Home > Boneheaded stupidity, Environment > Factor of five

Factor of five

February 4th, 2011

The Oz reports Opposition spokesman Greg Hunt, saying that “FAMILIES face electricity price rises of up to $1100 a year” under a carbon price of $30/tonne. Oz reporter James Massola doesn’t check the arithmetic behind this scary claim, so I guess it’s a job for the blogosphere.

Using black coal as the fuel source, a tonne of CO2 is emitted for each MWh generated, so the tax comes out at 3c/kWh. Our hypothetical family would have to use nearly 40 000 kWh each year. The average NSW household uses 7300 Kwh/year, putting Hunt’s claim out by a factor of five. That “up to” is doing an awful lot of work, the kind that would get a commercial advertiser into a lot of trouble with Consumer Affairs.

Assuming Hunt isn’t deliberately lying (and to be fair, he’s one of the best on the Opposition side) how did he get such an absurd number? My guess is that he divided an estimate of total revenue ($16 billion, which looks about right for emissions of 500 million tonnes a year), then divided by the number of households. His mistake of course is to assume that 100 per cent of emissions arise from household use of electricity – the correct figure is about 20 per cent.

Coming back to the average household, the implied cost is around $200/year, which would, in a properly designed scheme, be returned one way or another, either in direct compensation or in offsetting tax cuts.

Categories: Boneheaded stupidity, Environment Tags:
  1. Jill Rush
    February 4th, 2011 at 22:06 | #1

    Even if the number that Greg Hunt arrived at is calculated as you suggest it certainly looks like there is no real understanding of the mathematics involved. I am more cynical and think that the Opposition is into scare mongering and a Big New Tax has to be big to fit the story line.

  2. iain
    February 4th, 2011 at 22:47 | #2

    The implied cost figure is probably 30% higher in brown coal states. On top of this, it’s not clear what gouging might go on (the passing on of “admin” costs and other more opaque costs onto consumers). The EU ETS has shown that these costs are virtually inevitable, and so can’t be ignored.

    Regardless, a $1100 a year sound bite is obvious for what it is – cut and paste fodder for Murdoch’s people to test out the critical thinking of the masses.

  3. February 4th, 2011 at 23:35 | #3

    He’s one of the best on the Opposition side.
    Let’s see. Suppose we have a devastating set of floods that has effected most of the Eastern Sea Board and adjacent inland areas. Suppose we have a cyclone of close to unprecedented fury about to descend on Queensland. Suppose there is a proposed flood levy. And suppose that this same Opposition side chooses that moment in time to ask for additional donations, not for flood relief but to fund its own political opposition to the flood levy.
    Just how hard is it to be “one of the best” of that?
    Just think of a number, divide by five, and there you have it.

  4. February 5th, 2011 at 08:00 | #4

    Nice back-of-the-envelope calculation that clarifies things. I hope those in the media pick up on it. Well done.

  5. BilB
    February 5th, 2011 at 08:03 | #5

    The problem with your thinking John Quiggin is that firstly you do not recognise that a carbon tax is a primary material cost. ie the coal becomes more expensive. This new cost carries resonsibilities of financing. The coal user must have the funds available to buy the new more highly priced materail this carries finance costs and increased risk which is also another cost. Then the coal generator must process the material and sell his new repriced material to his customers. This is now carbon price+. The new pricing structure offers the power generator an opportunity to “catch up” on past costs contained. Power generators have been under pressure to operate at minimal cost for decades. This whole new environment breaks through that ceiling. So the new selling price is price+++.

    This new price is taken up by the power distributors who should be flushed with funds after their recent repricing bonanza courtesy of the CPRS, but it would be foolish to believe that to be the case considering what has happened and to wall of silence that has descended over the escalating electricity pricing fiasco, a silence in which Government, the electricity industry, and ECONOMISTS LIKE YOU JOHN QUIGGIN.

    So are the power distributors goin to pass on a new cost with no markup???? I don’t think so. When you consider that the whole ethos here is to cause reduced consumption through higher pricing, does anyone seriously believe that the distributors are not experimenting with their graphs to decide how they can increase revenue while reducing throughput???? The other factor here is that there is huge pressure to offer heavy industry a favoured commercial rate. This means higher prices again to the domestic retail consumer.

    With domestic retail rates already at 22 cents per unit it is going to be interesting to see how far past Hawaii’s electricity price of 28 cents per unit our electricity becomes. It should be noted that Hawaii generates all of its power from bunker OIL.

    This whole issue has being contrived by a field of fools.

    A simple 20% levy on retail electricity rates some 3 years ago would have meant that there would be 21 billion dollars in the infrastructure rebuilding fund, and new renewable plants would be coming on line from now in a steady procession of FULLY PAID UP plant completions immediately reducing Australia’s CO2 emissions.

    Please explain how what is now to happen is better???

