Coalition plan to abolish ‘carbon price by stealth’

The Coalition will abolish or overhaul what it calls Labor’s ‘carbon price by stealth’ in a bid to boost fossil fuels under its energy plan.

The Coalition says the new emissions reduction objective is making Australia’s coal fleet ‘look really expensive’. Picture: Jake Nowakowski

The Coalition will abolish or overhaul what it calls Labor’s “carbon price by stealth” in a bid to boost fossil fuels under its energy plan, saying the new emissions reduction objective is making Australia’s coal fleet “look really expensive”.

As Peter Dutton prepares to announce his long-awaited nuclear costings this week, The Australian can reveal the Coalition will reset or scrap altogether the Value of Emissions Reduction, which regulators consider when making decisions about projects.

The VER, which the Coalition and conservative think tank Centre for Independent Studies refer to as a “shadow carbon price”, is set at $70 a tonne of carbon and is expected to increase to $420 a tonne of carbon in 2050.

The Australian Energy Regulator looks at several criteria – reliability, affordability and now emissions reduction – when assessing whether a project stacks up, whether it should be built and how much should be paid for it.

A gas asset may be marginal as an emissions reduction proposition, given the $70 a tonne of carbon value placed on emissions, but may get a tick of approval because of its reliability and affordability benefits.

“One of the problems with Labor’s approach to electricity is that it’s been secretly applying a shadow carbon price, which acts like a carbon tax in system modelling to make coal look far more expensive than it really is,” opposition climate change and energy spokesman Ted O’Brien said. “Once you add that in, you make uneconomic projects look economic and our existing coal fleet looks really expensive.

“As prices soar and the lights go out, the government says ‘coal is too expensive, it’s driving prices up’ yet this is Labor relying on theoretical models which include a carbon price which is set to go from $70 today to over $400 per tonne by 2050.”

Government sources said Mr O’Brien had “swallowed the climate denying cordial” and was seeing carbon prices where there were none, noting the VER was not used for modelling in the Australian Energy Market Operator’s plan to transition to net zero by 2050.

Climate Change and Energy Minister Chris Bowen and his state and territory counterparts adopted a VER in May 2023, integrating emissions reduction as an objective in the national energy laws. Government sources said it was not a carbon price or carbon tax and did not require energy producers or anyone else to pay for or offset their emissions.

The Coalition would need agreement from the states and territories if it was to change or get rid of the mechanism.

“If Ted O’Brien doesn’t understand the energy market, he can’t be minister for energy,” Mr Bowen said.

Former Labor prime minister Julia Gillard’s carbon price was $23 a tonne of pollution in July 2012.

The Coalition wants to keep coal-fired power stations burning as part of its “coal-to-nuclear” transition plan, with the first nuclear reactors expected to be built in the mid-2030s at the earliest.

In an interview with The Australian, Mr O’Brien wouldn’t say which, if any, plants the Coalition would extend beyond the AEMO’s timeline or that of the assets’ owners, nor how much energy coal would need to generate in order to have an “always on” baseload power source.

He also wouldn’t weigh in on whether the Coalition was prepared to intervene and subsidise coal. “One of our biggest criticisms of Labor’s approach is its premature closure of 24/7 baseload power plants before any replacement is ready. It’s effectively closing one system before having another one ready to go,” Mr O’Brien said.

“Under Labor, 90 per cent of Australia’s coal generation will exit the grid over the next decade. This is before the scheduled closures for those coal plants, according to their owners.”

Government sources noted the AEMO had to plan the nat­ion’s energy transition on the basis that coal fell over technically or commercially sooner than its owners say it would and has always been more conservative in its forecasts.

Grattan Institute director of energy Tony Wood said coal-fired power plants were already into their late middle age and failing more often, making them increasingly more expensive to run.

“It doesn’t mean it’s impossible (extending the life of coal). You can spend a lot of money on your old car but at some point the costs become unacceptable. All of this eventually gets paid by the taxpayer or the consumer,” he said.

“Is the Coalition saying ‘We’re going to slow down emissions reduction for the next 15 years until nuclear arrives and then rapidly increase it and the end result is the same’? It’s not the same. Once greenhouse gas goes into the atmosphere, it stays there – it has an environmental impact.”

Ai Group director of climate change and energy Tennant Reid said keeping existing coal around longer would require some combination of capital investments to maintain safety and reliability, as well as a willingness to absorb or subsidise losses.

Extending coal could cost a lot, as per the $450m cost to the NSW government to extend Eraring for two years.

“Reliability could not be guaranteed, of course. Old plants are more prone to break down, and major upgrades require scheduled downtime that can be significant,” Mr Reid said.

“Electricity emissions would be a lot higher than planned. While it would be better to pay to keep coal around than to close it before replacement capacity is ready, best of all would be to avoid both unappetising options by getting on with the job of building new transmission, renewables, storage and gas peakers.”