Hazelwood is the world’s
dirtiest power station. Located near
the vast Latrobe Valley brown coal
deposits in Australia’s Victoria state,
the plant is a magnet for environmental
protesters, angry that its emissions
of greenhouse gases per unit of electricity
topped a recent global ranking
by the World Wildlife Fund.
Hazelwood was scheduled to
close last year. Yet it remains in service
thanks to a pioneering deal
struck in June 2005 between its
owner, London-based International
Power, and the government of Victoria,
allowing the company to keep
the station going—and start a new
open-cut coal mine nearby—as long as it agrees to limit the
plant’s lifetime carbon dioxide emissions to 445m tonnes. Once
emissions reach that limit, the station must close. Currently, it
produces about 17m tonnes a year, which would give it a life of
a little over 26 years.
“There is no question that brown coal from the Latrobe Valley
emits relatively high levels of CO2, [so] we were happy to
make those concessions,” says Mark Williamson, International
Power’s CFO. Agreeing the emissions cap gives the company the
incentive to invest in “clean coal” technology, since extending the
life of the station depends on it, Williamson says.
Hazelwood is just one of International Power’s 40-plus power
stations in 18 countries being influenced by a new carbon economy.
Williamson says that all investments made by the £2.9 billion
(€4.4 billion) company are now based on the assumption
that environmental compliance costs will increase. That’s already
had an impact—though International Power’s generation capacity
rose by nearly 50% in the past three years, CO2 emissions per
kilowatt-hour fell by 15%.
Nowhere is this new reality more apparent than in Europe,
which accounts for about a third of the company’s generating
capacity. Since the EU launched its CO2 emissions trading
scheme in January 2005, Williamson says that his company
“treats carbon like a fuel when selling forward our output.”
Europe’s “cap and trade” system, which allocates tradable emission
allowances to the EU’s largest emitters, “kick-started the global
carbon market,” boasted Stavros Dimas, the EU’s environment
commissioner, in a speech last summer. When it ratified the Kyoto
protocol in 1997, the EU set itself an ambitious target of reducing
greenhouse gas emissions by 8% from 1990 levels by 2012.
The linchpin of this commitment is the CO2 trading scheme,
which covers around 40% of the EU’s total greenhouse gas emissions.
In 2005, regulators dispensed pollution permits to 11,500
plants in the oil, power, steel, cement, glass, ceramics and paper
sectors. Exceeding permitted levels results in a €40-per-tonne fine
in the first phase, which runs through 2007, though companies
can buy and sell their rights to manage shortfalls and surpluses.
During the second phase, which will run through 2012, a
fresh batch of allocations will be awarded to a wider range of
companies, with additional greenhouse gases, like methane and
nitrous oxide, possibly also included. Penalties in the second
phase will rise to €100 per tonne.