  6. paul walter
    February 5th, 2011 at 08:31 | #6

    Ecological Hansonism, eh?
    I should be surprised, but I’m not. Just disappointed to find that when I’m sure there is no lower depth australian politics can descend to, it yet again it surpasses itself through examples like this. And of course, there is the maniac idiot that is the “Australian” in the background, gleefully peddling this cockies cack.

  7. Ikonoclast
    February 5th, 2011 at 08:46 | #7

    Sadly, this whole discussion is without point or hope.

    1. A carbon price sufficient to ameliorate negative externality effects will never be implemented in Australia due to the power of coal interests.

    2. The world as a whole will never do anything about global warming anyway.

    3. Electricity prices will keep rising here at 10% to 20% per annum with no carbon price.

    4. Corporate gouging of workers and environment will continue until economic and environmental collapse.

    In this macro sense, it is is extraordinarily easy to predict human history. One can’t predict the detail of the collapse but one can predict the collapse with near 100% probability.

  8. Ben
    February 5th, 2011 at 08:50 | #8

    BilB :
    With domestic retail rates already at 22 cents per unit it is going to be interesting to see how far past Hawaii’s electricity price of 28 cents per unit our electricity becomes. It should be noted that Hawaii generates all of its power from bunker OIL.

    Unlike Australia, Hawaii’s electricity price moves with approximately the same volatility as the oil price. In 2008, the electricity price in Hawaii was up near 38c/kWh. Where else have you known electricity prices to fall by nearly 50%?

  9. Salient Green
    February 5th, 2011 at 08:50 | #9

    Greg Hunt must be talking about the household with a room full of hydroponic dope under lights!

  10. BilB
    February 5th, 2011 at 09:13 | #10

    I’ve been hearing about McMansion owners with summer quarter bills up to $6000.

    I have no doubt that these are people who tried to protect themselves from escalating costs with some solar panels, only to discover that with the panels come “smart meters”. Smart meters are smart for the electricty distributor who thereafter can vary your electricity price according to the spot electricity price of the day, or their cash flow need. The real con with solar panels is that they offer electricity distributors the same degree of pricing flexibility that cell phone service providers have. Hands up anyone who seriously believes that when someone has gone to the trouble to phone you personally to say “I can reduce your cell phone bill if you sign here…”, rather than increase their own service throughput and profit. Same deal these days with the electricity tussle.

    But worse for the consumer….the electricty distributors now have the “moral authority” to reduce electricity consumption by hiking prices, thanks to the one thing that they do not believe in, Global Warming.

    And good on you Ben for your innane “nit picking”, and adding absolutely zero to the issue discussion.

  11. Salient Green
    February 5th, 2011 at 09:24 | #11

    “I’ve been hearing about McMansion owners with summer quarter bills up to $6000.”

    They must have several growing rooms then!

  12. Alice
    February 5th, 2011 at 09:26 | #12
  13. frankis
    February 5th, 2011 at 09:39 | #13

    If a competent journalist were to tackle Hunt on his scaremongering claim he’d at best only mutter something about oncosts throughout the economy resulting from the $16bn tax and that he was talking shorthand with his consumer “electricity bills”.

    But more likely no competent journalist will say anything anyway.

    On the bright side Ross Garnaut is playing strong isn’t he.

  14. BilB
    February 5th, 2011 at 09:42 | #14

    Assumptions, SG, are a window into the assumer’s mind, not the subject’s. ie how many growing rooms do you have (or would like to have)?

    No, these are people who will have the whole house temperature controlled airconditioning system, spa pools, and every imaginable electric appliance…with redundancy. One reported electricity distressee said that she was only cooling the upper floor of the house and still the bill was huge.

  15. jquiggin
    February 5th, 2011 at 09:52 | #15

    BilB, you need to take a course in intermediate microeconomics. Then you would know that an increase in input costs is typically passed on less than 100 per cent (look it up!). Sorry to be snarky about this, but I am, as you might be aware, a professor of economics, and I don’t appreciate patronising lectures filled with question marks and exclamation marks.

  16. Freelander
    February 5th, 2011 at 10:06 | #16

    I really haven’t looked into it in detail, but I suspect that the factor of five trick has been used against the NBN. That is, the cost of the NBN has been attributed by coalition critics to fall directly in totality on households, as if households are the only direct user of these services, and that these services are not an input to businesses of various types.
    It would be interesting for someone to have a look at the sort of usage by businesses in countries which have decent broadband and compare that with current Australian business usage. And also, how badly behind Australia is, in terms of GByte downloads per person per year, compared with Western Europe and some Asian countries, like HK, South Korea, and Japan.

  17. Freelander
    February 5th, 2011 at 10:12 | #17

    That said, I am not really in favour of heavy cross subsidisation of NBN services to every corner of rural Australia. (or at all, to be honest) They should start rolling the NBN out in the highest population/business density bits of the country first and extend it to the lowest density parts last, if ever. Mispricing would result in inefficient location decisions for business and people.

