Yesterday the rumours swirling around contracts for closure were confirmed. The Gillard government announced it was breaking its carbon price package promise to secure the closure of 2000 MW of Australia’s dirtiest power stations like Hazelwood and Playford.
Let’s remember why contracts for closure was part of the Clean Energy Future package. It was there because the carbon price agreed to by the Multi-Party Committee on Climate Change was never going to be high enough to retire our most polluting power stations; therefore an additional mechanism was required.
In a perfect policy world, power station retirement would be delivered by a high carbon price unadulterated by massive payments of compensation and free permits to power stations.
But the Clean Energy Future package wasn’t made in perfect policy world. It was developed in Canberra. The package was a fine balance and needed all parts to be delivered if it was going to start Australia’s clean energy transformation.
Parts of the Clean Energy Future package are contradictory. Aiming to secure the closure of a handful of power stations while paying these same power stations $5.5 billion in compensation was always going to be tough.
But the ALP’s decision yesterday to walk away from its contracts for closure commitment destroys the equilibrium of the carbon price package and makes hollow talk of Australia’s clean energy future. You can’t have a clean energy future if power stations like Hazelwood are expected to pollute indefinitely and indeed paid by the government to continue operating.
The timing of the announcement was surprising, coming before the ink on last week’s floor price changes had time to dry. That there were no further negotiations with power station owners since the floor price changes suggests that the Gillard government wasn’t trying particularly hard to deliver on its contracts for closure promise.
Linking the carbon price to the European scheme and reducing the amount of cheap international permits that could be used to meet Australian carbon liabilities was likely to reduce the medium and long-term value of generators. That the government failed to press this point in negotiations suggests the decision not to proceed with contracts was made some time ago.
There are many consequences of the decision not to close our dirtiest power stations. Other Australian businesses will now have a higher carbon liability. Achieving the 5 per cent target just got harder, as did any future increases to the target. Clean energy investment will be delayed and we’ll outsource more emissions reductions overseas and take less action locally. The first power station closures will be newer, cleaner power stations in Queensland and NSW and more of them will need to close. Finally, communities like the Latrobe Valley are now at the whim of the market and there will be no orderly, planned phase-out of coal.
But the two most important consequences are these:
Firstly, it is blindly obvious that we do not need to be giving our dirtiest power station a $5.5 billion compensation package for loss of asset value. We’ve already paid them $1 billion in cash this year – that’s irretrievable. But the $4.5 billion remaining should be redirected to abatement measures. If generators claimed in contracts for closure negotiations that they have a rosy and profitable future, they can stand on their own two feet and there are better uses of taxpayers money.
Today’s news that brown coal generators are expected to actually profit from the carbon price according to analysis from Frontier Economics should strengthen the arm of the Greens and Independents to force a review of compensation. Remember Professor Garnaut’s summary: “Never in the history of Australian public finance has so much been given without public policy purpose, by so many to so few” – well that was before compensation for generators was increased from $3.9 billion to $5.5 billion. The compensation is a farce and must be scrapped.
The final consequence of backflipping on contracts for closure is that the ALP’s narrative on both climate policy and delivery on promises is a mess. This gives Tony Abbott a free kick that he doesn’t deserve given his lacuna of a climate policy.
The crazy thing is that while selling the carbon price remains a struggle, poll after poll shows massive public support for replacing our dirtiest power stations. For a party that’s often accused of being poll-driven, Labor has failed politics 101.
Mark Wakeham is Campaigns Director of Environment Victoria, which will continue to campaign for the replacement of Hazelwood and other dirty brown coal power stations.