Sections

Services

Information

UK United Kingdom

Right to compensation was folly from the start

In some respects, we should be relieved by the collapse of the Labor government’s negotiations to decommission some of the most polluting brown-coal electricity generation plants. The notion that decommissioning…

Compensation candidate: The Yallourn power plant in the La Trobe Valley. Flickr/Dallas75

In some respects, we should be relieved by the collapse of the Labor government’s negotiations to decommission some of the most polluting brown-coal electricity generation plants. The notion that decommissioning the privately-owned plants would be a relatively easy way to effect a once-off reduction in Australia’s greenhouse gas emissions was folly from the start. For the two biggest candidates for compensation, the Hazelwood and Yallourn power plants in Victoria’s La Trobe Valley, it was money for nothing.

Just why the two companies in question should be offered billions of taxpayers’ money to decommission their plants beggars belief. When the Kennett government privatised the state-owned power plants in 1996, international negotiations under the terms of the UN Framework Convention on Climate Change were well advanced. There was a broad consensus among conference participants that the real economic costs of greenhouse gas emissions should be reflected in the market. They believed this could be achieved by placing a tax on emissions that sought to reflect the cost of emissions, or, and this has been the preferred measure, cap emissions and issue permits which provide the right to pollute, and which could be bought and sold through the market.

The companies that tendered for the Hazelwood and Yallourn power plants are known to have conducted due diligence assessments. These assessments would have included the prospect that, in the not-too-distant future, emissions would be capped and a price paid for the right to pollute. The likelihood that a system of regulating emissions would be adopted and would affect the value of power-plant assets they were bidding for was a real probability. It is outrageous that these companies believe that they have the right to be compensated for decommissioning electricity generation plants that are among the most polluting in the OECD.

The Hazelwood power plant in Victoria’s La Trobe Valley. Flickr/Takver

We can only guess as to the reasons why the Labor government elected to dedicate a billion or two dollars to paying electricity generators to stop burning brown coal and cut emissions. Obviously, given that Treasury modelling had predicted that the magnitude of Australia’s emissions will continue to grow into the foreseeable future, the proposal was little more than a politically opportunist exercise. A seemingly quick albeit very expensive fix to demonstrate that some concrete gains were being made to meet the commitment to reduce emissions by 5% by 2020 from 2000 levels.

That this quick fix has come undone highlights just how poorly thought through Australia’s climate change policy has been. The commitment to dedicate funds was not factored into the Clean Energy Future Policy costings. As the Treasurer has stated publicly, there has been – or was – no allocation for this in the Forward Estimates.

The collapse of the decommissioning plans as a result of the government’s decision to drop the carbon tax floor price, ostensibly to align Australia’s ETS with the EU ETS, is ironic. With the likelihood that the post-July carbon permit price will be lower than has been anticipated, the cost of these generating companies burning coal and polluting local communities and the atmosphere to produce electricity has dropped; the value of companies’ assets appreciated overnight and the financial viability of operations accordingly extended.

Yet these power plants will still have continuing access to further compensation, in the form of free carbon permits and other forms of assistance. And this will be on top of the advances of $266 million that have already been paid to International Power’s Hazelwood power plant and $257 million to TRUenergy’s Yallourn plant under the terms of the Clean Energy Future Policy. Talk about a “win-win” for the companies!

Missing from the media coverage of this debacle is any critical reflection on the case that the companies have put forward to justify compensation that reflects the (appreciated) value of their assets following the abandonment of the ETS floor price. This is an extraordinary sleight of hand because it completely overlooks the costs that these companies are imposing through their polluting activities on local communities and the global community more generally. The fundamental rationale for establishing the ETS, recognising that there are external costs and that these should be valued, has been swept aside in the search of a quick fix.

Articles also by This Author

Sign in to Favourite

Join the conversation

44 Comments sorted by

  1. Sean Lamb

    Science Denier

    Are you saying that the Government should just unilaterally pass legislation ordering the closure of Hazelwood? Wouldn't that create a legal claim on the taxpayer under Constitutional protection against state confiscation of property?

