The federal government has abandoned plans to pay some of Australia’s dirtiest coal-fired power generators to shut down under its co-called contract for closure program.

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Energy Minister Martin Ferguson said the government could not be satisfied that entering into such arrangements would achieve value for money against the program’s objectives.

“The contract for closure negotiations have taken place constructively and in good faith but there remains a material gap between the level of compensation generators have sought and what the government is prepared to pay,” Mr Ferguson said in a statement on Wednesday.

The program had sought to support the closure of around 2000 megawatts of highly emissions-intensive generation capacity by 2020.

But a June 30 deadline for locking in a deal has already been and gone.

Mr Ferguson said forecasts for lower energy demand in Australia “presented serious questions around the value-for-money evaluation of proposals”.

He insisted last week’s decision to scrap a proposed $15-per-tonne floor price for Labor’s emissions trading scheme – which starts in mid-2015 – and instead link the ETS with Europe’s scheme was not a factor.

The government had been negotiating possible closures with Hazelwood, Yallourn and Energy Brix power stations in Victoria as well as Playford in South Australia and Collinsville in Queensland.

The federal energy minister said the $200 million regional structural adjustment assistance program would still be available to support communities significantly affected by the government’s carbon price regime.

A $23-a-tonne carbon tax was introduced on July 1 this year.

Environment groups on Wednesday said if the dirtiest coal-fired power stations didn’t accept payments to close down generation they shouldn’t receive any other carbon tax compensation.

“If these facilities now claim they have a profitable future and their asset values remain high, then there is no public policy justification for the compensation payments that are coming at great cost to Australian taxpayers,” Environment Victoria campaign director Mark Wakeham said in a statement.

Four stations in Victoria’s Latrobe Valley received the lion’s share of $1 billion delivered mid-year to help coal-fired generators cope with the carbon tax.

Hazelwood received $266 million, Yallourn pocketed $257 million, Loy Yang Power got $240 million and Loy Yang B received $117 million.

The cash was the first tranche of assistance from the federal government’s $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 highly emissions-intensive power stations.

‘BREACH OF FAITH’

Australian Greens leader Christine Milne says the federal government was never really committed to closing down the nation’s dirtiest power stations.

Senator Milne told reporters in Hobart on Wednesday the decision was a “breach of faith”.

“It’s a breach of faith with the Australian community, a breach of faith with the multi-party climate committee and it really goes against the spirit of everything we have been trying to do,” she said.

Labor had put the “fox in charge of the hen house” by getting the energy minister to lead the contract for closure process.

“Martin Ferguson, I don’t believe, has tried very hard at all to achieve an outcome on contracts for closure and I don’t believe that in terms of the coal companies that they have tried very hard either,” Senator Milne said.

“They have been through the motions.”

ELECTORAL BACKLASH

Senator Milne, who has led the Greens’ talks with Labor on carbon pricing, said the government would face an electoral backlash.

“Labor can’t be trusted on the environment – it’s as simple as that,” she said.

The Greens have called for the Productivity Commission to review compensation to coal-fired power generators, with a view to reducing it.

“The whole point of addressing global warming through an emissions trading scheme is to accelerate the transition away from fossil fuel and to renewable energy,” Senator Milne said.

“Shutting down some of the dirtiest coal-fired power stations was at the heart of what we are trying to do.

“(Mr Ferguson) is clearly the minister for fossil fuels.”

Senator Milne said there would also be now be a “dislocation” in communities where the power stations were based.

As carbon pricing made the power stations less viable, rather than there being an “orderly transition” the communities were likely to get a shock as the plants faced commercial reality and suddenly closed.

“Instead you’ve got a minister who will be smiling all the way to the next coal pit,” Senator Milne said.

‘BUDGET PATCH-UP’

Opposition Leader Tony Abbott says the government’s ditching of its plan to close down the dirtiest coal-fired power stations is an attempt to patch up the budget.

Mr Abbott told reporters in Bendigo it was always going to be a bad policy.

“But what we are seeing now is a government that is making it up as it goes,” he said.

“I think what we have seen today from the government is a desperate attempt to patch up the budget … to preserve the microscopic budget surplus.”

He said Prime Minister Julia Gillard was showing a “general inability to manage the economy”, especially the mining and energy sector.

“She just can’t be trusted to manage the resources sector properly, particularly now that it’s clear that the easy money days are over when it comes to the resources boom,” Mr Abbott said.

Mr Abbott said his direct action plan to achieve carbon emission cuts would not involve shutting down power stations.

“We’ve always wanted to clean them up, not shut them down,” he said.

“We’ve never wanted to shut down perfectly good businesses that are employing hundreds, in some cases thousands, of people.”