States warned on carbon exemption

RENEWABLE energy producers have urged the states to resist approaches from coal-fired power stations seeking an indemnity against the costs future carbon trading schemes might impose upon their businesses.The call comes after leading economist and Reserve Bank board member Warwick McKibbin urged the federal Government on Friday to adopt a scheme for trading carbon credits between companies that cut greenhouse gas emissions and those that continue to pollute.
Tony Wood, a spokesman for gas and solar power group Origin Energy, said yesterday that by ruling out indemnity against carbon trading, the state governments could provide business with long-term certainty and encourage industry to invest in low-emissions technology.
Without an indemnity, however, energy companies would have to take into account the future costs of carbon trading schemes when planning and building new greenhouse-gas emitting power stations.
The Australian understands several state governments have been approached by energy producers and potential lenders to new coal-fired power stations seeking indemnity from any future costs associated with carbon.

In Victoria, the state Government is also believed to have been approached by manufacturers and other major electricity customers, seeking indemnity against higher electricity prices as a result of the state governments' determination to establish a carbon trading scheme.

Setting greenhouse gas emission targets could force heavy polluters that can not or will not cut emissions, such as coal-fired power stations, to buy an expensive permit or carbon credits on an open market.

Carbon credits are sold by companies that either reduce their greenhouse emissions or run operations that cut global carbon levels, such as forestry plantations.

Mr Wood said the indemnity issue was raised during last week's Asia-Pacific climate partnership meeting in Sydney.

"In Australia and the US there's a real challenge for banks and the equity market to be able to invest in those (greenhouse-intensive) projects when there's no way of insuring against carbon risk," he said.

"The state governments will have to address this question and we think it's critically important they make it clear that whatever the future carbon trading scheme will be, from now on nobody will be getting indemnity from that.

"That provides the certainty that people can then factor carbon risk into their investment decisions and be confident that

if they invest in a lower emission but higher cost plant they're

not going to be undercut by someone who's got themselves indemnity."

The Business Council for Sustainable Development backed the call yesterday as an "easy low-cost signal to the financial markets" that greenhouse-intensive industry was an investment risk.

But council chief Ric Brazzale also warned that NSW and Queensland, which owned their power generators, could get around the problem by raising money for new generation

power stations from their own treasuries.

Green groups also support the idea, with the Australian Conservation Foundation yesterday describing it as a "no regrets measure that costs governments nothing to do".

The issue is likely to heat up in coming years with the east coast of Australia expected to require further base load electricity capacity from 2011.

The federal Government has conceded a carbon trading scheme is inevitable but opposes it in the short term.