Nick Xenophon reluctant to back Coalition plan for CEFC to fund carbon capture

The key Senate powerbroker Nick Xenophon has warned the Turnbull government he has “real reservations” about allowing the Clean Energy Finance Corporation to invest in carbon capture and storage technology.

Xenophon told Guardian Australia on Tuesday night the government should, instead of rewriting the rules of its so-called “green” bank, just knuckle down and deliver an emissions intensity trading scheme for Australia’s electricity sector.

Allowing electricity generators to engage in a form of carbon trading, the senator said, would deliver policy certainty, and “deal with the investment drought”.

Before the introduction of government legislation amending the CEFC’s investment rules to federal parliament on Wednesday, Labor is also signalling it won’t support the measure.

The Labor leader, Bill Shorten, responded to the government’s announcement on Tuesday that it would allow the CEFC to invest in carbon capture and storage declaring: “You’ve got to be kidding.”

The shadow cabinet is yet to deliberate formally on the government proposal but the shadow climate change minister, Mark Butler, issued a statement on Tuesday night saying the proposal was “nothing more than the latest stunt from a government unable to effectively deal with the energy crisis under its watch”.

The Greens are also opposed to the change.

If Xenophon’s concerns hold, the government will not, on current indications, have the numbers to get the proposal through the Senate.

The government has on numerous occasions flatly ruled out introducing an emissions intensity trading scheme for the electricity sector, even though a range of groups champion the policy as an effective mechanism for reducing emissions at the least cost to households and businesses.

The chief scientist, Alan Finkel, is expected to use his looming review of the national electricity market, which will be handed to the Council of Australian Governments next week, to maintain his implicit endorsement of a trading scheme, while proposing other reform options.

After the government confirmed its long-telegraphed intention to overhaul the CEFC’s investment rules on Tuesday, the organisation issued a statement saying amendments to legislation were “a matter for the parliament”.

“As a government agency, the CEFC has always complied with the act, and will continue to do so,” the statement said.

The CEFC said carbon capture and storage could be used in the power sector and “the industrial sector to capture emissions from chemical processes, as well as fugitive emissions”.

“There are some industrial processes for which there are currently very few alternatives to reducing emissions, making CCS an important technology if these sectors are to achieve deep cuts in emissions,” the CEFC’s statement said.

The government’s proposal was welcomed by the mining giant BHP. “Energy markets need to be both fuel- and technology-neutral, and not artificially favour one type of technology over another,” a company spokesman said.

“Policy should focus on providing clear emissions reduction goals and system stability requirements. It would then be up to industry to determine the most effective and least cost means of achieving these goals.

“While we expect further reduction in the cost of generation for new technologies such as solar PV, wind, power storage and CCS, secure and reliable power at the lowest possible cost while remaining consistent with emissions targets is likely to be provided by a mix of technologies.”

Energy Networks Australia also argued a technology-neutral approach was important in energy policy. “Australia’s economy is inherently carbon intense and it needs all viable technology options on the table to achieve deep decarbonisation in line with the Paris aspiration of zero net emissions by the second half of the century,” said the ENA’s chief executive, John Bradley.

“CCS has the potential to support long-term carbon abatement in major industries with significant carbon emissions, like metal manufacturing, fertilisers and advanced manufacturing,” he said.

Bradley said CCS technologies were not “pro-coal”. “They are just one of the potential tools that could help Australia to efficiently achieve carbon abatement at scale, while maintaining energy security and affordability.”

But the Climate Council’s chief executive, Amanda McKenzie, said diverting renewable energy funds to coal projects would be “costly, will increase emissions, and exacerbate climate change”.

“It is truly bizarre to use funds earmarked for clean energy to prop up polluting coal,” McKenzie said.

“The CEFC is a highly professional independent body investing in renewable energy and generating a return for taxpayers. Why the government would intervene to put public money into a technology that even the coal industry only minimally invests in beggars belief.”