  18. Salient Green
    February 5th, 2011 at 10:16 | #18

    BilB, LOL, now who’s making assumptions! It’s true I know a little about these things as I get all kinds of casual workers coming through here.

    I still can’t see how one household could have a summer quarter bill of $6000. Using this table of the largest climate controlled airconditioning at 100%, which is impossible, the quarterly bill is still only $2600 and for the life of me I can’t see how 10 households full of appliances could use another $3500 let alone just one.
    http://www.refreshair.com.au/residential-air-conditioning/running-cost-guide/

  19. BilB
    February 5th, 2011 at 10:18 | #19

    JQ, I have tried to get comment from you and others for a year or more on the history of the CPRS and its consequences, and to date this is the first responce. But I see that agin you are not prepared to examine what has happened, its impact on the community, or its effectiveness economically. That is deplorable in itself.

    On the microeconomic impact of a carbon tax on electricity prices, I 100% disagree. Microeconomic impact draw reference from the aggrogated experience, not the specific one. And this is an extremely specific case with very unique history, at a very unique time in history.

    I appologise for offence from drawn from my methods of emphasis, but what does it take to have this situation properly examined?

  20. February 5th, 2011 at 11:45 | #20

    Also missing from the Hunt approach (and I agree he seems one of the best on the Lib team, but that may just be image and perception, certainly he doesn’t seem opposed to any of the anti-environmentalism of the coalition) is any sense that the point of a carbon tax is ultimately to force the use of power down. It is always described as if the consumer will pay all the extra (whatever that extra is) while making absolutely no attempt to reduce their power consumption, and therefore maintain their electricity bills at their previous level or lower. Bearing in mind of course that simultaneously the power companies will be doing their best to keep consumption rising, or, to the extent that it is not, prices rising, in order to keep their profits rising. There couldn’t, for this reason alone, be a worse time for the privatising of all electricity companies.

  21. February 5th, 2011 at 12:30 | #21

    @jquiggin
    Oh ease up a bit JQ. Life as a blogger is supposed to be hard. As a new blogger, any old comment would suit me. I don’t have to agree it with it – that’s what discussion and debate is all about. Which is why I and probably you blog.

  22. billie
    February 5th, 2011 at 12:42 | #22

    Privatised electricity in Victoria has meant that installing solar panels and selecting the wrong electricity biller has trebled my electricity bills in 12 months.

    Installing solar panels has meant that I have had a smart meter connected for which I was charged $240+ and I have to pay a higher rental of 53 or 72 cents a day.
    The smart meter electricity charge is 25 cents peak period 7am to 11pm Mon to Friday and 10 cents a kilowatt hour at other times.
    The wrong electricity biller means I pay higher daily supply charge and higher peak and off-peak rates.
    The wrong electricity biller, Australian Power and Gas, charged me for electricity used AND electricity GENERATED.

    Annoyingly you ask to change providers and the releasing company switches you in their own sweet time, meaning that I have waited 3 billing cycles to switch and paid 2 $80 cancellation fees to switch gas and electricity.

    In summer I generate more power than I use and pay connection charges of $70. I remember when my summer bill was $23 for refrigerator, lighting, TV and water bed heater.

    Logically my summer bills should only increase and supply charge increases

  23. iain
    February 5th, 2011 at 12:52 | #23

    @David Horton

    This is a good point. I don’t think anyone should ever apologise for high electricity prices (even much, much higher) – if that what it takes over the short term to change behaviour – and ultimately reduce costs of climate change.

    I would question whether another $200 year would create the type of behaviour change that is really required.

  24. Hermit
    February 5th, 2011 at 15:09 | #24

    If conventional black coal fired electricity goes up 3c then brown coal should go up another 40% to 4.2c based on relative CO2. Combined cycle gas will be half that of black coal and high temperature (supercritical) coal a bit less. The baseload generation technology that dare not speak its name comes well into the picture at $30 ie it pays effectively no carbon tax while the others are handicapped. The trouble is that I don’t see $30 getting up.

    The redistribution mechanism required for $30 will be quite major coming on top of flood levies and hefty non-carbon based price rises. I fear some serious fiddles will occur such as pensioner exemptions and ‘carbon farming’. Like medicinal cannabis in Calfornia, suddenly in Australia everyone is either a pensioner or a carbon farmer. As Garnaut points out when the carbon price doubles up on top of RET there could be more perverse outcomes. Thus the much praised wind and solar not only get a competitive advantage over coal and gas by avoiding carbon tax they get a subsidy or quota as well. Thus if $30 gets up (which I doubt) it will be heavily compromised.

  25. Ken Fabos
    February 5th, 2011 at 15:34 | #25

    It’s alarmism from the Coalition. I was going to say ‘just a bit of’ but on an issue this important, in a media that is complicit in promulgating a false view that the fundamentals of climate change science is controversial, doing the minimum that’s needed is made harder by the Coalition’s boneheaded position. The consequences will ultimately be much worse than a big hike in electricity prices.

