1985 was a very different place to 2011. Nelson Mandela was sitting in a South African jail cell, Ronald Reagan was sworn in as US president, and a man wearing a chicken suit trespassed into the Australian Parliament and sat on the government’s front bench.
But electricity prices…well, they were pretty much the same. Over the last couple of years, Australia-wide electricity prices climbed back to the same levels, inflation adjusted, that they were in 1985.
Of course there are a couple of important differences in today’s version of 1985 prices. First is the way they’ve come about. Recent electricity price rises have been sharp and sustained, with increases of around one-third from 2006-2010, and plenty more in the pipeline. When things change quickly, we obviously notice them more than if the same increases had been stretched over the last 10 or 15 years.
Second is the fundamental difference between prices and bills. Sure, prices may be at 1980s levels, but in the meantime, we’ve found plenty of new things to plug in, from iPads and mobile phones to plasma TVs, ceilings full of halogen downlights, and air-conditioners (not to mention the increasing size of the houses we’re lighting, heating and cooling).
So the price of electricity is much the same, but the amount of it we’re consuming and paying for in our bills, particularly at peak times of the day and year, has increased significantly.
All of this is making the fractious debate around a carbon price even more confused, with a massive glut of energy infrastructure costs colliding with the federal government’s attempts to explain its proposed scheme.
Let’s start with the energy infrastructure. There is about $40 billion worth of poles, wires and other bits and pieces scheduled for replacement and expansion over the next five years alone. You might be thinking, “$40 billion sounds like a lot of money – I wonder who’s going to pay for all that?” Inevitably, the answer is you, the consumer. Rising network costs account for around 68 per cent of recent electricity price rises, and they are set to continue increasing, and continue arriving in your letterbox.
The sheer scale of these costs raises urgent questions about whether they could be avoided, or at least deferred. Federal government climate change adviser Professor Ross Garnaut tackles this in a recent paper, where he tries to lift the lid on the “black box” of Australia’s energy market, suggesting current regulations may actually encourage the monopoly businesses that operate our energy networks to over-invest and pass excessive costs on to consumers.
At the same time, these network businesses, along with energy retailers, have little incentive to help reduce energy use, particularly at times of peak demand. ‘Peak demand’ refers to those daily and seasonal spikes in energy consumption when our energy networks are pushed close to their full capacity, for example when millions of air-conditioners are running at the hottest point on a summer’s day. Peak demand is a massive and growing issue, driving huge investments in parts of the network that we use for an amount of time totaling less than one full day every year.
The potential to reduce these costs was shown recently in Townsville, where a Solar City project reduced peak energy demand on Magnetic Island by 20 per cent, in the process pushing back the $17 million cost of an undersea cable by at least eight years.
So energy prices are going up, peak demand is a big problem, and regulations need to change. But there is also an inescapable role here for the consumer. Reforming the energy sector is well overdue, but if energy consumption keeps increasing, especially at peak times, then no amount of regulatory change will hold back network costs.
Then consider the government’s proposed carbon price – or at least the few details that are currently on the table. On 13 April, Climate Change Minister Greg Combet committed that “more than 50 per cent of the carbon price revenue will be used to assist households,” and that “millions of households” would be better off under this permanent assistance. If you think this sounds familiar, that’s because the government said much the same thing about their Carbon Pollution Reduction Scheme back in 2008. They just didn’t sell it very well, as former Prime Minister Kevin Rudd could no doubt tell you.
So far, so good for households – or at least for those who accept that climate change requires action, and that a carbon price is the most efficient way to go about it. Because there is only so much revenue raised from taxing carbon or selling permits to emitters, and the more of the pie you carve up and give away to industry, the less remains for household assistance and investments in low-emissions technologies.
You might ask “what’s the point?” – if you push up electricity bills on the one hand, and compensate for it through the tax system or rebates, isn’t it like a giant money-go-round? Well, not if you have the chance to change your behaviour on the way through.
Just like those businesses that receive compensation, many households will find they can make decisions to reduce their energy use and still pocket government assistance. By taking steps to cut their energy use in the short term, they will also reduce the load on our energy networks over the longer term, hopefully slashing some of that $40 billion plus sitting in the pipeline.
With just about every high-emitting industry in the country making a case for greater compensation, the real test for consumers – and for the government - will be in the final detail, and we’re unlikely to see that until at least the middle of 2011, when the political fight will intensify. It may not be 1985 any more, but it’s feeling a lot like 2008 all over again.