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Paying the bill for carbon cuts

By Mark S. Lawson - posted Tuesday, 26 October 2010

The Federal Government may be excused for drawing out the process of imposing a carbon tax, and leaving some doubt about whether such a tax will occur, as the carbon tax policy faces a serious obstacle - that of taxpayers.

For taxpayers do not like paying extra tax and the carbon tax, as the name suggests, is a tax. Further it is a tax which is expected to show up, mostly in electricity bills, and those bills have been going through the roof of late.

A check of the figures for the consumer price index and a separate index for electricity prices compiled by the Australian Bureau of Statistics, shows that the two indices were moving almost in lock step until mid-2007. But since then they have diverged sharply with the CPI increasing by perhaps 9 per cent in three years, while the electricity sub-index has increased 40 per cent.


Very little of that increase is due to action over the endless moaning about carbon in the atmosphere. Legislation mandating targets for the supply of renewable energy into the national grid only passed into law late last year, and the expected carbon tax is many committee meetings short of reality. In fact, there does not seem to be any one reason for the increase.

Instead, rummaging in the reports produced by various state authorities, which are required to justify price increases in most states, produces a host of interlocking reasons.

These include replacing aging and obsolete assets, after long periods of neglect and under investment, tougher conditions for network security and reliability, expanding networks to cater for increased population and the need to build capacity to keep air conditioners going on a few, very hot days each year. Those are all good reasons, although it is difficult to understand just why all this investment had to kick off in 2007. Another reason given in the few public statements on this issue is that the increases are also partly the result of previous state governments being reluctant to increase prices.

Whatever you may make of those reasons, and trends in gas networks are the same, consumers are not very happy about it. A report by the Independent Pricing and Regulatory Authority of NSW (IPART) in April noted that it received many submissions from individual consumers declaring that they will have trouble paying more for their power.

But there is more to come, with the tribunal also estimating that consumers face further increase of between 20 to 46 per cent over the next three years, without any action against carbon. Variations on the same story can be told for each of the states.

Green groups and those advocating alternative power projects of one sort or another, point out that the electricity price increases to date are the equivalent of a carbon tax of $30 a tonne (there is no reason to doubt that figure) which consumers only found out about when they opened their electricity bills. So where is the problem in imposing a carbon tax of, say, $20 which may affect real changes in the electricity generating industry?  (The industry accounts for about half of the bill the consumers eventually pay.)


They may also stop to point to a graph on page 26 of Energy in Australia 2010, compiled by the Government research agency ABARE ( ) showing that Australia's residential and industrial electricity prices are quite cheap by world standards. There you are, case closed. When it's properly explained, consumers will welcome this additional impost.

Pigs may also fly. The Howard Government managed to bring in GST, and get away with it, but in that case the tax's introduction was smooth, it did not seem to make much difference to family cash flows, and quickly became part of the financial landscape. The slug on electricity bills is more painful, however, as it comes all at once, and hits the poor far harder than the rich, notably the poor living in marginal electorates. The new Gillard government relies on the support of independents as it is; mishandling the introduction of a carbon tax will see it returned to the opposition benches at the next election, without thanks.

Perhaps all the money raised by the tax can be returned to consumers? The original Carbon Pollution Reduction Scheme proposal contained provisions for compensating low income earners. However, assuming that the govenrment is able to resist pressure to spend the money on other mad, green schemes, the refunds would have to be carefully targeted. Consumers will quickly spend any government bonus, but feel the pain of an enormous electricity bill for a long time.

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About the Author

Mark Lawson is a senior journalist at the Australian Financial Review. He has written The Zen of Being Grumpy (Connor Court).

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