    You can wack all the carbon taxes you like on Hazelwood, but it will still be cheaper than most renewables and will only result in electricity prices going up. As it is the fluctuating output of most renewables has only marginal effect on the quantities of coal being burnt because the coal thermal plants need to keep burning to being ready to pick up the slack periods of renewable generation or peak times of consumption.

    Basically people want to be carbon neutral, but don't want to pay for it.

    report
    1. Gerard Dean

      Managing Director

      In reply to Sean Lamb

      Mr Newlands and Mr Lamb

      Excellent, considered comments that cut to the chase. You will earn your share of Red Ticks from those who say they want to be carbon neutral but want someone else to pay. As soon as it looks like they have to pay, the polls start swinging and the politicians follow.

      The linking of our carbon price to the European ETS is a cynical joke. Why we would tie our high energy economy to a bunch of faceless un-elected bureaucrats in Brussels is strange. Does anybody think they will consider Australia's interests when tinkering with their ETS. I suggest,that if we cannot vote them out, we should take no notice of them.

      In closing, any comment that hints that all of us, including the Red Tickers, are in the same boat when we use fossil fuels, really ticks the Red Tickers off.

      Gerard Dean

      report
    2. Fran Barlow

      teacher

      In reply to Sean Lamb

      "Are you saying that the Government should just unilaterally pass legislation ordering the closure of Hazelwood? Wouldn't that create a legal claim on the taxpayer under Constitutional protection against state confiscation of property?"

      That wasn't being proposed, but no. The Commonwealth cannot acquire property save on "just terms" but it certainly can regulate how property is used.

      Thus, while it can't acquire your land without paying fair value, it can order you not to use it to raise marihuana…

      Read more
    3. Fran Barlow

      teacher

      In reply to Sean Lamb

      "Are you saying that the Government should just unilaterally pass legislation ordering the closure of Hazelwood? Wouldn't that create a legal claim on the taxpayer under Constitutional protection against state confiscation of property?"

      That wasn't being proposed, but no. The Commonwealth cannot acquire property save on "just terms" but it certainly can regulate how property is used.

      Thus, while it can't acquire your land without paying fair value, it can order you not to use it to raise marihuana…

      Read more
    4. Sean Lamb

      Science Denier

      In reply to Fran Barlow

      The problem with your analogy vis a vis marijuana is that marijuana wasn't a legal crop in the first place. If you declare a legal business illegal you are essentially acquiring property.

      You might also have an issue about who might be willing to provide the capital to fund all your renewables if you introduce to big a sovereign risk component in Australian energy markets.

      report
    5. Gerard Dean

      Managing Director

      In reply to Fran Barlow

      Closing Hazelwood was an ironclad, no ifs-no buts promise by the Australian government to reduce our carbon emissions.

      Prime Minister Gillard promised, just like she promised not to introduce a carbon tax if elected at the last election....

      Oh dear, I seem to have made a logical error. Prime Minister did break her promise not to introduce a carbon tax. And now she has broken her promise not to close Hazelwood.

      What does Prime Minister stand for?

      Gerard Dean

      report
    6. David Arthur

      resistance gnome

      In reply to Sean Lamb

      Just keep whacking carbon taxes on (using the revenue to cut all other taxes of course).

      Eventually, the owners of Hazelwood will get the idea, and replace the coal-fired steam heater with an array of solar collectors (mirrors) to heat the steam.

      report
    7. Fran Barlow

      teacher

      In reply to Sean Lamb

      "The problem with your analogy vis a vis marijuana is that marijuana wasn't a legal crop in the first place. "

      Irrelevant. The question is that property use and property ownership are distinct in law. Plainpack law makes that clear.

      "You might also have an issue about who might be willing to provide the capital to fund all your renewables if you introduce to big a sovereign risk component in Australian energy markets"

      Bogus. That's not "sovereign risk". Sovereign risk is the prospect of a sovereign defaulting on debts or other contractual commitments. This term is bandied about as if it settles all arguments. Changes in state policy relating to investment are "country risk" and weighed against risks of a similar kind in other countries. Right now Australia seems a safe enough place.