    In any case is the point of a carbon price ‘driving down consumption of electricity’ as Hunt alleges or is it to cause the producers to adopt low emissions technology? To drive greater energy efficiency (to live just as well using less) or to force energy frugality (with references to Green religion and the stone age)? Well, we know which kind of rhetoric the Coalition favours. Anything result other than the adoption of low emissions technologies is going to be inadequate.

    It’s deeply disturbing that the serious costs and consequences of global failure on emissions are simply made to appear nonexistent from the Coalition perspective; all the world’s work on understanding climate gets tossed aside in order to engage in button pressing politics that relies on voters being ignorant and open to manipulation.

    I should add that I don’t find much reassurance in Ferguson’s remarks; Labor might talk the talk but they don’t walk the walk. They may not deny but they have a strong track record on delay and right now they surely have the recovery of the coal industry much higher on their agenda than emissions reductions.

  26. Alice
    February 5th, 2011 at 17:25 | #26

    @billie
    Billie

    This is the insanity of privatised electricity isnt it? Oh gee ….werent we told (lied to repeatedly) that all that extra competition would make prices fall …if only…if only…it was privatised.

    Now here you are doing the right thing and installing solar panels and the bastards are slugging you hard.

    Wow, when we have stopped selling the state and all those politicians who cant wait to get their mits on an “unprofitable” public service has gone, along with the public service, along with our incomes

    I just ask one thing – who is going to rebuild this country and who is there amongst us all that can act for the common good. We have lost the plot and let thieves rule the state. Perhaps we deserve everything we get for being monumentally stupid?

  27. Salient Green
    February 5th, 2011 at 21:32 | #27

    Alice, I wish I could remember the name of the bloke who said this on ABC 891 last week but it was “the sons of soccer mums have become soccer mummy’s boys”. This in response to the question of how we are going to achieve a new order of business to change the power of large financial institutions and businesses into a force for good and sustainability.

  28. BilB
    February 6th, 2011 at 08:54 | #28

    The ludicrous thing inthis whole argument is the notion that an electricityh price increase will cause a reduction in consumption. With Australia paying two and a quarter times the US retail rate for electricity and even allowing for the household useage difference of US 11,250 to the above stated NSW 7,300 units per household per year, a 3 cent rise in the price of electricity, even on top of the huge rises that have already taken place will make I believe very little impact in consumption.

    I think that the reason why government and the economics profession are choosing to ignore the totally failure of the previous price rises is that they did have no impact on consumption and they are hoping that a further price rise will change that…somehow.

    JQ, face up to the market approach failure. Even with a carbon tax, 20 years from now there will still be the same amount of CO2 released in this country. And the economics profession for all of their “wisdom” and a best advices have had zero impact on the one challenge that really mattered.

    It is time to take stock of the failures urgently and restructure. More of the same that has taken place will only create more of the same type of failure…for all of the same reasons… only with ever increasingly devastastaing impact.

    There is a time for market manipulating techniques, this is not it.

    I really did not expect you to take up the challenge of properly evaluating the CPRS failure and its on going consequences, Professor Quiggin, I just hope for better.

  29. jquiggin
    February 6th, 2011 at 11:50 | #29

    @Bilb – the price increases we have seen so far have been the result of rising demand, so they don’t tell us much about the demand response to a carbon tax. And they haven’t “failed” since they weren’t the outcome of policy in the first place.

    In the short run, though, the biggest effect is fuel switching. At about $30/tonne, brown coal becomes uneconomic relative to gas and wind, even for existing power plants.

  30. Salient Green
    February 6th, 2011 at 13:19 | #30

    BilB, Reducing energy use doesn’t just happen overnight. Apart from changing light bulbs, switching off lights and avoiding standby not much can be done without large expenditure.

    You don’t retire the fridge and freezer for an energy efficient model just because the power bill goes up. You don’t borrow money you can’t really afford atm for double glazing or solar cells just because the power bill goes up. You wear the higher power bill for the time being, spending less on other things, with a mind to improving one’s energy efficiency over the longer term.

  31. Charlie
    February 6th, 2011 at 15:44 | #31

    JQ said replying fiercely to Bilb that “Coming back to the average household, the implied cost is around $200/year, which would, in a properly designed scheme, be returned one way or another, either in direct compensation or in offsetting tax cuts”. As he then reminded us he is professor of economics, is he not aware that returning the $200 of carbon tax to the housholds that paid “in one form or another” has income effects that enable them if they choose to maintain their former patterns of consumption, although at the margin most will allow the changes in relative prices of carbon-intensive or not goods to shift some of their spending to the latter. But Bilb is right, to get a major shift will require a much larger carbon tax than the $30 mentioned by JQ. BTW, experience in the EU is that its ETS, max so far of about E30 per tonne (=A$40) has had little abatement effect (relative to the rising price of oil and gas). Demand for energy is price inelastic, and the alternative renewable sources remain inconsequential in the EU (see Ellerman et al: pricing carbon – the EU ETS, Cambridge 2010). The main effect of the ETS has been to renew interest and investment in nuclear energy which is much more cost-effective than the renewables, and that is likely to be the case here as well.

