Climate Change Minister Greg Combet has defended AUD 5.5 billion in compensation being paid to the country's dirtiest power stations and dismissed a report that claims coal generators will actually be better off as a result of the cash.

However, Frontier Economics says unless the international carbon price recovers, generators will be overcompensated under Labor's pollution price regime.

In a report released on Thursday, the modelling firm suggests brown-coal generators will be at least AUD 400 million better off than if there was no carbon tax.

The report states that "(But) more likely the collective gain in value of the brown-coal generators is around AUD 1 billion. Making the highest carbon-emitting power stations more valuable seems contrary to the aims of discouraging high-emission generators."

Four power stations in Victoria's Latrobe Valley received the lion's share of USD 1 billion delivered mid year to help generators cope with the carbon tax.

The cash was the first tranche of assistance from the AUD 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 emissions-intensive power stations.

Some 60% of the compensation will be delivered in the fixed-price period which ends in mid-2015.

Frontier expects generators to be overcompensated because the government is forecasting an international carbon price of AUD 29 a tonne in mid 2015, although current European futures prices are about AUD 12 for 2015/16.

Source - First Digital Media

(www.coalguru.com)