The Australian Government has indicated that loans would be available where a coal-fired generator with an emissions intensity exceeding 0.80 tCO2-e/MWh needs finance but is unable to obtain it from the market on reasonable terms.
It is interesting how divergent the pathways to the low carbon economy could be. In Europe regulatory mechanisms aiming at extinguishing coal-fired energy production have long tradition and, despite recent disturbances, are still vital.
Australian low-carbon economy vision appear far more balanced and pragmatic. Among multiple manifestations of such an approach can be found instruments like loans to emissions-intensive coal-fired generation complexes for purchasing future carbon units.
Under the Australian Clean Energy Act 2011 there are two situations where the loans of money can be granted by the Commonwealth to an emissions-intensive coal-fired generation complex.
Loans to purchase future carbon units
The Treasurer may authorise loans of money (whether secured or unsecured) by the Commonwealth, where each loan is made:
(a) for the purpose of purchasing future carbon units at an auction conducted by the Regulator during:
(i) the first financial year during which future carbon units are issued; or
(ii) either of the next 2 financial years; and
(b) to a person who:
(i) owns, controls or operates an emissions-intensive coal-fired generation complex; and
(ii) is a constitutional corporation.
Loans to refinance existing loans
The Treasurer may authorise loans of money (whether secured or unsecured) by the Commonwealth, where each loan is made:
(a) for the purpose of refinancing another loan that relates (in whole or in part) to an emissions-intensive coal-fired generation complex; and
Definition of ‘emissions-intensive coal-fired generation complex’ for the purposes of loans under the Australian Clean Energy Act 2011
An emissions-intensive coal-fired generation complex is a generation complex, where:
(a) at least 95% of the electricity generated by the generation complex during the period:
(i) beginning on 1 July 2008; and
(ii) ending on 30 June 2010;
was attributable to the combustion of coal; and
(b) the emissions intensity of the generation complex is greater than 0.80.
(b) to a person who:
(i) owns, controls or operates the generation complex;
and
(ii) is a constitutional corporation; and
(c) during the period of 3 years beginning at the commencement of this section.
Future carbon unit
For the purposes of the said provisions, a future carbon unit is a carbon unit:
(a) with a particular vintage year; and
(b) that is issued as a result of an auction conducted by the Regulator before the start of the vintage year.
Intended purpose of the mechanism
Pursuant to the Explanatory Memorandum the intention of these instruments is not to act as a substitute for private sector financing, if that is available, even if it is at a price that the generator finds unattractive.
The Australian Government has indicated that loans would be available where a coal-fired generator with an emissions intensity meeting the above thresholds (i.e. exceeding 0.80 tCO2-e/MWh) needs finance but is unable to obtain it from the market on reasonable terms.
Loans will be on terms that encourage generators to obtain finance from private lenders, with interest rates set above a relevant commercial benchmark rate.
Loans will be subject to an assessment that there is a clear capacity to repay the loan by the recipient. Special body (the Energy Security Council) is entrusted with providing advice on loans for refinancing of existing debt. Loans and loan terms will be subject to the approval of the Treasurer.
There could be hard to imagine the implementation of such loan mechanism in the current regulatory environment of the European carbon market. A broad European equivalent for such a measure, but in an economical meaning only, could be considered so-called ‘windfall profits’ - but only to those electricity generators (or industries covered by the EU ETS) who had quick reflexes, especially in the first trading period), in this sense that rationally thinking power producers or the above industries should allocate profits from free allowances in the first and second trading period (i.e. in the years 2005 – 2012) for future acquisitions of emission allowances in the auctions. If they had done so, the loans, as projected under the Australian cap-and-trade scheme, would not have been needed.
But for the countries that potentially consider introducing schemes for emissions trading and, concurrently, possess extensive, existing coal-fired energy generation, envision for such loan mechanisms can pose a supplementary, transitional platform enabling industrial structural changes.