  32. jquiggin
    February 6th, 2011 at 16:07 | #32

    The EU scheme is based on quantity targets, which makes nonsense of Charlie’s comment.

  33. BilB
    February 6th, 2011 at 16:20 | #33

    Joun Quiggin,

    “the price increases we have seen so far have been the result of rising demand, so they don’t tell us much about the demand response to a carbon tax. And they haven’t “failed” since they weren’t the outcome of policy in the first place”

    you are so totally wrong about the cause of the electricity price rises to date. The price rises were directed by IPART on a programmed schedule total increase of 75% from the original retail rate at 17 cents per unit. There is a significant body of evidence to prove just that, in press releases from IPART, news articles, and statements from the electricity distributors themselves as declared on their websites (some of those screen grabs I have and some I can get from others who took them at the outset of this CPRS compliance price rise series).

    I am astounded that you, an economist, have tried to write this off as demand pressure. Absolutely false.

  34. Charlie
    February 6th, 2011 at 16:31 | #34

    JQ: the ETS sets a carbon price within a cap system, and that price is supposed, indeed claimed, to encourage inputs shifts away from CO2-intensive inputs. Have you read Ellerman et al? Bilb is right, energy demand is price inelastic, and supply likewise in favour of most cost-effective inputs at any carbon price less than at least $100, as wind and solar never recover their capital costs without huge direct subsidies.

  35. Alice
    February 6th, 2011 at 16:37 | #35

    @BilB
    So Bilb – do you you suggest its market power pressure accounting for price increases?
    That would not surprise me at all…this is all we seem to get from market liberalisation policies that clearly favour the rich. Low taxes for corporates and wealthy people, enabling them to absolutely thrive, extend their market power, avoid taxes, and gouge consumers (who happen to be the great washed and unwashed masses of middle and lower income earners).

    Ive had a gutful of market “liberalisation” policies. They have the stench of inequality rising from them….so that GDP growth means absolutely nothing when the vast majority dont happen to be part of it.

    Demand from whom?

    Even microeconomics knows that imperfect competition results in imperfect outcomes price wise…but to suggest we do nothing is irresponsible. Price caps (regulatory) immediately spring to mind.

    Economics needs to actually get some subjective skills and really look at the ethics of income distribution impacts of GDP growth policies…..demand means absolutely nothing when its the demand of the wealthy driving economies.

    Regulation means a lot more.

  36. BilB
    February 6th, 2011 at 17:30 | #36

    Alice,

    Do you, seriously all not remember what was to happen in order to make the changes to the CPRS?

    In order to achieve the cash flow for the CPRS electricity prices had to rise. This was required by government in the CPRS legislation intended for full implementation in 2013. This led IPART (the Independent Pricing And Review Tribunal) to advise the electricity industry to increase its prices by 75% in a multistep schedule to 2013. It was highly publicised at the time. Since then 2 of the scheduled price increase stages have been executed and a third is due. The thing is that these price increases were made up of a number of publicised parts. I advise you to Google the original press releases and read them.

    A portion of the increases were for required industry maintenance and increased running costs. The balance were to fund the cash flow for the purchase of CO2 emission permits.

    Now how this should have happened was that the electricity power houses should have billed the electricity distributors for the additional money required to purchase emission permits as needed.

    This is the important bit.

    This increased cost was to have been already adjusted for with the IPART directed schedule, so the monies accumulated in the hands of the electricity distributors should have been passed onto the power generators, to in turn pass on to government, to in turn pass on to households to compensate for the price increases.

    The CPRS failed……..but the price increase schedule is still in place.

    The problem is that the money intended to compensate households is now accumulating in the hands of the electricity distributors, with no mechanism to compensate households…………………..as was the selling point for the CPRS and its intention.

    Now is there any part of that which you cannot understand?

    Does it not bother you that a significant part of the (my guess) 12 billion dollars collected to date from the CPRS directed electricity price increases is filling the bank vaults of the electricity distributors and not being passed on to the suffering low income households as was intended by the legislation? Furthermore the money is in the hands of the retailers NOT the power generators who really need it to rebuild with renewable infrastructure.

    NB the RETs is a complicating factor.

    I’d be happy to be wrong about all of this, but I do not think that I am. And the quick proof is that I am paying more for my domestic electricity and am receiving no compensation as was promised under the CPRS legislation.

    And after all of that…..how the hell is a carbon tax meant to splice in here to fix the mess?

  37. Alice
    February 6th, 2011 at 18:08 | #37

    @BilB
    Frankly Bilb – it sounds to me like a swindle of the public and why am I not surprised by this? It happens almost every day with every new government policy.

