News | 19th Mar, 2013

Carbon tax repeal plan draws fire

19 March 2013
Marcus Priest, Australian Financial Review

Energy generation companies are split over Opposition Leader Tony Abbott's plan to repeal the carbon tax, amid concern about its impact on the national energy market.

Their concerns have prompted independent senator Nick Xenophon, who may hold the balance of power after the election, to warn of the "unintended consequences" of repealing the carbon tax. He has flagged that his vote to repeal the scheme cannot be taken for granted.

It is understood that some black coal generators have privately raised concerns that Victorian brown coal power stations will be unfairly advantaged by the repeal of the carbon tax because of the decision not to claw back more than $1 billion in cash payments to compensate them for the impact of the scheme.

And last week, a group of power companies met opposition environment spokesman Greg Hunt and sought to clarify how the Coalition plans to set a new emissions baseline under its Direct Action carbon plan. After the meeting, National Generators Forum executive director Tim Reardon said compensation had not been discussed, but he signalled that it would be an issue if the Coalition was elected and repealed the scheme.

The NGF's position was that any change in government policy that had a financial impact on investors should be "equitably compensated". "It is not helpful to the industry to continually open up the possibility of changes to existing programs that are aimed at transitioning to a carbon-constrained economy," Mr Reardon said. "

This only adds to the uncertainty that investors face. We will work with the government of the day to develop effective policies to achieve least-cost emissions abatement and this includes recognition of the impact on investors."

One industry insider said there was a great deal of uncertainty among power companies and their financiers about the impact of a repeal of the carbon scheme and its replacement by Direct Action. "Nobody seems to know what is going to happen and what sort of playing field will be created if the compensation is not taken back," the insider said.

"Everybody is trying to keep a lid on the cauldron."

Under Direct Action, it is proposed that companies will be able to sell abatement to the government if they can reduce emissions below "business as usual" levels. Businesses that undertake activity with emissions above their "business as usual" levels will incur financial penalties.

Energy Supply Association of Australia chief executive Matthew Warren said it was not clear how the baseline would be set under Direct Action. Any new scheme would have different financial effects on companies, depending on how it was calculated, he said.

"We have provided detailed advice on all different design options of Direct Action and the challenges of making them work," Mr Warren said.

"One of those is the baseline: would it apply at an industry level or at a business level? That is why we have preferred an emissions trading scheme because it gets rid of some of those equity issues about how a baseline and credit scheme is applied." Mr Hunt said organisations would be given maximum input into the setting of baselines as part of a white paper process after the election. He ruled out clawing back any payments made to generators under the carbon scheme.

"We have long said that the baselines will be determined as part of the white paper process post the election and all parties are aware of this," Mr Hunt said.

"We have always been clear that we would not be clawing back payments already made, nor continuing to make payments which are linked to the carbon tax, once it is removed." Frontier Economics managing director Danny Price who provided an alternative model for an emissions trading scheme to the Coalition during the carbon tax debate said if the tax was repealed, brown coal generators would undoubtedly be better off because they would keep the money they had received under the scheme.

"They made a monumental mistake with compensation," Mr Price said. "It was structured poorly and was based on a dodgy set of assumptions." 

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