The Carbon Tax Debate

April 4, 2011

Quite predictably, the issue of a carbon price/tax has become the political hot potato of the moment.

Equally predictable is the way the opponents of the proposed scheme are (a) aiming to frighten the public into opposing the scheme by seeding the idea that a carbon price/tax will inevitably cause higher electricity costs and (b) claiming that the proposed tax will destroy Australian industry.

Let’s take point (a) first. One of the main reasons why Australia faces rising electricity prices is many years of underinvestment in its electricity transmission infrastructure. As George Maltabarow, the Managing Director of Ausgrid, which supplies power to Sydney, the central coast and the Hunter, said in the Sydney Morning Herald of 31 March: “About 50% of our large electricity substations were built in the 1950s and 1960s. Electrical equipment generally has a life of 40 to 50 years and so we have reached the stage now where much of this infrastructure needs to be replaced”.

This poses the question – why has there been such underinvestment in our power transmission and distribution infrastructure? Or, to put it another way: “Is the underinvestment in Australia’s power transmission and distribution infrastructure in some way related to the fact that, in comparison to other countries, our electricity prices have been, historically, very low?”

It’s estimated that a carbon price/tax would add between 2 and 3 cents per KWh to residential electricity prices. However, this could well be swamped by the cost of upgrading the power transmission and distribution infrastructure.

Now let's take point (b). Is it true that Australian industry will be killed off by higher electricity prices? Historically, Australia has had one of the lowest electricity prices in the world and another reason for this is our dependency on coal, which accounts for about 75% of out electricity generation, more than any other developed country except Denmark and Greece.

Putting aside the nuclear power discussion, where the country can be devastated by a 9 pointer earthquake, according to the World Nuclear Association, in August 2010 residential electricity prices in Australia were 36% of those in Japan and a little over half of those in most of Europe, while industrial power prices were 30% of Japan's and 60% of most European prices.

Yet, despite having the cheapest power in the neighbourhood, Australian manufacturing industry has been on a downward path since the 1960s. In contrast, during the 1980s, the two countries with the fastest economic growth, Germany and Japan, had some of the world’s highest electricity costs.

Perhaps the real issue we face is less to do with electricity prices than with the lack of Government policy which is as farsighted and intelligent as those of such countries as Germany, Korea, Japan and, yes, China.

What Australia lacks is a vision for the future – a coherent federal government strategy that envisions the role clean and renewable energy technology can play in the creation of an economy able to gainfully employ an expanding population. Australia needs certainty in power generation, whilst addressing the pressing issue of meeting our future energy needs and preserving our fragile and unique ecosystem. Not important? When acidification of the oceans by carbonic acid kills the Great Barrier Reef, where will Australia’s tourist visitors spend their dollars? The Antarctic? It’s not all to do with the cost of power.

(News@All-Energy Australia, Issue 35, 4 April 2011)

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