    I am not surprised at all Bilb. Why should I be?. I admit I am not an expert on every industry and the details that you have at hand but I can assure you I see failure of pricing in more industries than electricity

    Why not revisit airport pricing since Macbank took over who were allowed some freedoms (which were supposed to flow back to consumers) but pricing = ratcheted 40% in a year after price caps were removed there coutesy of the useless productivity commission that also has marekt liberalisation as its core objective.

    Im sick to death of being held hostage by governments and their ” this is supposed to do this and result in consumer advantage” when the bloody opposite happens, in deals with oligarchists.

    No I dont know about electricity pricing regulation… but by now everyone knows pricing has escalated madly and is hitting people hard (so whatever Governments are bloody well doing is just backfiring (oaccidentally on purpose?)

  38. Alice
    February 6th, 2011 at 18:10 | #38

    @BilB
    and you bet it bothers me Bilb but my hatred of current policy already knows no bounds
    I wish I didnt understand economics. Its not the dismal science at all. Its the science of dismal economics.

  39. jquiggin
    February 6th, 2011 at 19:51 | #39

    “the ETS sets a carbon price”

    This is absolutely false. The ETS sets a quantity, and the price is determined by the market. Why bother making claims like this?

  40. Abe
    February 6th, 2011 at 19:56 | #40

    Australian journalist not good with the numbers nor economics. HOLD THE PRESSES.

    But seriously, Massola should stick with outing public servants writing under pseudonyms and other earth shattering news.

  41. Another Iain
    February 6th, 2011 at 19:59 | #41

    I don’t know its origin, but I remember distinctly that $1100 figure being bandied around in the early days of the Abbott opposition. Unfortunately I think it is far worse than a quick calculation on the basis of false assumptions. This is another instance of another “respectful disagreement” between the Lib number crunchers and Treasury.

    Between that and the idea that the Government (via “Direct Action”) can achieve abatement at a two- to six-fold lower price than a market mechanism make it pretty clear that there is no intention to have this particular policy debate in the real world. Not to mention that according to all my correspondence, they seem to believe that they can control both price and quantity of carbon abatement …

  42. Julien
    February 6th, 2011 at 20:06 | #42

    @BilB

    Wow mate, you seem to multiply your question marks and plus symbols at a similar rate as the Liberals multiply their estimates of carbon costs.

  43. fred
    February 6th, 2011 at 20:20 | #43

    “The average NSW household uses 7300 Kwh/year.”

    We are an all electric household ie no gas supply.
    And, as an extra to average households, we have to pump our own domestic water [twice, once from the collecting tank and then from the distribution tank, don't ask why].

    We use less than 3000 Kwh/year.

    Its not a problem, there is nothing we go without, for example we had the aircon running for some hours per day for the week we had recently that was 40 degrees plus every day and actually we are aiming at less.

  44. BilB
    February 6th, 2011 at 22:01 | #44

    The ultimate reality, Another Iain, is that there need be no cost at all for most people in achieving carbon neutrallity, in fact there can be an increased living standard, from a family balance sheet point of view.

    The real cost is that it is now too late prevent climate change. When one is moving large masses (comparable with heating our environment) it is important to not allow the rate of change of position to exceed ones ability to retard the change. Well we have lost that “battle”. The biosphere is changing now faster than human civilisation can create action that would prevent that change. The greater the rate of change the greater the response needs to be.

    Climate change has now demonstrated that damge can be done far faster than humans have the ability to repair.

    That is the true cost that climate change will heap upon families, and it will grow to be far greater than Abbott’s $1000 per year. And the responsibility for this cost, sheets squarely home to the Coalition and their disasterously arrogant ignorant policies of the last 15 years both in government and in opposition.

    The ALP at present are fumbling fools, but the Coalition is criminally liable, in my opinion.

    Julien, is that all you could think of to say???

  45. Charlie
    February 6th, 2011 at 22:11 | #45

    I said “the ETS sets a carbon price”

    JQ: “This is absolutely false. The ETS sets a quantity, and the price is determined by the market. Why bother making claims like this?”

    That is nit picking, with respect. OK the ETS market sets the price. So?

    How is the ETS price different in essence from a carbon tax? Both set/fix/yield/produce/prescribe/determine a price for carbon. Agreed?

    Is that price howsoever determined expected to reduce CO2 emissions? Will it, at less than $100 per tonne?

  46. Alan
    February 7th, 2011 at 04:30 | #46

    @Ikonoklast

    In this macro sense, it is is extraordinarily easy to predict human history. One can’t predict the detail of the collapse but one can predict the collapse with near 100% probability.

    I submit, with the greatest possible respect, you are exploring the same territory as Tony G. The only way to predict macro social and political events with 100% certainty is by way of mystical powers. I myself have not spent the required 587 years meditating naked in the Himalayan snows in order to acquire them. Worse than being bad prophecy, your position is extremely bad politics.

    Asking people to do something while telling them that nothing can be done is not a deeply persuasive way to motivate action.

