The federal government has abandoned plans to pay some of Australia's dirtiest coal-fired power generators to shut down under its co-called contract for closure program.
Energy Minister Martin Ferguson said the government could not be satisfied that entering into such arrangements would achieve value for money against the program's objectives.
"The contract for closure negotiations have taken place constructively and in good faith but there remains a material gap between the level of compensation generators have sought and what the government is prepared to pay," Mr Ferguson said in a statement on Wednesday.
The program had sought to support the closure of around 2000 megawatts of highly emissions-intensive generation capacity by 2020.
But a June 30 deadline for locking in a deal has already been and gone.
Mr Ferguson said forecasts for lower energy demand in Australia "presented serious questions around the value-for-money evaluation of proposals".
He insisted last week's decision to scrap a proposed $15-per-tonne floor price for Labor's emissions trading scheme – which starts in mid-2015 – and instead link the ETS with Europe's scheme was not a factor.
The government had been negotiating possible closures with Hazelwood, Yallourn and Energy Brix power stations in Victoria as well as Playford in South Australia and Collinsville in Queensland.
The federal energy minister said the $200 million regional structural adjustment assistance program would still be available to support communities significantly affected by the government's carbon price regime.
A $23-a-tonne carbon tax was introduced on July 1 this year.
Environment groups on Wednesday said if the dirtiest coal-fired power stations didn't accept payments to close down generation they shouldn't receive any other carbon tax compensation.
"If these facilities now claim they have a profitable future and their asset values remain high, then there is no public policy justification for the compensation payments that are coming at great cost to Australian taxpayers," Environment Victoria campaign director Mark Wakeham said in a statement.
Four stations in Victoria's Latrobe Valley received the lion's share of $1 billion delivered mid-year to help coal-fired generators cope with the carbon tax.
Hazelwood received $266 million, Yallourn pocketed $257 million, Loy Yang Power got $240 million and Loy Yang B received $117 million.
The cash was the first tranche of assistance from the federal government's $5.5 billion energy security fund.
It will be followed by annual allocations of 42 million free carbon permits from 2013/14 to 2016/17 to assist highly emissions-intensive power stations.