TiP

One of the hallmarks of the modern media era is the lack of any sustained effort to analyse reports on key issues of debate, like carbon policy.

This is heightened by the inability of the political parties to deal with such reports apart from efforts to spin them to advantage in the first 24-48 hours.

Two cases in point are the Productivity Commission report for the federal government on carbon schemes and the still more recent report on carbon price impacts by Deloitte Access Economics for the Energy Users Association.

It says a lot about the standard of media coverage that Christopher Monckton’s “fascist” crack at Ross Garnaut has received 194 reports to date versus, so far as I can find, just a handful for the Deloitte study.

Joe Hockey’s stunt with a cardboard cut-out picture of Rudd on “Assassination Day” won 20 media reports!

Economist Geoff Carmody, writing in The Australian, has made a strong follow-up point about the Productivity Commission study: it was unable, thanks to the government’s carefully slanted terms of reference, to look at actions being taken by Australia’s trade competitors rather than the seven trading partners reviewed.

As he says: “If the average answer for our competitors is zero or not a lot, Australia is ahead of countries from which it has most to fear from carbon leakage.”

Carmody adds the important point that it is highly likely that the Treasury modelling on which the government is relying still assumes that trade competitors will take carbon action. That’s the assumption it made in looking at the impacts of the Rudd CPRS.

Go next to the Deloitte study – you can find it on the EUAA website.

The report starts by noting that electricity prices for both business and residential customers here have increased in real terms (ie inflation-adjusted) by 30 per cent in the past few years.

“While prices remain lower than the OECD average,” the consultants say, “for industrial users they are now higher than in some Asian economies like South Korea which are large importers of Australian thermal coal.”

The advantage for trade-exposed industries of competitively-priced energy is being eroded by these price increases.

Deloitte argue that a critical issue is that decarbonisation policies affecting electricity supply, including the renewable energy schemes, are occurring in the context of a higher power price environment.

“This place great importance on ensuring that policy responses are directed at least cost abatement options.”

The consultants add that, if policy is not directed at least-cost abatement and improving investor and consumer certainty about longer-term policy settings, “resultant price imposts have the potential to unnecessarily damage the economy.”

A reminder here that the Productivity Commission found that Australia at present has 230 carbon schemes – more than double the number in Britain, for example.

This is another issue that the media essentially has allowed to go through to the keeper.

This mish-mash of schemes includes state policies on building standards for energy efficiency, solar rebates and feed-in schemes as well as federal subsidy programs.

As Deloitte say: “These policies have arisen with limited co-ordination across jurisdictions or across policies and with little consideration as to their cost in terms of the economy and electricity prices or of their environmental effectiveness.”

That old media headline stand-by “scandal” springs to mind here – but not for most actually engaged in the mainstream media, it seems. Or not in any co-ordinated way.

Deloitte also raise an interesting point about the RET, highlighting that it is legislated to last until 2030 – and that from 2019 onwards RECs rise to a tax-effective rate of $76 per megawatt hour rather than the projected $60 to 2018.

The consultants claim that the abatement cost of the RET in 2020 will be between $87 and $115 per tonne of carbon – compared with its estimate of $45 to $50 for the proposed carbon price.

And from 2020 this impacts by law on a fifth of the electricity we consume.

Deloitte modelling shows that the 2020 east coast market price for energy without a carbon price and with the RET will be $42.70 per MWh – while, under the goal to cut emissions to below 2000 levels by the end of a decade, the impact of a carbon tax (without recourse to emissions trading) plus the RET would more than double this cost. Their estimate is $94.20 per MWh.

This has to be considered, of course, in a market environment where, even with a new regulatory regime for networks, which might reduce wires charges growth but not in any sense eliminate it, 2020 power bills will be well north of double what they were in 2008.

This is the Gillard government’s compensation black hole: the short-term balm it says it will offer some households could not begin to salve the longer-term (ie 2020) hurt that will arise from both the direct impact of this situation (ie what we pay for electricity) and its indirect impact on the price of goods and services we buy plus jobs.

Deloitte condemn the RET because (1) it brings forward expensive off-the-shelf renewables, primarily wind generation, which are less likely to have a strongly declining price path over the longer term, and (2) it makes the structural transition to a lower carbon economy more challenging by locking in a higher cost base, resulting in substantial emissions cuts being more expensive in the future.

The consultants argue that, once an economy-wide carbon price is in place, supplementary policies across all jurisdictions should be withdrawn.

The political difficulty of this happening can’t be understated.

The RET alone is about as near to a bipartisan policy on decarbonisation at federal level as we have got.

The screaming we have seen from vested interests and environmentalists as governing politicians wake up to the problems of populist solar schemes and seek to wind them back will be as nothing compared with the reaction there will be to any attempt to shut down the RET.

Moreover, as part of its negotiating with the Greens and independents over the carbon price, the Gillard government is signalling that it is also open to introducing a mandatory energy efficiency measure designed, in effect, to force energy retailers to pursue cuts in consumption, especially peak demand.

Down this road lies “dynamic pricing” – high time of use charges aimed at forcing more power consumption in to off-peak periods. One could write a book about the difficulties, political and otherwise, of pursuing this policy.

For a start, it requires the national roll-out of “smart meters” – adding by itself something like $7 billion to network capital expenditures across the east coast. This is the capex that is currently being “gold-plated” by distributors, we are told, and must be cut back.

And, of course, in Victoria this weekend we are seeing reports that the follow-up study on burying power lines – flowing from the terrible Black Saturday fires – has estimated the cost at more than $20 billion.

Implementation would double this State’s power bills all by itself outside urban areas.

As those Looney Tunes Marvin the Martian T-shirts of my children’s youth two decades ago used to say “There must be a Ka-boom.”

Not being stupid, Julia Gillard, Wayne Swan and Greg Combet must know this – and one must therefore assume that their strategy is to shield the inevitable “ka-boom” from voters’ eyes until the next election.

Unlike the crashed-and-burned Keneally government, Gillard is not trapped in a fixed term. I suspect that she will be tempted to a 2012 election once she has the carbon price legislated, a generous May budget in hand and before the backlash gains new traction.

What price a double dissolution while she is at it?

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