  47. jquiggin
    February 7th, 2011 at 06:25 | #47

    To spell it out for you, Charlie, your claim was that the price in the ETS was not sufficient to generate the targeted quantity adjustments, and that therefore a carbon tax would not work. Since the ETS sets the quantity, and allows the price to adjust, this cannot possibly be right.

    The main complaint about the ETS has been that the quantity targets have been too generous, and therefore easily met at low carbon prices. This was clearly true of Phase I, when the price fell to zero at the end, but Phase II and Phase III targets have been greatly tightened without the massive increase in prices your (and BilB’s) claims would imply.

  48. Charlie
    February 7th, 2011 at 08:03 | #48

    Thanks JQ, but are the targets being reached at the current ETS Eu15/tonne (when I last checked)? Will they at less than Eu100?

  49. BilB
    February 7th, 2011 at 08:59 | #49

    I have not made any claims on the cost of electricity under a carbon tax or an ETC in this discussion, JQ.

    What I am concerned about is the ineffectiveness of everything that has transpired. Electricity increasing in price by 30% yielding at least 12 billion dollars over the last years for the electricity industry has resulted in only 2.5 billion dollars in wind energy investment delivering just 1.5% of Australia’s electricity needs.

    This is horrendously inefficient.

    Frankly, I don’t give a dam what the electricity price is. The GenIIPV system being developed here is viable (installation cost / BAU) all the way down to 13 cents per unit and constructionally requires less than half the resources than nuclear power for the same delivered Gwhrs/y, while delivering energy for less than half a cent per kilowatt hour. Apart from that it is upgradeable as higher efficiency elements become available, and operationally reconfigurable for changing household useage patterns. Furthermore, as the number of GenIIPV users builds so too does the number of people with a specific interest in investment in energy distribution and storage systems, a body of individuals who as receivers of the benefits of zero cost energy for both household and personal transport will have the liquidity to make such investment decisions.

    I have no doubt as to how this whole scenario plays out over time.

  50. Charlie
    February 7th, 2011 at 10:28 | #50

    Given the heading of this thread, “Factor of five”, the comment in The Oz today by Tony Concannon (Exec Dir, International Power Australian) that “generating power using renewables would cost between $150 to $200 per MWh, compared with about $40 from today’s coal-fired generators” is interesting. So now you know what the carbon tax has to be to get the required switch to renewables.

    BilB, you seem to have lost your marbles, or does GenIIPV have zero capital cost?

  51. jquiggin
    February 7th, 2011 at 11:13 | #51
  52. Charlie
    February 7th, 2011 at 11:16 | #52

    JQ “MRD”, was ist das?

  53. BilB
    February 7th, 2011 at 11:29 | #53
  54. Socrates
    February 7th, 2011 at 11:44 | #54

    BilB

    Having just read the whole exchange between yourself and JQ, I find your claims utterly unconvincing.

    “I’d be happy to be wrong about all of this, but I do not think that I am. And the quick proof is that I am paying more for my domestic electricity and am receiving no compensation as was promised under the CPRS legislation.”

    Recent price rises in retail electricity prove nothing about a CPRS or a straight carbon tax. It is hard for a policy that was not introduced to be responsible for an outcome of the existing system. Many of them are due to State governments first gouging revenue out of electrical distribution systems by various means, then privatised electricity operators “recouping” the cost of maintenance and needed network upgrades. These costs were entirely predictable and should have been budgetted for when the assetts were privatised. So the privatised operator either got the purchase price wrong, or took out too much in profits in years when they did no maintenance and upgrades. Either way, it is a complete non-sequiter to a debate about the future cost of carbon taxes that may now be introduced.

    So be happy BilB – you are wrong. A carbon tax will cost the average Liberal voter less than their psychiatric bills.

  55. BilB
    February 7th, 2011 at 12:00 | #55

    Well Socrates,

    I suggest that you actually read the announcements made at the time of the electricity price rise schedule. Specific mention was made that in the event that the CPRS legislation not coming to fruition that the electricity price would fall back by a proportional margin.

    Hasn’t happened.

    If you have anything other that uninformed assumption, then I am listening, but you don’t. So far, I am right. The mere inference of a carbon trading system is costing all voters 30% increased electricity bills, for zero reduction in CO2 emissions.

    Prove otherwise.

  56. Charlie
    February 7th, 2011 at 12:24 | #56

    BilB – I used to love that MRD

  57. Socrates
    February 7th, 2011 at 12:26 | #57

    BilB

    If states and generators are profiteering I don’t doubt it. It has nothing to do with a CPRS though. If talk of a CPRS stopped tomorrow, it would still be happening.

  58. BilB
    February 8th, 2011 at 05:55 | #58

    Hehehe, here is an interesting read

    “In 1991 the Norwegian Parliament decided to deregulate the market for trading with electrical energy, with the aim of ending the monopoly era for the power industry and introducing competition. The main objective changed from security of supply to efficiency of the sector.

    http://www.theoildrum.com/node/7404

    The bit that I like is

    “The immediate consequence was an increased risk to investors and a reluctance to install new power plants, and after a few years the result was a new balance between supply and demand of electricity”

    What? Surely business does not cope with risk with under supply? Well apparently yes. And that is with the easy safe product. What ever will business do when the product is more expensive

  59. BilB
    February 8th, 2011 at 06:16 | #59

    ……Damn keyboard……..

