Smart policy can improve families’ energy affordability Media Release

Jun 22, 2008 - 8:00pm

The Climate Institute today released a discussion paper from economists at CSIRO and the Australian National University on the impact of emissions trading on household energy budgets. This first of its kind analysis finds that for most households wage growth will outstrip increases in energy prices, improving energy affordability over coming years.  Energy efficiency policies and some targeted payments can ensure this happens for all families.

In the most likely outlooks, the proportion of average households income required to meet current energy needs is projected to fall from just above 9% (in 2005) to around 8% (between 7.8% and 8.6%), as incomes rise more than energy prices.

Among low income groups emission trading price impacts are of concern to 2020. With high carbon prices the proportion that low income individuals – the worst affected group – spend on energy increases slightly (by 0.3%) to just under 13% by 2020. If support is given to energy efficiency alongside emissions trading, spending needed to meet energy needs falls around 12% in 2020 even if oil prices continue to increase.

Estimated budget payments of around $350 million/year between 2010-2025 are required to fully insulate low income groups from increased direct energy prices (up to $445/year per household in 2025). This could easily be financed from revenue to be raised from emissions trading.

“Helping avoid the worst costs of dangerous climate change requires policies that boost investment in clean technology and put a price on greenhouse polluting technology,” said Erwin Jackson, Director of Policy and Research, at the Climate Institute. “This economic analysis suggests that as the Government implements the necessary long-term plan for the low carbon economy the affordability of energy for most Australians is likely to improve substantially over coming years.”

Additionally it finds that two key measures – energy efficiency and a Government energy affordability payment could be used to insulate low income households from any short term consequences.

“For low-income families, concerns about the increased cost of energy and other goods and services are real but can be overcome if we have a fair and effective distribution of the multi-billion bonus to government coffers provided by the emissions trading system.”

“The revenue from the emissions trading scheme is likely to be equivalent to around one third of total current state taxes in Australia. As a priority, the Federal Government should establish a multi year,  multi-billion dollar fund in next years Budget to offset price increase impacts in low income groups. Additional revenue should also be targeted at energy affordability and public transport programs to build long-term national resilience to future price rises.”

“An emissions trading scheme guided by strong reduction targets and smart policies can provide a strong dividend to help ensure Australia’s transition to a globally competitive low carbon economy actually improves energy affordability for all Australian families,” concluded Mr Jackson.

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