Uncertain policies to limit carbon pollution threaten $2 billion/year cost to economy and consumers Media Release

Jul 09, 2010 - 3:30pm

Statement by The Climate Institute and its Climate Partners:
Westpac, KPMG, Pacific Hydro, OgilvyEarth, AGL, and GE

UNCERTAIN POLICIES TO LIMIT CARBON POLLUTION THREATEN $2 BILLION/YEAR COST TO ECONOMY AND CONSUMERS

A paper released today by The Climate Institute and its Climate Partners* estimates that uncertainty around whether government will place a price tag on pollution will cost the economy and consumers $2 billion a year in higher electricity prices.

Prepared by economists and energy market experts, the paper estimates the additional cost to electricity users resulting from a delay in regulatory certainty on the cost of pollution. 

The additional economic impacts are driven by a stop start approach to delivering public policy settings to limit pollution. This is having a profound effect – and promoting inefficient investment choices - on electricity generation and will be felt through rising electricity prices. 

The longer Australia waits to establish an effective policy response, the more these additional costs will impact consumers.

The authors find (see also attached Figure): Even a delay until 2013 in regulatory certainty causes wholesale electricity prices in 2020 to be 13 percent or $8.60 per MWh higher than if greater certainty was provided immediately. 

Across the economy this equates to around a $2 billion dollar a year loss to electricity consumers in 2020. For an average household, this means spending on electricity would increase by $60 per year by 2020. 

The costs to consumers are lower where complementary policies are introduced to encourage energy efficiency. If the growth in energy demand can be reduced, the costs of regulatory uncertainty are not eliminated, but the electricity price will increase by around 3 percent. 

The research underscores that uncertainty around the price tag on pollution will increase electricity prices, hurt the economy and hit the cost of living for every day Australians. Without greater certainty and a clear, credible and detailed plan to reduce our economy’s dependence on pollution and make clean energy cheaper, these costs will be locked in and will increase over time.

The results are based on a scenario where companies continue to build peaking power stations (such as open cycle gas fired power stations) to meet growing demand, instead of intermediate and baseload power stations (such as combined cycle gas plants) which are more efficient, potentially less polluting and have lower running costs. 

Once these investments are made their cost is effectively locked into the economy and is passed on to consumers.

Global low-pollution and clean energy investments and industries are growing rapidly. Previous research commissioned by The Climate Institute and Westpac concluded that, globally, 2010 is expected to see record new investment in clean energy. At the moment, Australia is failing to capitalise on many of these opportunities.

The Climate Institute and its Climate Partners are clear that legislation to put a price tag and limit on pollution in the next term of Government is needed if Australia is to join the global race to a clean energy and a low pollution economy, and avoid the unnecessary economic costs of further delay.

* The Climate Institute’s Climate Partners is a new corporate partnership focused on promoting business leadership in driving climate change solutions and Australia’s transition to a low-carbon, clean-energy economy.

Download the Report

For media inquiries, contact Harriet Binet, Communications Director The Climate Institute, on  02 8239 6299 or  0402 588 384.

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