Updated 29 May 2015, 8:40am
Environment Minister Greg Hunt introduced the Renewable Energy (Electricity) Amendment Bill on Wednesday.
The legislation locks in the bipartisan deal for a new, lower, 2020 Renewable Energy Target.
But, controversially, it reinstates the burning of native forest wood waste as a renewable energy source in the RET scheme.
"There is no evidence that its eligibility leads to unsustainable practices or has a negative impact on Australia's biodiversity," Mr Hunt said yesterday when introducing the bill.
"Using wood waste for generation is more beneficial to the environment than burning waste alone on the forest floor or simply allowing it to decompose and to produce methane a very high global warming potential gas."
The changes will help hardwood timber company Australian Solar Timbers (AST) build a two-megawatt power plant that will generate electricity onsite.
AST chairman Douglas Head said timber for the plant in New South Wales' Macleay Valley would come from existing sawmill waste that had little current value.
"There is not one new tree that would be cut. Frankly you would not cut a tree to produce electricity alone. It's got to be cut for some other high-value use," he said.
He said the wood by-products now potentially eligible for burning were "used sometimes as boiler fuels, potting mix, horse stable coverings and in the chicken industry — very low value".
The VicForests document says wood could be used as a brown coal substitute, but Nathan Trushell from VicForests downplayed the prospect of massive forest furnaces.
"I think the stark reality for us is we would see some significant economic challenges with Renewable Energy Target credits or not," he said.
"I think if there is opportunity for us in that space, it's really around small-scale local generation. I think for large-scale co-generation in coal-fired power stations the reality is timber is heavy and expensive to transport.
"If we're looking at our operations in East Gippsland we're talking about several hundred kilometres to transport that material. I can't see how economically that would stack up for us.
"Any fears of massive forest furnaces that we'd want to build, or seek people to construct, I think is simply a nonsense in the foreseeable future."
'Bio-perversity' in the extreme': professor
However, for many years VicForests' operations in East Gippsland have been running at a loss.
A document leaked to ANU ecologist Professor David Lindenmayer and passed on to the ABC shows native forest timber harvesting operations in East Gippsland "are not commercial".
The operations are costing taxpayers millions of dollars, and logging has not been profitable for "many years".
"Timber harvesting operations in the East Gippsland Forest Management Area (FMA) have not been profitable for VicForests for many years. Operations currently lose up to $5.5 million per annum, after the distribution of corporate overheads," the VicForests document says.
The revelations come in the current three-year corporate and business plans submitted by VicForests to the Victorian Treasurer.
Professor Lindenmayer said the document was leaked to him because people within the organisation were concerned about the organisation's impact on biodiversity.
The proposed changes to the RET would see a lifeline thrown to the struggling timber company.
"There's a whole raft of sawlog classes for which there is no market. Clearly the only option is to move into biomass burning. This is high volume, low value," he said.
"Under this approach we could well see VicForests becoming a biomass burning company with significant negative effects all around.
"This is what we call 'bio-perversity' in the extreme.
"This is bad for the sawlog industry because it take away resources from them. It's bad for the paper industry. It's bad for regional jobs. It's bad for carbon emissions. It's woeful for biodiversity. It's adds to the fire risk. This is dumb and dumber on steroids, I'm afraid."
Industry in region 'not commercially viable'
Goongerah Environment Centre Office spokesperson Ed Hill said the leaked documents revealed VicForests' business plan was unviable.
"Burning native forests to produce electricity is an archaic proposal, completely inconsistent with what Victorians would consider a wise and sustainable use of their forests," he said.
"These documents reveal there is a no market for native forest saw logs in East Gippsland and the industry in the region is not commercially viable.
"Should burning of native forest be allowed under the RET, there's a real risk that VicForests would become a company whose sole business is burning native forest for biomass energy."
In a statement, Victorian Senator Janet Rice said: "The industry are saying and government [are] saying that it's not going to change very much; that it's all about waste from the forest floor. This is not about waste," she said.
"Including the burning of wood from native forests under the renewable energy target is about propping up an unsustainable industry.
"Rather than having massive amounts of timber going into woodchips it's about sending massive amounts of timber into forest furnaces."