Repeal Carbon Tax to Reclaim Our Lost Advantage in Energy: Article by Jennifer Westacott

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia, was published in The Australian on 12 July 2014 under the title ‘Repeal Carbon Tax to Reclaim Our Lost Advantage in Energy’.

Next week we hope to finally get rid of a piece of badly designed public policy that has placed a serious drag on our economy – the carbon tax.

Coming from the power sharing deal between the former government and the Greens, it was a creature of a political compromise and resulted in the highest carbon tax of any country in the world. It’s not that we shouldn’t have taken action on climate change, but the carbon tax was poorly designed, it was unworkable and an example of a very poor policy process.

We might be able to farewell the carbon tax, but it is just one of a long line of green energy policies which federal and state governments have layered on top of one another that are driving up the cost of electricity.

It is the cumulative impact of these policies that is pushing up the cost of electricity and making our businesses less competitive.

Repeal of the carbon tax therefore must be the beginning of removing shortsighted schemes and programs, and the start of a process to design an integrated approach to climate change and energy policy that supports rather than weighs down our economic competitiveness and jobs.

Let’s get some facts on the table about the real costs of green energy policies on the economy.

Analysis for the Business Council by Synergies Economic Consulting and Roam Consulting of actual electricity prices across the mainland states of the National Electricity Market shows that the cost of electricity has more than doubled in the last 10 years.

This will not come as news for anyone opening their electricity bill each quarter, but what is startling about the analysis is the extent to which a plethora of green energy policies have collectively driven up the cost of electricity, particularly for business who are large consumers of electricity.

The research shows that together, the carbon tax, the Renewable Energy Target, and state-based energy efficiency schemes now account for up to 40 per cent of the total electricity bill for a large business that does not qualify for government assistance, such as non trade-exposed manufacturing, dairy farms, retail outlets and office buildings.

Even for businesses that do receive government assistance, the total cost of green energy policies on their electricity bill is 17-25 per cent. There are thousands of businesses that face the brunt of these higher costs. This erodes the competitiveness of Australia relative to the rest of the world and will be a direct hit to the living standards of all Australians.

For households, the research shows that green energy policies account for 11 per cent of an average household electricity bill. The carbon tax alone is estimated to have accounted for 6 per cent of a household electricity bill and 20 per cent for a large business, less for those that qualify for government assistance.

On top of this, the RET is estimated to cost up to almost 10 per cent of a typical electricity bill for a large business that does not receive any exemption, and 3 per cent of a typical household electricity bill.

State-based schemes, including feed-in tariffs and energy ­efficiency schemes, account for 2 per cent of a household bill and up to 12 per cent of a large business bill – for which there is no compensation available.

What the cumulative cost of these schemes highlights is that when climate change policies are developed in isolation of energy policy, it adds to the cost of reducing emissions and ultimately consumers pay more for electricity than they otherwise should.

Good energy policy should deliver reliable and competitively priced energy in the long-term interests of consumers, and include climate policy that enables lowest-cost emissions reduction that keeps us competitive with the rest of the world.

Business and households remain in the dark as to when the high-cost carbon tax will be repealed as politicians debate trade-offs with the Palmer United Party to rescind the tax. Businesses are increasingly concerned that the proposed PUP amendments will bring new levels of complexity and red tape. If the parliament is serious about reducing electricity costs, a speedy repeal with a workable process to ensure reduced electricity prices are reflected in household bills is required.

Repealing the carbon tax is the first step to putting Australia on track for an integrated approach to climate change and energy policy that supports economic competitiveness and jobs. Australia should work to reclaim our comparative advantage in energy while reducing greenhouse gas emissions in line with global ­efforts, by:

  1. Providing access to least cost abatement through international permits and getting the design of the emissions reduction fund right.
  2. Amending the RET to a true 20 per cent of demand by 2020 and discontinuing the scheme once all liabilities are met in 2030.
  3. Integrating climate change and energy policies as part of the government’s energy white paper.
  4. Ensuring that future climate change and energy policies look at the cumulative impact of new policies on the cost of energy to households, businesses and the economy as a whole.
  5. Completing the outstanding energy market reform agenda initiated by the Hilmer Review, including privatising energy assets, deregulating retail prices, adopting more uniform and economically efficient reliability standards and moving to more cost-reflective electricity tariffs.

With Australia’s competitiveness slipping, and with many businesses, families and individuals struggling, it is vital that the parliament develop consensus on the big issues facing our country such as our demographic changes, the rise of technology and our declining competitiveness.

Reaching a degree of bipartisanship on the critical principles on energy and climate change policy will ensure we play our role in global efforts to reduce greenhouse gas emissions while we reclaim energy as a comparative advantage for Australia in this increasingly competitive world.