The Victorian Government is seeking to demonstrate its green credentials. It proposes to introduce an energy tax that will force all electricity users to increase the renewable content of their electricity supply from the present 4 per cent to 10 per cent. The tax is to be set at $43 per megawatt hour. This means a doubling of the cost compared with the coal-fired electricity that provides 90 per cent of Victoria's electricity.
In releasing the proposals, Energy Minister Theo Theophanous and Environment Minister John Thwaites claim the cost to households will be a mere $1 a month. They also say that the measures will create 2200 jobs. One can only assume that among the contenders for next week's press release are the proposals to turn water to wine and transform lead into gold!
Surely we have advanced beyond notions that regulatory measures come with negligible penalties. If we can create 2200 jobs at $1 a month per household, why not quadruple the penalty and create 8800 jobs?
The fact is that the proposed measures have been devised in an analytical vacuum. Far from bringing increased wealth and job growth, the regulatory tax, if passed by Parliament, will gnaw at the state's economic health. This is all the more likely as the tax imposts and subsequent subsidies are designed to apply until 2030 and the legislation only allows for costs to rise.
The notion that the costs will be trivial is contradicted by the supporting material, scant as it is, that the ministers have released. This says that the measures will bring an increase in exotic renewables of 385,000 MWh a year. At the $43 per MWh penalty tax deemed necessary to bring this about, that means an annual cost of $164 million, amounting to more than $2 billion over the course of its life.
Presumably the ministers' estimated monthly cost of $1 per household assumes that the bulk of the charges will be incurred by industry and commerce. This incorporates the regrettable notion that if we slug business the costs will not be noticed and nobody will be the worse off. How many governments have run aground on that particular reef?
The only rigorous analysis of the proposal was undertaken by highly regarded independent consultants Access Economics. This estimated a real net economic loss to the state of $829 million in net present value terms. Far from anticipating more jobs, Access Economics estimated the regulatory tax would bring at least 1100 job losses. And, because much of this cost involves a transfer of activity overseas and interstate to avoid the higher regulatory costs the Victorian Government will impose, the overall effect on emissions is small.
Hard on the heels of those proposals, ABARE, the Commonwealth's leading economic research agency, released a report on greenhouse gas emission restraint measures. That report, prepared for the CSIRO, estimates the tax-equivalent measures necessary to reduce Australia's greenhouse gas emissions by 36-68 per cent of business-as-usual levels.
Naturally this involves much higher taxes than the $43 involved in the Victorian program, which would reduce the state's emissions by, at best, 6 per cent. And ABARE minces no words about the costs: it estimates real wage reductions of 4 to 21 per cent, depending on the severity of the emission-reduction program.
Though the proposal's priority is on reducing carbon dioxide emissions, the Victorian renewable energy proposal also sets out to achieve a potpourri of other goals, including regional development and fostering a new industry.
Meaningful gains will be achieved in none of the areas targeted, and the Government knows this. It confirms its lack of real interest in reducing emission levels by provisions within the proposal to prevent the renewable energy being supplied from outside Victoria. Such a provision is of doubtful constitutional legitimacy and denies the ability of energy suppliers to meet the goals at the lowest cost.
What the measures really seek is continued funding support from the beneficiaries of the subsidies and electoral appeal to mindless inner-suburban green voters.
This is politics at its most cynical.
The Victorian Government claims it is exercising leadership in the energy debate. If so, its leadership is demonstrating how to reduce living standards.
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