Australia eyes $3.2 billion CO2 plan for generators: report

CANBERRA Mon Jul 4, 2011 8:34pm EDT

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CANBERRA (Reuters) - Australia's government is putting together a A$3 billion ($3.2 billion) package to promote clean energy and pay for closure of heavy polluting brown coal-fired power stations as part of a carbon price scheme to be unveiled within days, a newspaper said on Tuesday.

Negotiations with electricity generators had resulted in a package that will provide coal-fired plant operators with a line of credit and loan guarantees to continue operating under a carbon price, The Australian newspaper said, citing unnamed sources.

A clean energy finance corporation with a fund of A$2 billion would also be included in the scheme, to be outlined on July 10, and would impose conditions requiring generators to reduce emissions and cut capacity over time, it said.

The corporation would also encourage private investment in renewable energy and be allocated up to A$2 billion a year in pollution permit revenue, the paper said.

The minority Labor government plans to impose a tax on carbon emissions from mid-2012 before transitioning to a carbon-trading system three to five years later, under which the nation's 1,000 biggest polluters will need to buy carbon permits on an open market.

If passed by parliament later this year, as expected, Australia will be on track to have the biggest national emissions trading scheme outside Europe.

But uncertainty over the policy, which would tax emissions from next year and is tipped to have at its heart a A$20 a tonne carbon price, has also begun to frustrate investment decisions, particularly in the coal-fired power industry and in renewable energy and plantation forestry.

Coal accounts for 54 percent of Australia's energy production and electricity generation in turn makes up 37 percent of national emissions, helping to put Australians among the rich world's worst greenhouse-gas polluters per head.

Coal-fired power plants generate about 80 percent of electricity, with brown-coal plants the dirtiest, and the higher the pollution per unit of power, the higher the carbon cost.

Generators could now face devaluation of assets, losses of equity for shareholders and an inability to borrow because of the carbon tax, The Australian said.

They need to refinance loans of between A$9 billion and A$10 billion over the next five years as the tax takes effect from July 1 next year, transitioning in 2015 to an emissions trading scheme.

Coal-fired power generators in Australia include International Power (Australia) and Origin Energy.

Australia's minority Labor government will unveil the details of its plans on Sunday.

Prime Minister Julia Gillard said on Monday her cabinet, and a committee of government, Greens and independent lawmakers who have been working on the scheme, would finalize remaining details of the carbon tax later this week.

(Reporting by Rob Taylor; Editing by Ed Davies)

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