Alcoa and Victorian govt pass carbon tax liability to federal govt

Aluminium giant Alcoa and the Victorian state government have designed a complicated set of deals intended to place the liability for rising power costs onto the federal government, according to The Australian Financial Review.

The plan addresses a long-standing issue whereby decades-old agreements between Alcoa and the state government included guarantees of cheap power that left Victoria holding the responsibility for the carbon tax due to an inability to pass on those costs to the aluminium giant.

The state had long urged the federal government to change the design of the carbon tax, but having failed in those efforts, the coalition government began negotiations with Alcoa and power generator Loy Yang B.

Under the deals, the state will pay an increased power price and pass most of that through to Alcoa.

Some details on the deal were foreshadowed in the annual report of the State Electricity Commission of Victoria (SECV), released in October.

“The SECV negotiated amendments to the electricity supply agreements with the Portland and Point Henry smelters to enable costs incurred under the electricity hedge to be passed on to the smelters,” the report said, according to the AFR.

The deals are designed to offset the nearly-$400 million impact of the carbon tax on the state by wiping an equal amount from the value of the state's hedging arrangements on power costs.

By passing the cost onto Alcoa, the company can then use its classification as an emissions intensive trade-exposed industry to receive federal compensation to cushion the impact of the carbon tax and offset the liability that had been held by the state, the AFR added.

“In accepting pass-through, we would accept a liability but if that pass-through triggers free permit allocation which can be sold or used elsewhere it would also be a benefit,” Alcoa general manager of government relations and climate strategy Tim McAuliffe said, according to the AFR.

“If we got all that right, it is no skin off Alcoa's nose, is it? But it does take a significant burden off the Victorian taxpayer.”