      The question of how to deal with emissions is not a new one and extends back past the time when the plants were privatised.

      report
    8. In reply to Gerard Dean

      Comment removed by moderator.

    9. Fran Barlow

      teacher

      In reply to Gerard Dean

      "Closing Hazelwood was an ironclad, no ifs-no buts promise by the Australian government to reduce our carbon emissions."

      All they promised to do was to negotiate.

      "just like she promised not to introduce a carbon tax if elected at the last election...."

      Misleading. She promised to introduce a market-based mechanism. That is what she has done. She has not introduced a carbon tax.

      "What does Prime Minister stand for? "

      A great many things -- NDIS, Gonski, equal pay for equal work, higher…

      Read more
  2. John Newlands

    tree changer

    Since carbon pricing has been talked about for a least a decade you'd think this would have been factored into recent valuations. Coincidentally the Germans opened a big new brown coal fired plant last month with even more planned, Here I think in good faith the companies should refund the $1bn they'e already received.

    The truth may be that carbon tax should more like $40 not $23. The Europeans are supposed to tighten up their ETS from 2013 cancelling the glut of surplus permits and restricting…

    Read more
    1. John Nicol

      logged in via email @bigpond.com

      In reply to John Newlands

      John Newlands, I agree. Even though the sugestion that the government could close the power stations down wirhout compensation, to be fair, and even reasonable, the power companies should now return any conmpensation already received in preparation for closure. John Nicol

      report
  3. Gerard Dean

    Managing Director

    Mr Rosewarne,

    In your concluding sentence you claim the ETS has been 'swept aside in the search for a quick fix'. Close, but not close enough.

    I suspect that Prime Minister Gillard has swept aside her promise to close Hazelwood, Australia's dirtiest coal burning power plant, so she doesn't get swept aside by the Australian electorate at the next election.

    She, along with her counterpart, Angela Merkel, Chancellor of Germany have 'sniffed the wind farm' and detected that their nations prefer…

    Read more
    1. Mike Hansen

      Mr.

      In reply to Gerard Dean

      The great irony is that it is now possible that Tony Abbott, our likely next PM will close down Hazelwood before the ETS. The LNP have the same carbon mitigation targets as the ALP and the Greens - 5 percent below 2000 levels by 2020. They also nominally support the Renewable Energy Target initially introduced by John Howard.
      From the LNP Direct Action policy statement
      "Through the Fund we will also make incentives available for the oldest and most inefficient power stations to reduce their emissions in an orderly manner which protects jobs, electricity prices and energy security"
      It is generally agreed that their soil carbon policy is a "crock" which will never be implemented in a way that could get remotely close to the target. Their only option will be to pay to close generators like Hazelwood.
      That could get the sparks flying from the tin-foil hatters.

      report
    2. Mike Hansen

      Mr.

      In reply to Mike Hansen

      Just to add to this - the NSW Liberals also support the 20% RET target. With renewables being rolled out apace, Tony may well get a bargain when he offers to close down Hazelwood given the fall in demand for electricity from the traditional generators.

      "NSW has restated its support for the 20 per cent renewable energy target, and unveiled a draft of its own Renewable Energy Action Plan in an effort to ensure that the state gets its share of an estimated $36 billion in clean energy investment."
      http://reneweconomy.com.au/2012/nsw-unveils-renewable-energy-action-plan-59623

      report
    3. Gerard Dean

      Managing Director

      In reply to Mike Hansen

      In your dreams Mr Hansen

      The Liberals were trapped in the climate change vortex and have been caught wrong footed by Prime Ministers sudden backflips.

      Now watch the Libs backpedal just as quickly.

      What changed? Again, as it was in the 20th century, it was the Chancellor of Germany who changed the world.

