The Labor Party has discovered a new, seemingly costless way of reducing greenhouse gas emissions.
Opposition environment spokesman Peter Garrett wants to phase out electricity suppliers' ability to offer off-peak power.
This would mean dearer electricity, reduced demand and lower levels of carbon dioxide.
There are things wrong with the plan -- and these point to Garrett's and, apparently, the ALP's basic understanding of markets.
For a start, the plan is really only a way to price electricity out of consumers' reach. The proposal is dressed up as having a negligible impact on existing consumers -- it will apply only to new connections.
So once again the costs are thrust on those not yet in the housing market -- younger people will pick up the tab while those of us on the housing ladder get a tax concession.
This may be smart politics but it is remarkably cynical in that the adverse impact is on the young who will be unaware of being disadvantaged. Those harmed will never realise that a government decree has increased their costs.
Moreover, it causes all the worst sorts of outcomes that selective regulatory measures bring.
It is picking particular measures in the hope that it will sneak into operation without people noticing.
In exempting existing home heating systems from its provisions, the policy also creates inefficiencies.
Existing off-peak users have a disincentive to change to new technologies that might use less fuel (and, incidentally, offer lower carbon emissions).
It even offers an added benefit to those with off-peak heating installed. If they rent out their property, they will obtain the advantage in the lower costs through a better rental return.
As well, the plan denies energy efficiencies and adds costs to the system. Off-peak electricity pricing is a longstanding marketing approach. It predates the competitive energy market.
In other words, it was seen to be advantageous even by the former state monopoly suppliers for very good reasons.
Off-peak charging allows the electricity supply industry to save costs. It aims to iron out the peaks and troughs in demand.
With a more constant level of demand, there are savings in the poles and wires that bring electricity to our homes and business facilities.
A smoother level of demand allows the cheaper sources of electricity -- the base-load plants -- to operate longer and provide electricity at cheaper average costs.
In a competitive electricity market -- and surely an ALP government would not propose to terminate this -- preventing companies from charging a lower price for off-peak use also presents considerable operational difficulties.
Because off-peak customers are cheaper to supply, competition means that retailers seek them out and offer better deals.
Being forbidden from doing this, but still enjoying lower costs for supplying such customers, would lead to hidden discounts and increased regulatory induced costs to seek out the more valuable customers who have flatter demands.
As a former businessman in the entertainment industry, Garrett might care to think about how one fills a rock concert arena. Promoters skilfully price seats differently in distinct areas of the arena (and in different arenas) based on demand and the costs of serving that demand.
The aim is to maximise profits, but this practice also maximises value for the audience. A promoter who decided on a single price with no cheap seats would soon be without acts to manage. There would also be empty seats and disappointed potential audience members who could not afford the premium seats.
There are almost always good cost-based reasons why an ostensibly homogeneous commodity does not have an identical price wherever it is sold. This is just as true of electricity supply as it is of rock concert tickets.
Measures to combat the mitigation of greenhouse gas emissions are already over-abundant and unduly complex.
We have subsidies for wind farms, water tanks and solar panels. We have regulatory measures for energy-saving costs on houses and fridges. We have state and federal compulsions to use specific quantities of high-cost low-carbon fuels. And we have endless requirements on companies to conduct audits of their energy use.
Simplicity of regulatory measures is a strategy governments often espouse but rarely implement in the greenhouse mitigation stakes. So far it has proven its worth only in kindling the careers of scientists and policymakers, career boosts that have brought reduced usages at the most extravagant of costs.
Garrett's proposal signals his intent to introduce an even more onerous regulatory approach.
ADVERTISEMENT
No comments:
Post a Comment