The Gillard government is negotiating the phased closure of two of the nation's highest-emitting power stations as it seeks to clinch its climate change deal, but now faces a fierce advertising campaign against the package from a coalition of carbon tax opponents.
The Australian has confirmed that negotiations are continuing with International Power-GDF Suez, which owns the Hazelwood facility in Victoria's La Trobe Valley, and Alinta Energy, which owns South Australia's Playford power station.
The negotiations include payments for an orderly shutdown of the power stations over a number of years to provide certainty to the sector on the composition of the power supply and to allow higher-cost gas-fired operators to plan their entry to the market to replace the withdrawn capacity from higher-emission brown-coal stations.
The Australian understands the electricity package, totalling $7.3 billion, is equally split between funds for a phased closure and conditional compensation for coal-fired generators.
The move comes as the government, the Greens and the rural independents have broadly clinched the carbon tax deal and await the results of Treasury modelling before signing off on the final package.
But the deal now faces an immediate challenge from a coalition calling itself the Australian Trade and Industry Alliance, which is to mount a full-scale advertising campaign against the package.
The coalition includes the Australian Food and Grocery Council, the Australian Chamber of Commerce and Industry, Australian Coal Association, the Australian Logistics Council, the Plastics and Chemicals Industry and the Minerals Council of Australia.
Leaked documents obtained by The Australian show the campaign is due to start within seven days of the carbon tax announcement and will run until parliament considers the legislation in September.
The coalition is seeking "considerable resources" in an echo of the mining tax campaign that undermined Kevin Rudd's prime ministership and forced Labor to seek a compromise on the mining tax with big resource companies.
As the carbon tax negotiations reach their climax, the government is understood to have scheduled a series of individual meetings with key players in the electricity sector and the steel industry over the next week to outline their assistance packages.
But a political row broke out yesterday when Julia Gillard declared that the carbon price was not a tax, sparking a ferocious counter-attack from Tony Abbott, who denounced her as untrustworthy and tricky.
Speaking in Darwin, after speculation that the government's multi-party climate change committee had agree to a transition from a fixed carbon price to an emissions trading scheme in three years, the Prime Minister said: "Now what Tony Abbott likes to refer too as a carbon tax, a fixed-price period for an emissions trading scheme, is a period I believe should be as short as possible."
But Mr Abbott said: "She's been calling it a carbon tax for months now. If it looks like a tax, if it works like a tax, if it costs like a tax, it is a tax. What we see is a Prime Minister who is compounding incompetence with trickery."
The final carbon package is likely to involve key manufacturing industries such as steel, aluminium and cement receiving 94.5 per cent compensation in a multi-billion-dollar compensation package.
There will also be a multi-billion-dollar green energy fund.
The coal industry will be compensated in an expected $1.5 billion package, although there is speculation the funds may be linked to spending on clean coal and emissions abatements.
Negotiations in the electricity sector come as the government attempts to prevent the financial impairment of generation assets when the carbon price kicks in from July 1, next year.
These include a so-called "contract for closure" model that could include direct payments in addition to free pollution permits.
"If you had some sort of contract or agreement with say Hazelwood or Playford then part of your assistance or a condition of your assistance is that on certain conditions, you are going to retire at this rate or that date. Then you are providing a degree of certainty for future investors," a source said. "It gives the government a physical result that they can point to."
Alinta Energy chief executive Jeff Dimery declined to comment on the talks, other than to say that the company was anxious to preserve jobs in the local region around Port Augusta.
Mr Dimery said that one way of doing that was for the government to support a gas pipeline so that the coal-fired plant operations could be converted to gas, a move that could avoid the need for redundancies.
International Power-GDF Suez Jim Kouts group manager corporate affairs said he did not want to comment on the talks other than to say: "We continue to negotiate in good faith in what can only be described as a policy vacuum. If you destroy the value of generation business through regulatory change, you send all the wrong signals to investors while also hurting Australian workers."
Outside Hazelwood yesterday, Gippsland Trades and Labour Council secretary John Parker warned that without the construction of another, cleaner power station to replace Hazelwood should it shut down, one in four residents of the nearby town of Morwell would be affected by the closure while a new power station was built – a process that can take 10 years. He called for a plan for "shutting down old power plants like Hazelwood and having other sources of energy in place in time".
With Intergen's Millmerran and all four major Latrobe Valley power stations facing refinancing negotiations with bankers by the end of next year, Resources Minister Martin Ferguson yesterday called on the banks to back power generators under a carbon price.
"Once we resolve a carbon price, we all – including investors and financiers – have a role to play in delivering energy security and making the significant investments required to transition our energy sector over time," Mr Ferguson said.
Mr Ferguson said the banks had, for some years, vocally encouraged governments to introduce a carbon price and had received significant support during the global financial crisis.
"Given the support the Australian community has shown the banks, I hope that the banks reciprocate this by participating in financing investment in necessary infrastructure once the carbon price is resolved, and by supporting the transition as existing loans are refinanced."
Mr Ferguson said that in terms of investment, if the government was able to facilitate retirement of a major coal-fired power station, it could try to encourage new investment on existing brown coal sites, "which is easier from a regulatory environmental point of view".
There is between $4.5bn and $6.5bn in refinancing due by the end of 2012.
Treasurer Wayne Swan, addressing the Economic and Social Outlook Conference, said Treasury modelling would show that the transition from a carbon price would be "at a very modest cost". He said the mining sector would experience strong growth and increase as a proportion of the economy regardless of a price on carbon. The manufacturing sector would have broadly similar prospects under a carbon tax, according to the modelling, although there would be a changes in its composition towards lower emissions activities. The services sector would also be broadly unaffected.
But Mr Swan said the electricity sector would undergo a dramatic transition. Instead of emissions increasing by 60 per cent by 2050 under business as usual, emissions would fall by 60 per cent below current levels by 2050.
Renewables, excluding hydro, would grow by 1700 per cent, and comprise 40 per cent of electricity generation by 2050.