Climate pact near as PM offers $3bn energy fund

Archived News, Posted on 05 Jul 2011

THE Gillard government is putting together a $3 billion package to promote clean energy, pay for the closure of Australia's dirtiest brown coal-fired power plants and avoid systemic failure of electricity supply in southeast Australia.

But having exempted petrol from the carbon tax, lifted the renewable energy fund to satisfy Greens' demands and provided finance to keep power stations operating, the government's pledge to keep the carbon tax "revenue-neutral" and not draw directly from taxpayers' funds is under pressure.

As Julia Gillard confirmed that details of Labor's carbon pricing strategy would be released on Sunday, plans for some industries remained uncertain and revenue sources outside the carbon tax were being considered. In a statement released after a cabinet meeting last night, the Prime Minister said "considerable common ground" had been achieved by the multi-party climate change committee in recent weeks but fine details were still to be bedded down. She said there would be more discussions this week followed by further cabinet consideration.

Sources told The Australian last night that unless there were more funds available to refinance coal-fired power stations and pay for cutting capacity and closing some of the biggest carbon-emitting power plants in Victoria and South Australia, there would be "systemic failure".

The carbon tax exemptions and increased compensation for households to deal with rising prices mean there is less revenue available from the carbon tax to be given to compensate industry.

The coal industry is to be compensated from a $1.5bn package and the steel and aluminium industries are expected to be protected to a similar extent as they were in Kevin Rudd's 2009 emissions trading scheme.

But the Greens, who took the unfettered balance of power in the Senate yesterday, have baulked at paying funds raised from the carbon tax to allow brown coal industries to continue.

The Labor negotiations with the electricity generation industry have proposed a clean energy finance corporation with a fund of $2bn, as well as an energy security package that will provide coal-fired power generators with a line of credit and loan guarantees to continue operating.

Coal-fired power generators are faced with devaluation of assets, losses of equity for shareholders and an inability to borrow because of the carbon tax.

They need to refinance loans of between $9 billion and $10bn over the next five years as the tax takes effect from July 1 next year.

The clean energy finance corporation and the energy security deal -- together worth up to $3bn -- include conditions on generators to reduce emissions and cut capacity over time. The clean energy finance corporation would also encourage private investment in renewable energy and be allocated up to $2bn a year in pollution permit revenue.

Ms Gillard said the remaining details of the carbon plan would be finalised in discussions before Sunday's announcement.

"More than half the revenue raised will be used for tax cuts and increased payments to households, which will be generous, fair and permanent and will keep pace with cost impacts from the carbon price in the future," she said.