Australia's ''dirtiest'' coal-fired power stations, including Hazelwood and Yallourn in Victoria, are likely to remain open, while less polluting plants are closed and replaced if Labor offers a blanket multibillion-dollar compensation scheme with its carbon price.
A submission to the multi-party climate committee meeting in Canberra today says there will be a ''perverse environmental outcome'' if the government repeats its 2009 offer of $7.3 billion in handouts to coal power generators over a decade.
The submission says the plan could result in the closure of some black coal plants in New South Wales and Queensland, while the ageing brown coal generators in Victoria's LaTrobe Valley – which are up to 40 per cent more carbon dioxide intensive – stay open.
Bruce Mountain, an energy industry expert and director of Carbon Market Economics, said a rethink was needed.
Under Labor's 2009 compensation plan, handouts to individual power generators were to be based on their emissions intensity, rather than their financial situations, which meant the most polluting brown coal plants would have received the most compensation.
A doubling of the global black coal price since 2009 has put some northern state plants under greater financial stress than Victoria's plants, which have their own brown coal supplies.
The hit to their profits due to exposure to rising coal prices meant some black coal plants were more likely to shut early and be replaced by gas-fired power under a carbon price of $20 to $30 a tonne.
''If the purpose of the scheme is to reduce emissions the scheme may fail, because the least greenhouse intensive coal generators are going to close first,'' Mr Mountain said.
The submission, from Environment Victoria and partly based on work by Mr Mountain, comes as the government faces increasing pressure from industry and union leaders over its carbon price plan.
How to deal with Australia's massive coal-fired power sector is one of the areas where members of the climate committee are most at odds. The government has backed compensation for coal generators, while the Greens disagree.
Environment Victoria is against coal compensation but says, if it does happen, some carbon tax revenue should be used to pay the most polluting plants to close through a tender process. It differs from proposals by the former Brumby government and federal Coalition in that other coal plants would pay for their emissions.
Environment Victoria campaigns director Mark Wakeham said:
''If the government is going to go down this slippery slope [of compensation] it has to make sure it is replacing the most polluting power plants, like Hazelwood, and delivering substantial emissions reduction.''
Getting coal plants to tender to close is one of several options being discussed by business groups advising the government. Hazelwood's owner, International Power, has expressed a willingness to negotiate a phased shutdown if its price is met.
Mr Wakeham said compensating coal plants made less sense under a carbon tax than an emissions trading scheme.
A tax did not limit emissions, and industry could continue to emit and use compensation to pay the extra cost.
Climate economist Ross Garnaut has advised Labor against compensating coal plant owners, but backed loan guarantees to ensure energy security.
Climate Change Minister Greg Combet said a decision had not yet been made on how to support industries most affected by a carbon price.
Read the submission here: Treatment of electricity generators under a price on carbon
Read more about our campaign to Replace Hazelwood
Prior to the state election, we analysed where the major parties stand on replacing Hazelwood power station. Download the paper here
We released a report that shows how Hazelwood can be replaced as soon as the end of 2012. All while maintaining energy security, cutting Victoria's greenhouse pollution by 12 percent and creating more jobs than Hazelwood currently provides. Check it out