      Her predecessor, his name has escaped me for a moment, bsaid all Germany wanted was peace, and when he started a war, he referred to his commitments as 'just a scrap of paper'

      The parallels…

      Read more
    4. Gary Murphy

      Independent Thinker

      In reply to Gerard Dean

      Gerard - you ran away from the discussion we were having on another thread. Where you claimed climate change had zero effect on people. I made the following observations:

      Crop failures and water shortages - won't affect our daily lives? Well maybe if you are a rich westerner who can afford to pay more for food.

      Insurance premiums if all you care about is money.

      If you are a farmer (or know any) more crop failures and bankrupcies.

      I thought maybe I had gotten through to you and that is why you didn't reply. Yet here you are on another thread mindlessly throwing mud and avoiding the underlying issue.

      Bolt-like cowardice.

      report
    5. Mike Hansen

      Mr.

      In reply to Gary Murphy

      And he has all but accused Tony Abbott of being a liar. The outrage :-)

      It is likely that closing Hazelwood is not going to be enough for Mr Abbott to meet his target. How many power stations could he close?

      report
    6. Gerard Dean

      Managing Director

      In reply to Gary Murphy

      So I am a coward.

      Me and my little brother and my Mum had to try and to keep a few sheep and chooks alive so we had something to eat during the '68 drought which obliterated the Wimmera wheat crop. My old man had to take a job down at the Portland Meatworks. Every week he put his notice in so he could get paid, because we couldn't hold until the monthly payday. As for water - what water? Insurance - what's insurance?

      As for bankruptcy. I still remember the neighbours coming and picking through…

      Read more
    7. Gerard Dean

      Managing Director

      In reply to Gerard Dean

      And if you don't believe me, I will take you there and point to the shed and where we shot the sheep.

      Gerard Dean

      report
    8. David Collett

      IT Application Developer at Web Generation

      In reply to Gerard Dean

      A horrific experience to go through. I'm sorry you and your family had to go through it.

      My fear is that climate change will bring about more scenes as you describe above.

      As the climate changes, the weather pattens will become more unstable, bringing more and more severe droughts and floods. And as this happens, farms will fail. Maybe not for all of them - as the richer farmers will be able to buy their way out of trouble - but those without the funds to ensure their survival will collapse. Both in Australia and across the world.

      And the fallout will be the same as you describe above. Lost farms, lost livelyhoods, lost lives - everywhere.

      This is why I take action against climate change.

      report
    9. Gary Murphy

      Independent Thinker

      In reply to Gerard Dean

      I believe you Gerard. I grew up in a farming community also. I well know what droughts and water shortages and crop failures does to farming families.

      So why do you continue to undermine efforts to ameliorate climate change when the people who will be affected most are farmers? What part of this don't you get?

      report
    10. Mike Hansen

      Mr.

      In reply to Gary Murphy

      My maternal and paternal grandparents bought farms in the SA Mallee (above the Goyder Line) in the 1920s. Both farms are still in the family - but out of a very large extended family, only 2 cousins and a nephew are still farming. Farming, particularly in marginal land has always been a tough gig. I can still recall the clearing sale when our farm was sold.

      I was fortunate to get a science education - so while anecdotes are interesting and can be relevant, it is the data that impresses me…

      Read more
  4. Fran Barlow

    teacher

    I agree --

    1. The idea of paying these hulking spewers of filth for closure was always going to be poor value for abatement money.
    2. It was always a poor idea to give them free permits. Far better, if it came to that, that they pass on the cost of paying for the right to pollute in full with the lower income consumers compensated.
    3. It's unlikely that any of these plants will be operating in 2020 and one doubts they will be operating in 2016 either.

    Had Kevin Rudd been listenting to…

    Read more
    1. Sean Lamb

      Science Denier

      In reply to Fran Barlow

      Shades of "We have repeatedly warned the Czar" here.

      If only Napoleon had listened to me when I told him not to invade Russia, you might be able to get a decent coffee in Warsaw.

      report
    2. John Newlands

      tree changer

      In reply to Fran Barlow

      <i>'it's unlikely that any of these plants will be operating in 2020'</i>
      Well it won't be gas which is set to double in price, it won't be nuclear because it's illegal, it won't be wind and solar because of the gas backup requirement and it won't be efficiency since the required sacrifice (~40% of Vic capacity) is too high.

