Is there any limit to the chutzpah of the coal-fired electricity generators? Jockeying by our biggest greenhouse polluters to be granted free permits threatens to destroy the effectiveness of the Rudd Government’s emissions system even before it begins.

Exempting the coal-fired electricity generators from the emissions trading system would be like imposing a tax on cigarettes then exempting smokers from paying it. As the biggest source of carbon emissions in the country, the coal-fired electricity generators are the principal target of the scheme.

The first objective of the new system is to drive up the price of coal-based electricity compared to the alternatives, mainly natural gas and various forms of renewable energy.

These same companies now demanding a windfall have in the past attacked proposals to introduce emissions trading to Australia by pointing to the problems in the European Emissions Trading System. As everyone knows, the problems there were caused precisely by the decision of European governments to hand free emission permits to big polluters, which led to price volatility and a huge wealth transfer to the very companies that should have been penalised by the system.

The Europeans have learned the lesson and have changed their ways, yet the coal-fired generators here want the Australian Government to repeat the colossal error that they themselves have been eager to highlight in the past.

As for their bleating about the potential loss of investment value due to the introduction of the scheme, the power companies have known for at least a decade that they will face restrictions on their right to pollute.

After all, Australia agreed to the terms of the Kyoto Protocol in 1997, even if the Howard Government did renege on its promise. We ratified the United Nations Framework Convention on Climate Change back in 1992 and the rest of the world has been moving inexorably towards carbon-reduction policies as the science has become more certain.

With such strong signs over such a long period signalling a major change to their business environment, if the coal-fired generators have not prepared themselves for the new regime then their CEOs should be sacked for gross negligence. Their shareholders should be up in arms at this woeful management failure.

A few of the more enlightened energy companies with interests in coal-fired generation could see the writing on the wall and have been preparing themselves for years by diversifying into gas and renewables. Queensland’s Stanwell Corporation, for instance, is serious about living up to its claim to be a “leading generator of environmentally responsible, low cost, reliable electricity.”

So why should those companies that refused to recognise that change was inevitable, denied that climate change is real, defied the wishes of the Australian community and failed to engage in proper corporate planning be given a huge windfall?

Why should poor management be rewarded?

Of course, these corporate dinosaurs always claim that their motives are noble rather than money-grubbing. Their only concern, they say, is their employees and the coal-dependent communities. These are the same companies that have never hesitated to lay off thousands of workers in pursuit of cost savings, as occurred in the Latrobe Valley in the 1980s and will occur in NSW if the Iemma Government manages to privatise the electricity industry.

For the market to be efficient and fair the permits must be auctioned to the highest bidder. Fortunately the Rudd Government’s adviser Ross Garnaut, who spent years working to undo trade protection, can recognise a snout in the trough from a mile off, and has been resolute in his advice that all permits be auctioned.

A case can be made for some form of compensation for the small number of firms that may face undue competition from abroad. We know exactly which industries they are and only a handful meet the criteria. They include aluminium, alumina, steel, other non-ferrous metals, LNG and gold. These industries account for around 1.5 per cent of GDP.

It is worth pointing out that the loudest voice for compensation has come from the aluminium smelting industry, which is heavily depended on access to bulk electricity. Over the years the aluminium industry has made more threats than any other to take its business to countries without emission restrictions. Many of us thought the days were over when respectable companies threatened to take their dirty factories to poor countries to exploit lax environmental standards.

The Rudd Government should bear in mind that the six Australian smelters — which largely bankrolled the self-styled greenhouse mafia — have managed to extract from state governments huge subsidies in the form of long-term electricity supply contracts guaranteeing prices below those enjoyed by other industries.

The case of the Portland smelter is particularly egregious with Victorian tax payers typically shelling out $200 million each year to subsidise the profits of the owners.

In considering financial compensation the Rudd Government should keep this in mind and use the emissions trading system to go some way towards correcting past government mistakes and thereby levelling the playing field.