Coal in the firing line on permits - Call to halve emissions allocation

Age
Wednesday 30/9/2009 Page: 5

THE Federal Government should withhold half the permits allocated to coal-fired generators under its emissions trading scheme and link their receipt to investment in low emission generators, says a leading carbon expert.

Carbon Market Economics director Bruce Mountain makes the argument in a draft paper that he hopes to put before generators in the lead-up to the Copenhagen climate change discussions in December. It explores an alternative to the allocation of $3.5 billion in compensation directed to generators under the carbon pollution reduction scheme.

The Australian Coal Association has launched a multimillion-dollar advertising campaign warning the Federal Government that its scheme could result in tens of thousands of job losses and Irvine closures across the country. Generators say they need an extra $6.5 billion in public funds to help their adjust to the CPRS. Under the Government's proposal, coal-fired generators will receive 130.7 million emissions permits at no cost, spread over the first five years of the scheme.

Mr Mountain's paper suggests the major flaw in the Government's proposal is linking compensation to a guarantee by generators that they will continue to supply the same level of power. "This reliability requirement is to provide a perverse incentive for the owners of the most inefficient greenhouse gas generation to continue to invest in that plant to ensure its availability to 2015," he said. He argues that, instead, the Government's compensation should be split into two parts.

The first would offer 65 million free permits to eligible coalfired generators to cover much of their expected losses; the second would offer the other 65 million free permits to be paid if the plant in question was replaced by a lower-emissions plant by 2015. "There is some evidence that generators are already reacting to this perverse incentive," Mr Mountain said. "Verve Energy, the electricity generator in Western Australia, has recently discussed the recommissioning of the Muja A and B coal generation units, presumably to be eligible for the significant compensation they will receive if they do this. "Muja A and B are the oldest and least-efficient coal generating units installed in Western Australia."

Under Mr Mountain's proposal, the more generators reduce the emissions intensity of the rebuilt power station, the more free permits they would receive. He says his proposal could present a compromise as the Government prepares to redraft its legislation before taking it back for a Senate vote in November. "My scheme could be perceived as being more onerous on the generators," he said. "But if the Government is minded to give them more money, then maybe they can link it to further investment in low-emissions generation."