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Abbott climate change policy pledge not to affect electricity prices is willfully misleading

July 13, 2010

In February we provided some preliminary comments on the draft opposition climate policy.  Now, Tony Abbott is pretending that electricity prices will not rise as a consequence of the Opposition climate change policy.  This point of policy difference, outlined by the Opposition, is widely understood and reported by Australian media.

It is, however, false and knowingly misleading.

Where is the proof that electricity prices will rise through the very absence of a broad-based market price on greenhouse gas emissions?

A recent study released by the Climate Institute (and AGL employees writing in a personal capacity) demonstrates that continued carbon price uncertainty will mean an additional cost of electricity to consumers of $2bn per year – or $60 per household per year – an increase of 13%.

It is common sense:  investment in much-needed generation capacity and supporting infrastructure will continue to be deferred and delayed with significant cost implications until long-term clarity is provided. 

Sub-optimal investment will be made: while a shadow carbon price will persist whether or not a ‘real’ market price does, no further investment in baseload coal generation can be privately financed due to the emissions intensity of that form of generation.  Meanwhile, Close-Cycle Generation Turbine technology gas-fired generation will not be built either, due to the high capital cost, and risk of asset stranding.  Instead, lower cost, inefficiently-deployed Open Cycle Turbine technology will be built.  This will lower capital exposure, but result in higher operating costs that will be passed on to consumers.

This research has been reported on in mainstream media, and the arguments are thoroughly known within academia and policy-making circles.  The Opposition cannot claim ignorance.

Promoting a policy package of investment in agricultural offsets and energy efficiency may sound like a solution to climate change.  It is not – it can only constitute part of a solution. 

These measures will still need to be paid for by the taxpayer and, importantly, in the absence of carbon pricing, are inefficient investments that do not harness market forces to guide investment to the least-cost solutions.

However, the absence of carbon pricing on the electricity sector and continued uncertainty implied by the Opposition policy will also cost the consumer.

Opposition policy-makers know this. Tony Abbott knows this.   

The Australian voter/taxpayer is being taken for a fool, and Tony Abbott is intellectually dishonest.

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