      Just what will replace Yallourn and Hazelwood by 2020?

      report
    3. Gerard Dean

      Managing Director

      In reply to John Newlands

      Brilliant!

      And now that Prime Minister Gillard has tied our carbon price to the shambolic European ETS, planned wind farms will get shelved or delayed, further entrenching Hazelwoods iconic status as our heavy weight baseload electricity generator.

      If it wasn't so sad, it would be funny.

      Gerard Dean

      report
    4. David Arthur

      resistance gnome

      In reply to Sean Lamb

      Perhaps Fran knows what she's writing about.

      Had KRudd listened to my idea, we'd be enjoying great big tax cuts offset with a great big tax on fossil fuel.

      report
    5. Gerard Dean

      Managing Director

      In reply to Fran Barlow

      Poor Fran

      You appear to be citing scientific facts about climate change. I admire that. Unfortunately, not only did Kevin Rudd not listen to you, now Prime Minister Gillard has turned her back on you as well.

      There is one more thing. I note you are a teacher. As a teacher, I am sure that you understand how long it takes to create, plan, implement and sign off on a new teaching program. For example, it took about 10 years for the Victorian Education Department to settle in the VCE program in place.

      Likewise in industry. Power plants are very large and very complex systems that take years to plan and cost and build.

      It does not appear you have realised that there is only 7 years until 2020. Even if the government pushed, I doubt that new power plants could be built to replace the coal plants within 20 years.

      And, now the government isn't pushing, so the 20 year timeline just got a lot longer.

      Sad really.

      Gerard Dean

      report
    6. Fran Barlow

      teacher

      In reply to John Newlands

      "Well it won't be gas which is set to double in price, it won't be nuclear because it's illegal, it won't be wind and solar because of the gas backup requirement and it won't be efficiency since the required sacrifice (~40% of Vic capacity) is too high."

      Disagree. Wind is proving remarkably useful and solar is also knocking off much of the premium sales of power during the PM peak. Demand is actually declining. Even if gas prices go up, the net effect on totla prices should be manageable since it's really only needed for load balancing.

      report
    7. Fran Barlow

      teacher

      In reply to Gerard Dean

      "It does not appear you have realised that there is only 7 years until 2020. Even if the government pushed, I doubt that new power plants could be built to replace the coal plants within 20 years."

      Wind and solar can be up and running in a couple of years. Gas peakers don't take long to put on line either -- and in any event we already have some.

      Yes, I'd have preferred an early start, but it's still doable.

      report
    8. John Newlands

      tree changer

      In reply to Fran Barlow

      If wind and solar can replace coal that doesn't explain why the Germans opened a huge new brown coal fired power station last month. If electricity demand is down 5% that still leaves 95%. PV works in the middle of sunny days hence its annual capacity factor of 16%. Wind makes a habit of dying away in heatwaves and frosty nights.

      Victoria would grind to a halt without a reliable replacement for Yallourn and Hazelwood. The most likely replacement is black coal fired electricity imports from NSW.

      report
    9. Paul Wittwer

      Orchardist

      In reply to John Newlands

      Germany has determined that it needs no new fossil powered generation once the plants which were already planned or under construction at the time of Fukishima, have been built. This while retiring their nuclear generating capacity.

      Wind provided 55% of South Australias power needs last Wednesday.

      report
    10. John Nicol

      logged in via email @bigpond.com

      In reply to Fran Barlow

      Fran,

      Could you give us some cost illustrations to support your comments that wind and solar are now competitive in that "wind is proving remarkably useful and solar is also knocking off premium...."? Thanks.

      report
    11. Dianna Arthur
      Dianna Arthur is a Friend of The Conversation.

      Environmentalist

      In reply to Gerard Dean

      Gerard Dean

      I don't bother reading your posts before marking them down.