    ….and difficult to manage. This Norwegian example demonstrates the huge hole in the economist’s market model for electricity supply in general, let alone when the investment requirement is forced upon business with some kind of punitive manipulation. ie CPRS/ETS/carbon tax.

    It is one thing to draw a line on a graph, and another thing altogether to expect investors to follow that graph with their own money, at their own risk. The fact that the electricity industry is making massive windfall profits at present due to the horrendous politcal bungling of Australia’s 2 main political parties, is no guarantee that this sector will turn around and pump that money wholesale back into renewable infrastructure simply because the government of the day wants them to. One thing about business that gets comfortable with huge profits is that they like that to continue, and increase….its for the investors you know.

    This whole thing is going to end in accrimony. And from what I have seen here, is the truck load of economists who argued so vocally for a market solution to Global Warming are, when after 20 years nothing significant has been achieved in Australian CO2 emissions reductions, going to either say nothing and fade away, or shrug their shoulders and say “how were we supposed to know…you’re the politicians, you made the decisions..”. We are already at 4 years post JWH, CO2 is at 395ppm, and we are counting.

  60. February 9th, 2011 at 21:05 | #60

    Unfortunately we have been cursed with an evolved political system that has enabled boneheads to run government. Where unskilled politicians with their party’s agenda dictating its priorities and not the priorities of the people. Where they have allowed international laws to surpass our Commonwealth Constitution and pass new legislation without any referendum accepted by the people who suffer the consequences. Common sense solutions to these problems are found at http://www.aussieswannakiss.com I would urge all Australians to invest a few minutes to change our future.

  61. BilB
    February 11th, 2011 at 04:38 | #61

    Oh look, here is another example of market driven “success” in energy systems.

    “Another issue is electricity deregulation in Texas. The competitive marketplace produces a situation not all that different from the situation in which BP operated that led to the oil spill in the Gulf of Mexico. Under Texas’ structure, there are many entities, each concerned primarily with its own bottom line. In this environment, cost cutting in the name of profitability is rewarded, but can lead to power outages. Integration with the many other units involved in electricity generation, while possible in theory, is extremely difficult in practice in times of market stress. The competitive marketplace provides price integration, but leads to a greater chance of cascading failure, since each company can be expected to look out for itself, leaving regulators with an expanded role in making certain that the system as a whole functions properly.

    We are now considering adding more wind to the electric grid, as well as adding natural gas and electric vehicles. These will all have the effect of making the organization more complex. Each entity will be working to optimize its own profitability, with little focus on the overall success of the system. The failure of the Texas grid system in cold weather should act as a caution to those who expect that the integration of even more types of providers into the natural gas/electricity system can be done with few problems.”

    From The Oil Drum

  62. jquiggin
    February 11th, 2011 at 05:39 | #62

    BilB, I agree that electricity deregulation was a mistake, done more or less badly everywhere. Australia’s has been among the least bad, but is still a net obstacle to progress on climate change.

    But you can’t go from some particular market failure (or success) to the proposition that “markets are bad” (or “we should have free markets everywhere”). We have a mixed economy for a reason.

  63. BilB
    February 11th, 2011 at 06:52 | #63

    Deregulation is for mature stable commercial structures. Where dramatic change is REQUIRED, and more particularly when a specific end result is necessary, market instruments are inadequate in organising that process for all of the reasons cyted in the previous examples. That does not mean that markets have no place in the process, they do, but in the actuallisation rather than the organisation. Business routinely says to government “lay down the road” (rules) and we will drive along it. Where business says that it (buiness) will lay down the road it is rarely in the interests of the public at large (Bolivian Water crisis for example).

    Yes we have a mixed economy because it is mature. But we are now seeing that markets structures left to themselves can yield ultimate destruction. ie Global Warming through the efficiency of fossil fuel use, Global Financial Crisis through the efficiency of dispersing financial risk, Food Shortages through the efficiency of dispersing land ownership, Agricultural Pollution through the efficiency of dispersing fertilizers and pesticides, ,,,,,.

    In other words business does not have the ability to call a halt to its successes even in the face of ultimate destruction.

    Markets are a means to an end. Markets are not capable of determining where that end is, or how to get there. Markets do not serve fringe interests (80/20 rule). Markets do not work in times of broad destructive chaos.

    In other words, in the place where we are now headed (Global Warming driven Climate Change affect Environment), a product of market success, markets will fail. They will fail to determine what the problems are, they will fail to determine how to affect change that might moderate damage, they will fail to determine which infrastructure is required to resolve problems. They will not fail in delivering that infrastructure once it is known what is required. They may fail to deliver it in a uniform manner as community expects or at an affordable level.

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