The Coalition’s case against a carbon price on the grounds that it will harm consumers through electricity price increases has been methodically attacked by infrastructure expert Rod Sims in a presentation to the Government’s Carbon Price Committee.

Sims is head of the NSW Independent Pricing and Regulatory Tribunal and a Howard Government appointee to the National Competition Council, and his presentation was made public, along with those of Ross Garnaut and Will Steffen, yesterday.

The Opposition, via Tony Abbott and Greg Hunt, have consistently warned that a carbon price would harm households via a rise in electricity prices, albeit without noting that households under Labor’s abandoned CPRS would have been fully compensated for price rises, and that direct action incentive schemes would be more effective.

Energy sector stakeholders such as the Energy Supply Association has repeatedly pointed out that the lack of a carbon price is delaying major investment and driving up electricity prices now. ESA chief executive Brad Page has complained of a “race to the bottom” in which consumers are mislead “that you can deal with climate change at no cost.”

Sims’s presentation noted that electricity prices had risen by about 30% in real terms over the last 4 years, although this has only brought prices back to where they were, adjusted for inflation, in 1985. Price rises had been driven by the need to accommodate surging demand and the cost of replacing assets, but four factors would drive large price rises in the future in the absence of a carbon price:

  • continuing infrastructure costs;
  • rising prices for coal and gas;
  • the unwillingness of the market to invest in new coal-fired power plants, coupled with reluctance to invest in gas-fired base-load plants without a carbon price, and
  • high-cost non-market greenhouse abatement schemes.

Sims particularly criticised current approaches to costing the impact of a carbon price. “The CPRS was estimated to increase wholesale electricity costs by 60% by 2015; meaning, all else equal, that retail electricity prices would rise by 24%.”

However, “traditionally modelled results are based on comparing Australia with and without a carbon price but this comparison is no longer correct.” In fact, they “overstate the effect” of a carbon price. Sims called for more accurate modelling to reflect the high cost of, particularly, solar power under current direct action programs (this week’s paper on the cost of the Federal Government’s solar PV rebate program by Andrew Macintosh and Deb Wilkinson, which showed that the long-running program had spent between $250 and $300 per tonne of abated emissions, again demonstrated how costly direct action programs could be).

Hunt rushed out a press release this morning,  cherry picking the 24% figure but not acknowledging that Sims had referred to it to say it was no longer correct. “Julia Gillard’s top advisers are telling her that her plans for a carbon price will force householders and businesses to pay another 24% for their power in three short years,” said Hunt.

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Hunt’s quotation of Sims appears to have deliberately omitted his reference to the CPRS (which the Government shelved in May), replacing it with “the Government’s carbon price plans”, when the entire point of the committee is to develop a carbon price plan.

Sims concluded “the introduction of a carbon price will allow the currently lowest cost measures to be chosen while technological change drives the best longer term solutions.”

Hunt rejected any misrepresentation. “It is clear that there will be a 24% rise in electricity costs as a result of the Government’s plans on top of every other impact,” he told Crikey. “This is in line with IPART’s determination in March and at odds with Julia Gillard’s claims that there would be no electricity price rise as a result of a carbon price.”

However, invited to provide a quote where the Prime Minister had said there would not be a price impact of a carbon price, Hunt’s office couldn’t provide one by deadline.

Sims, said Hunt “hadn’t defined what he meant by a carbon price” and should examine the NSW Government’s GGAS scheme, which obtained low-cost carbon abatement (the Government has claimed that the GGAS scheme funds abatement activities that would have taken place anyway, and that the real cost of the scheme is around $40 a tonne of emissions).

More important is Sims’s conclusion not just that a carbon price would allow lowest cost measures to be chosen, but that it needs to be a substitute for current high-priced greenhouse schemes. This is broadly in line with Ross Garnaut’s conclusion that an ETS should be the primary carbon abatement tool and that others were unnecessary if an effective ETS was operating.

Since the abandonment of the CPRS, the Government has embraced direct action programs like cash-for-clunkers and promised regulation to prevent emissions-intensive coal-fired power stations and the Opposition has based its entire climate change strategy on “direct action” of buying abatement. Sims also suggests that a carbon price be introduced in a way that takes into account the other factors driving electricity prices up.