Death-knell for 'dirty' Hazelwood

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.