Four of the nation's biggest and dirtiest power stations in Victoria's Latrobe Valley will receive the lion's share of $1 billion to help coal-fired generators cope with the carbon tax.
The cash, to be paid in June, is the first tranche of assistance from the federal government's $5.5 billion energy security fund.
It will be followed by annual allocations of 42 million free carbon permits from 2013/14 to 2016/17 to assist highly emissions-intensive power stations.
"Energy security fund cash payments are part of a broader package designed to ensure secure energy supplies as the nation transforms to a low carbon future," Climate Change Minister Greg Combet said in a statement on Friday.
Hazelwood power station is set to receive $266 million this financial year. Yallourn gets $257 million, Loy Yang Power pockets $240 million and Loy Yang B receives $117 million.
The cash is conditional on generators providing clean-energy investment plans.
Coal-fired generation accounts for about 75 per cent of Australia's electricity.
Power stations will be hit with a pollution price of $23 a tonne from July. Three years later Labor's carbon tax will transform into an emissions trading scheme with the price of permits set by the market.
Treasury estimates that putting a price on carbon emissions will reduce Australia's coal-fired electricity by 52 per cent by 2050.
Other power stations to receive cash payments are: Alcoa Anglesea, Augusta, Collinsville, Energy Brix and Redbank.
Mr Combet this week met with his European Commission counterpart in Brussels to discuss plans to link Australia's trading scheme, once it's up and running, with Europe's.
"Linking our schemes is a priority for the Australian government," Mr Combet said on Friday.
"The EU ETS is the largest emissions trading scheme in the world. Together, the schemes will provide access to a wider range of options for cost-effective emission reduction."
European Commissioner for Climate Action Connie Hedegaard said in a statement that integrated carbon markets would provide incentives for the development of low-emissions technologies.
Meanwhile, the federal opposition has seized on reports that the Together union, an amalgamation of the Queensland branch of the Australian Services Union and the state's Public Sector Union, wants wage rises to offset the impact of the carbon tax.
Overall, Australian families are expected to experience a cost-of-living increase of $9.90 a week after the tax starts on July 1. But they will receive, on average, $10.10 a week in assistance.
The compensation will be delivered in the form of tax cuts and increased welfare payments.
But opposition climate action spokesman Greg Hunt says Together's push for a pay rise "exposes the prime minister's promise of compensation for higher prices as a con".
"The union has let the cat out of the bag that workers will be worse off when the carbon tax is introduced," he said in a statement.
"They acknowledge that the government's so-called compensation will leave millions of Australians worse off."