      You may have a good point to make, but anyone who needs to identify themselves at the end of a post when already automatically identified at the beginning, is not making full use of the available technology and therefore of dubious merit.

      report
  5. John Nicol

    logged in via email @bigpond.com

    Stuart,
    As you are apparently a "political economist" I have to assume that you you are comenting here as a "political" expert rather than as an economist. Other wise you would have explained to us how the government can just close down a viable Austrlain business - the power stations - while providing subsidies for a failing Australian business - teh General Motors Plant.

    erhaps you could let us know some time which hat you are wearing and how you can justify the suggestions you are making, whether you are a"politician" or and "economist".
    John Nicol jonicol18@bigpond.com

    report
    1. Peter Ormonde

      Farmer

      In reply to John Nicol

      Aw heck John will you stop wandering off into other folks' paddocks like you own the place.

      Adam Smith, David Ricardo the "founding fathers" of the business were Political Economists ... they all were...the notion that one can extract policy from economics is a recent absurdity - like taking the oxygen out of water.

      Have a read of this potted history of the trade: http://en.wikipedia.org/wiki/Political_economy and perhaps you will be more cautious in displaying your ignorance in future so publicly.

      And shut the bloody gate.

      PS Spot on Stuart... totally outrageous and unnecessary hand-out. Let's hope they aren't just adopting a negotiating posture but spend some money retraining displaced workers and communities rather than providing windfall benefits for really really dumb investments.

      report
    2. John Nicol

      logged in via email @bigpond.com

      In reply to Peter Ormonde

      G'Day Peter,

      Nice to hear from you again. Thank you also for your comments which are so uplifting - as usual.

      Yes, I know very well the connection between politics and economics having studied a bit of economics and its history. However, I am not sure why a University needs to state the obvious and set up a department of Political Economy (sic). All economists do not deal with politics and the main thrust of Asdam Smith and the others was only partly political but mainly to do with the ideas…

      Read more
    3. John Nicol

      logged in via email @bigpond.com

      In reply to Peter Ormonde

      Again Peter, from the article in Wikipaedia, you might note:
      "Today, political economy, where it is not used as a synonym for economics, may refer to very different things, including Marxian analysis, applied public-choice approaches emanating from the Chicago school and the Virginia school, or simply the advice given by economists to the government or public on general economic policy or on specific proposals.[3] A rapidly-growing mainstream literature from the 1970s has expanded beyond the model…

      Read more
    4. Peter Ormonde

      Farmer

      In reply to John Nicol

      Gday John,

      First up I actually don't agree with propping up GMH either - and certainly not without conditions and outcomes. Far more sensible for governments to invest in retraining and structural adjustment packages in anticipation of these failed business models falling over again - as they always do. So yes governments should assist in cushioning the blow, in providing alternatives and minimising the damage. Minimise the consequences of their threatened closure - erode their negotiating…

      Read more
    5. Peter Ormonde

      Farmer

      In reply to John Nicol

      Oh no I think old Karl would be in complete agreement with you in keeping the Hazelwood power plant open. He'd be wanting it nationalised or managed by a collective, but he'd not be seeing much wrong with spewing our carbon I suspect. Although he might have greened up a bit over the years had he lived that long.

      The point that you initially were arguing John is that there was some distinction between the political and the economics in Stuart's discipline. That is simply not the case. All…

      Read more
    6. John Nicol

      logged in via email @bigpond.com

      In reply to Peter Ormonde

      Thanks again Peter for your amusing little comment about "pulling one's duds up and shutting the gate". You have also been about the traps recently and discovered a couple of other smart, little comments which have been in vogue for at least a week now among the "trolls": "kept your kit on", "frolicking about nekkid" and "frightening the cattle". How clever is that! (Actually I hate that word "trolls" and would not really apply it to any individual.) Also I hadn't realised you had a NZ accent…

      Read more
    7. Dianna Arthur
      Dianna Arthur is a Friend of The Conversation.

      Environmentalist

      In reply to John Nicol

      "she"

      prefers to keep her identify from her psycho ex.

      BTW

      I was referring to Gerard Dean, I hadn't even noticed your gratuitous self promotion.

      Ta Ta

      report