The government earmarked an undisclosed amount, in the billions of dollars, to pay the "dirty" power plants to shut down but was unable to reach an agreement with five companies that had expressed interest in the program, The Sydney Morning Herald reports.
"The contract for closure negotiations have taken place constructively and in good faith but there remains a material gap between the level of compensation generators have sought and what the government is prepared to pay," Australian Resources Minister Martin Ferguson said in a statement Wednesday.
The coal-fired power operators -- three in Victoria, one in South Australia and one in Queensland -- will continue to operate on a commercial basis, Ferguson said, "and the companies themselves will make their own commercial decisions as to their future over time."
The move represents the second element of Australia's clean energy package to be abandoned in less than two weeks. Last week, the government scrapped the floor price for the carbon tax that went into effect July 1 and said it will link the system with the European emissions trading scheme.
The contract for closure process was to be separate from the carbon pricing, which requires big polluters to pay the price of putting carbon pollution in the atmosphere.
The Australian Conservation Foundation criticized the decision, saying the contract for closure was a key commitment of the federal government's carbon price.
"With last week's announcement linking Australia's carbon price to the European scheme and removing the proposed floor price, the government should be finalizing negotiations, not backing away from a key promise," Tony Mohr, ACF's climate change program manager, said in a statement.
While Australia contributes 1.5 percent of global emissions, it is considered the world's biggest per-capita carbon emitter, largely because it relies on coal to supply 80 percent of its electricity.
Australian Prime Minister Julia Gillard maintains that Australia can still meet its target of reducing carbon emissions by at least 5 percent less than 2000 levels by 2020 through its carbon tax.
Speaking to reporters Wednesday, Gillard said the country's carbon reduction strategy "is right on target."
"That means that we will reduce the carbon pollution in our atmosphere by 160 million tons. That's the equivalent of taking 45 million cars off the road," she said.
But Greens party leader Christine Milne said the decision to scrap the contract for closure plan makes it harder for the country to achieve its goal of cutting emissions and that the Greens would ''use every political and parliamentary lever we can to speed up the transition to a clean energy economy."