Reduce pollution, get permits
By Mathew Murphy | smh.com.au | 30 September
The Federal Government should withhold half of the permits allocated to coal-fired generators under its emissions trading scheme and link the receipt of those to investment in low-emission generators.
The director of Carbon Market Economics, Bruce Mountain, has written a draft paper that he hopes to put before generators before the Copenhagen climate change discussions in December.
It explores an alternative to allocating $3.5 billion in compensation directed to generators under the Carbon Pollution Reduction Scheme.
The Australian Coal Association has warned the Government that its scheme could result in tens of thousands of job losses and mine closures across the country.
Generators say they need $6.5 billion in public funds to help them adjust to the CPRS. Under the Government's proposal, coal-fired generators will receive 130.7 million emissions permits for free, spread over the first five years of the scheme.
Mr Mountain's paper suggests the big flaw in the Government's proposal is linking compensation to a guarantee by generators that they will continue supplying the same level of power.
"This reliability requirement is to provide a perverse incentive for the owners of the most inefficient greenhouse gas generation to continue to invest in that plant to ensure its availability to 2015," he said.
Rather, he argues, the Government's compensation should be split into two parts. Firstly, offering 65 million free permits to eligible coal-fired generators to cover much of the expected losses.
And secondly, to offer the other 65 million free permits to be paid if the plant in question is replaced by a lower-emission plant by 2015.
"There is some evidence that generators are already reacting to this perverse incentive," Mr Mountain said.
"Verve, the electricity generator in Western Australia, has recently discussed the recommissioning of the Muja A and B coal generation units, presumably to be eligible for the significant compensation they will receive if they do this.
Muja A and B are the oldest and least efficient coal-generating units installed in Western Australia." Under Mr Mountain's proposal, the more generators reduce the emissions intensity of the rebuilt power station, the more free permits they would receive.
He admits his proposal could present a compromise as the Government prepares to redraft its legislation before taking it back for a Senate vote in November. "My scheme could be perceived as being more onerous on the generators," he said.
"But if the Government is minded to give them more money then maybe they can link it to further investment in low emissions generation."
First published by Smh.com.au on September 30 2009
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