMP analyst Ian Woods, said: "Companies should have been doing something about climate change since the 1990s.., by compensating one group you disadvantage other groups that have taken early action." Most in need of a bigger hand-out, according to the Federal Government and its advisers, are the owners of the privatised, brown coal-fired power stations in Victoria's Latrobe Valley-like British company International Power, Chinese-backed TRUEnergy and our own AGL.
Apparently they are to be compensated for the loss in value of ageing power stations like Hazelwood-supposedly caused by the introduction of the CPRS - which may cause them to breach loan covenants or fail to refinance. Too bad. That's business. They took a commercial risk. "There's no reason to stop them going broke," says the Australia Institute's Richard Denniss. "The whole point of a market-based mechanism (like the CPRS) is to let the market set the carbon price and let the market decide which firms will prosper." With the amount of compensation being thrown at these companies, Denniss says, it would be cheaper to buy them outright, and shut them down.
"We are spending all this time faffing about trying to create the market incentives to get the investment we want," says Denniss. "Why not build the infrastructure we want, and let the market determine its value?" The Government's climate change adviser, Professor Ross Garnaut, is on the record as saying the coal-fired generators should not get a cent in compensation. He has described it as "abominable".
Every dollar given to the coal-fired generators makes it harder for cleaner energy providers - gas, nuclear or renewables-to compete. Santos public affairs executive Christian Bennett warns: "The very real risk is that additional compensation will delay the transition to much cleaner baseload power generation." Origin Energy's Grant King recently told BusinessDay: "If you go early and slow, the industry will source the capital and build the assets that need to be built."
Sovereign risk is nothing new. IGCC's submission noted that the owners of the Latrobe Valley generators were not compensated for the introduction of the national electricity market, which had a bigger impact on their business than the CPRS ever will. The IGCC recognised "there may be a limited argument for compensation for loss in asset value for long-life electricity generator assets purchased pre-1997 only, which are less than 30 years old." That's pretty strict criteria.
Brad Page, executive director of the generators' lobby group, the Energy Supply Association of Australia, is calling for the increased compensation. "If you go back to the Rio Earth Summit in 1992 and start working your way forward, there was growing scientific concern about climate change, but if you look at the policy response from government, it was muted." Particularly during the Howard years, says Page, there was no certainty that the government would act to introduce some form of carbon constraint. "If you have, at a federal level, a very strong Liberal leader that says 'no we won't'.., the longer it goes on and the stronger he gets, are you going to say 'well next year he will?' As Page tells it, the generators sat on their hands.
In truth, Australia's electricity sector has spent most of its time lobbying against effective action on climate change. Meanwhile, taking from a landmark US court ruling handed down this week, the coal-fired generators had "practical, feasible and economically viable options for reducing emissions without significantly increasing the cost of electricity for their customers". The ruling, in the State of Connecticut et al, v American Electric Power Company, overturned a 2005 judgment that climate change was a public policy question that could not be decided in court.
Now, the generators have a case to answer. "Global warming polluters everywhere," said ebullient plaintiff lawyer Matt Pawa, "you are on notice that you are committing a tort and we will site you." Our coal-fired power generators should be paying compensation to us.
paddy.manning@fairfaxmedia.com.au
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