Hundreds of millions of dollars the federal government saves by abandoning its plan to pay dirty power stations to close down shouldn't be used to prop up the budget, a leading green think-tank says.
Labor on Wednesday abandoned its contract for closure program a week after it scrapped the proposed $15 floor price for its emissions trading scheme.
Climate Institute chief John Connor says the money saved should be quarantined for other projects to increase clean energy.
"The funds that were committed, that would have been substantial from 2016, should be quarantined for climate-related matters," Mr Connor told AAP on Wednesday, adding they shouldn't be added to the budget bottom line or spent elsewhere.
He also argued if the power stations weren't prepared to play ball, Labor should reinstate its election pledge to introduce regulatory performance standards to mandate clean energy into the future.
Mr Connor said Wednesday's announcement by Energy Minister Martin Ferguson also demonstrated the flaws in the opposition's so-called direct action policy to tackle climate change.
"This highlights how difficult direct action is," he said.
"That's what this (contract for closure) was.
"It was saying to industry `there's a certain amount of money here; come and get it for emissions reductions'."…
…Green group Environment Victoria said it was a devastating blow for clean energy policy and called on the government to scrap the $5.5 billion in compensation already being paid to station owners.
"You can't have a clean energy future with power stations like Hazelwood continuing to operate indefinitely – it becomes hollow rhetoric," campaigns director Mark Wakeham said.
"It suggests that the government wasn't really committed to securing an outcome."