Got one of the oldest and world’s dirtiest coal-fired electrical power stations that should have been closed down five years ago?  Just like those clunkers rusting in backyards, this heap of industrial junk could just be worth a cool $1 (or $2) billion in “compensation” by the government to close it down.

This is the suggestion from the owners of Hazelwood Power Station and helpfully by the Premier of Victoria John Brumby. Actually the owners, International Power (IPRH), a London-based multinational company, would no doubt prefer the $2 billion suggested by Green Energy Markets, as IPRH would rather close all eight turbines than just the two proposed by the Victorian government.

Crikey readers will remember from last year Clive Hamilton’s report:

The 40-year-old Hazelwood power station is Australia’s largest single source of carbon pollution and symbolises everything that is wrong with greenhouse policy in this country.  An industrial relic, Hazelwood was due to be decommissioned this year. The owners applied for an extension of its life to 2031. In 2005 the panel appointed by the Victorian government to review the application concluded that, if Hazelwood’s electricity output were replaced by natural gas turbines, carbon dioxide emissions would be two-thirds lower.

But Big Coal won and the Victorian Labor government extended Hazelwood’s license to pollute to 2031. The extension of its life will add around 340 million tonnes of carbon dioxide to the atmosphere. By comparison, in 2007 the whole electricity sector in Australia was responsible for 200 million tonnes of greenhouse gases.  Over the next two decades, the carbon emissions from Hazelwood will wipe out more than half of the emissions savings from the Rudd Government’s 20 per cent renewable energy scheme.

Hamilton suggested civil disobedience was justified by the complete failure of politics to do the right thing, to close, or in fact allow the long scheduled closure of this fantastically dirty polluter. Last year there were on-site protests but of course to no avail when the police outnumbered the protesters and against a remorseless government who in fact proposed new penalties to deal with this kind of protest.

Now perhaps we can see more clearly what the deeper story was all about. When International Power purchased Hazelwood at its privatisation by the Kennett government in 1996, paying $2.35 billion, it obviously knew of its limited life and must have factored that into its valuation. Unless there were nudges and winks from the vendors about that pesky issue of its closure in 2005. Now the original vendor has the nerve and chutzpah to demand that the federal government provide the “compensation” money less than a year after the antique was awarded a life extension!

Not only has the company had five more years of operational profit, it now expects to be paid to shut it down? Although it would seem unlikely to work, the announcement of all this three weeks from a federal election, and days after Julia Gillard announced her (pseudo) policy concerning climate change, seems a piece of pure blackmail.(Unfortunately the word ‘greenmail‘ means something else but we need a word for this kind of extortion.) Is this the first sequelae of the near-total capitulation of the government to the miner’s advertising blizzard?

The ABC’s Jon Faine asked Brumby several times, why did the Labor premier chose this time, in the middle of a federal election, to announce this issue?  There was no answer except waffle about Victoria’s “best practice” blah, blah and responsible environmentalism. (Commuters caught up in Monday’s transport collapse and Myki debacle are forgiven for choking on their own tongues.)

It could be a simple c-ck-up, which is often a safe parsimonious explanation especially in the political world where competence and intent is overestimated by observers. The other obvious explanation is some kind of political vendetta/payback (in which case it was perfect timing) but this seems unlikely given the mentor/student relationship between Brumby/Gillard; though of course those things often go sour especially when the student outshines the teacher.

I favour the third possibility: a grand conspiracy. Brumby doesn’t seem to have any further political ambition (as he stumbled over his plans if he is returned for another term) and his managerialist style is in keeping with his peers such as Carr/Bracks/Kennett, and no doubt aims for a nice cosy and juicy niche in boardrooms and consultancies.  Since it was his government that awarded Hazelwood an extension to its licence to pollute to 2031 and now he is trying to blackmail the feds to bail out International Power, the corporate world will owe him big time if this veritable billion dollar heist comes off*.

At any rate, the extension of Hazelwood’s operating licence for another 25 years was the crucial piece of a fiendishly clever piece of carbon blackmail. Hazelwood emits 16 million tonnes of carbon dioxide per year. IPRH has proposed to replace it with various mixes of Combined Cycle Gas Generator Turbine (CCGT) combined with renewables, principally wind turbine. This concept may well be the sensible way forward (though solar-thermal or geothermal would be better), at least as an intermediate and flexible approach in Australia, however that is not the main issue here.

But, in a move reminiscent of the tactics of Big Coal, they say they cannot go ahead building it because of financial uncertainties, which they blame on the Rudd/Gillard inability to bring in an ETS. The “solution” is that if the federal government puts a minimum price of $20 per tonne CO2, they want to claim the $320 million from the 16 million tonnes pollution saved by closing down Hazelwood.  That’s $320 million per year though it is not clear if they would expect this until 2031 ($6.7 billion). But they’ll also take $2 billion cash up front. This is the recommendation of a report by Green Energy Markets paid for by the state government (Environment Victoria).  GEM is the consultancy recommending the feds buy out Hazelwood for $2 billion. These actions are supported by Environment Victoria in The Age this week. Of course they would, because it is the federal government (ie: all of us) who are being suckered here.

This is a horribly expensive mechanism to work towards clean energy. Here is another considerable cost of privatisation. For the past 15 years Hazelwood has returned profits to its private owners who are not even in Australia. Now they effectively want the state to pay for the replacement of Hazelwood but guess who will retain any operating profits? Brilliant business plan if you can bring it off: privatise all the profit while socialising the pollution costs. If the state still owned Hazelwood it would simply be building the new power stations and would have more clear cut motivations to reduce carbon output.

*Note that this conspiracy theory does not necessarily mean there is any illegality though there is a very good case for thinking this incestuous revolving door between government and the corporates they deal with while in government should be stopped by legal measures.