AUSTRALIA'S "dirtiest" large coal-fired power station, Hazelwood in the Latrobe Valley, could be bought out and shut down under a carbon price package expected to be announced within weeks.
The Age believes the carbon price deal being brokered by Canberra's multi-party climate committee will include a plan to pay for the closure or conversion to gas of at least one of the nation's greenhouse gas-intensive coal plants over an extended transition period.
Federal Energy Minister Martin Ferguson yesterday flagged the possibility of the government paying to retire Hazelwood, or the smaller Playford plant in South Australia.
The owners of another Victorian plant, Yallourn, have also indicated they would be open to a buyout for the right price.
The developments came as:
It emerged that the government, in a key concession to the Greens, had agreed to direct $2 billion a year of carbon tax revenue into a renewable energy fund to finance a 17-fold increase in clean power use.
Greens leader Bob Brown signalled that his party might have to accept the coal industry receiving compensation to achieve a deal on a carbon price.
Prime Minister Julia Gillard sought to rebadge the carbon tax as an emissions trading scheme.
Mr Ferguson, speaking at a Melbourne University conference yesterday, said investment in baseload power had stalled due to financial uncertainty, and it would require a carbon price and the closure of existing coal generators to start spending on lower emissions gas-fired power.
"The key to [investment in cleaner power] is not just the price on carbon," he said. "It's also the potential retirement of some of the legacy generators."
He said the potential closure of Hazelwood or Playford would lead to "huge regional adjustment issues in the electricity sector that we will have to manage".
Hazelwood's owner, International Power, has said it would consider being paid for a phased closure. Its asking price is believed to be about $2.5 billion.
Hazelwood emits about 16 million tonnes of carbon dioxide a year roughly three per cent of national emissions.
Compensation for a coal-fired plant has been a sticking point between the government, Greens and independents. The Greens oppose compensation for coal-fired electricity, but it is believed a compromise has been reached after it was agreed some carbon tax revenue would be conditional on a plant closing.
Senator Brown said that Australia "shouldn't be giving subsidies or kickbacks to the largely foreign owned and very profitable coal industry.
"But the big parties want it. People have voted for them. I respect the point of view they're putting, and that's one of the issues we're debating."
The government's climate adviser, Ross Garnaut, yesterday softened his opposition to compensation for the owners of coal plants, telling the Melbourne conference it was not necessary but would not reduce the environmental validity of the scheme.
The proposed clean energy fund would provide seed funding for solar, wind and other projects. Money provided for the projects would be expected to be repaid over time once the projects became commercially viable. The fund has been one of the Greens' key demands in climate negotiations.
Ms Gillard, meanwhile, was seeking to rebadge the carbon tax as an emissions trading scheme yesterday after winning support in the cross-party talks to replace the tax with a trading regime after three years.
Opposition Leader Tony Abbott accused Ms Gillard of trickery. "If it looks like a tax, if it works like a tax, if it costs like a tax, it is a tax," he said.
Ms Gillard has been dogged by criticism for breaking her pre-election pledge that there would be no carbon tax.
Earlier this year the government said the tax, which starts next year, would be replaced by emissions trading after three to five years, but the deal being hammered out will now include a transition to trading in 2015. The Prime Minister said yesterday that "what Tony Abbott likes to refer to as a carbon tax" was "a fixed price period for an emissions trading scheme". She said her aim as Prime Minister had always been to have an ETS. "That's an aim that I share with John Howard and Malcolm Turnbull," she said. "I've always been determined that the fixed-price period would be as short as possible"
The business community is also anxious that trading takes place as soon as possible.
An announcement of a carbon pricing deal is expected in the next 10 days, before key independent MP Tony Windsor goes overseas.
Frequently Asked Questions about this Article…
What is the Hazelwood buyout proposal and why might Hazelwood be shut down?
The article says a carbon price package being negotiated could include paying to buy out and phase out Hazelwood, Australia’s largest 'dirty' coal-fired power station. The idea is to close or convert high-emission coal plants as part of a shift to lower-emission energy under the new carbon pricing arrangements.
Who owns Hazelwood and would they accept a buyout offer?
Hazelwood’s owner, International Power, has said it would consider being paid for a phased closure. The article reports International Power’s asking price for such an outcome is believed to be about $2.5 billion.
How much carbon dioxide does Hazelwood emit and what share of national emissions is that?
According to the article, Hazelwood emits about 16 million tonnes of carbon dioxide a year, which is roughly three per cent of Australia’s national emissions.
What companies or other coal plants does the article mention as potentially affected by the carbon price package?
The article mentions Hazelwood, the smaller Playford plant in South Australia, and Victoria’s Yallourn plant. It says the government flagged paying to retire Hazelwood or Playford, and the owners of Yallourn indicated they could be open to a buyout for the right price.
What is the proposed clean energy fund and how much money would it receive?
The article says the government agreed, in a concession to the Greens, to direct $2 billion a year of carbon tax revenue into a renewable energy or 'clean energy' fund. The fund would provide seed funding for solar, wind and other projects, with money expected to be repaid over time once projects became commercially viable.
Will coal plant owners receive compensation under the deal, and why is that important for investors?
Compensation for coal-fired plants has been a key sticking point. The Greens oppose compensation, but the article reports a likely compromise: some carbon tax revenue may be conditional on a plant closing, and senior advisers like Ross Garnaut have softened opposition to compensation. For investors, this affects potential valuation outcomes and the likelihood of orderly closures or conversions.
What timeline for carbon pricing and transition to emissions trading does the article give that investors should know?
The article says the carbon pricing arrangement starts next year (a fixed‑price period), with the government aiming to replace it with an emissions trading scheme after a short fixed period. The deal being negotiated would include a transition to trading in 2015, and an announcement was expected within about 10 days.
How could a Hazelwood closure or carbon price affect electricity investment and regional economies?
Federal Energy Minister Martin Ferguson told a conference that investment in baseload power has stalled due to uncertainty. He said a carbon price and the retirement of legacy coal generators would be needed to spur investment in lower-emission gas-fired power. He also warned that closing plants like Hazelwood or Playford would create 'huge regional adjustment issues' that would need to be managed—important context for investors watching energy-sector risk and regional economic impacts.
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