THE Rudd Government is considering giving extra compensation to Victoria's high-polluting power stations after lobbying by the State Government, according to leaked documents.
Confidential state cabinet papers obtained by The Age show that the Federal Government agreed to review the $3 billion compensation for Victoria's brown coal-fired stations under the emissions trading scheme, after the state intervened on the generators' behalf.
The revelation comes as federal Climate Change Minister Penny Wong warned that the scheme was not a ''bottomless pit'' of money.
Senator Wong was responding to Opposition demands for greater industry compensation in its emissions trading legislation, which was re-introduced to Parliament yesterday, setting up a possible double dissolution election trigger.
The negotiations between the Government and Opposition follow two years of intense lobbying by industry groups and their supporters.
Senior Federal Government sources told The Age that Premier John Brumby had this year become ''the leading advocate'' for more compensation for coal-fired plants.
An industry consultant agreed, saying: ''I think Brumby and a couple of his ministers do more lobbying than the industry.''
The source suggested the Premier was concerned about the financial shock of the scheme causing generators to close, disrupting power supply.
''If you're the Premier and the lights go out, well, your lights are going to go out pretty soon afterwards,'' he said.
A Federal Government report last year found that up to three brown-coal plants could shut by 2020 due to emissions trading. However, experts advised that it would not affect energy supply, as extra lower-emission generation was expected to be built.
The business sector remains split over the merits of compensating coal-fired generators.
The Energy Users Association of Australia, which represents big energy users such as Bluescope Steel, said compensation was could not be justified.
Its executive director, Roman Domanski, queried the generators' warnings about being unable to refinance large debts.
''If they can't refinance, surely what they will do is sell their asset to somebody else who can refinance,'' he said. ''They will have to sell it in a fire sale, but so what? Are we going to feel sorry for them?''
Mr Brumby's role in lobbying for the generators has been the subject of speculation since July, when Canberra commissioned investment bank Morgan Stanley to examine the cost of emissions trading for coal plants.
A spokeswoman for Senator Wong said the State Government had been an active lobbyist, but was not the trigger for the Morgan Stanley report.
''Like a number of other state governments and lobby groups, the Victorian Government has made no secret of its desire for more money for coal-fired generators,'' she said.
The State Government declined to comment.
Meanwhile, Treasury officials revealed at a Senate estimates hearing that households would see a $78 price increase in electricity in the first year of emissions trading, followed by a $146 rise in the second.
The Government proposes to offset the price rise with $6.1 billion in household compensation in the second year of the scheme.
* Today, Deputy Prime Minister Julia Gillard will flag plans to retrain workers to prepare for the new ''low-carbon economy''.
The plan is expected to be ticked off by training ministers in November, and COAG by December, and then rolled out during 2010.
With TOM ARUP and KATHARINE MURPHY