The Business Council of Australia has this neat little trick where it hires two consultants to produce its lobbying reports. One is a hardcore economics or energy market modeller who then hands its results over to the other consultant, who knows how to make persuasive and pretty presentations.
It’s a very clever trick because it allows the BCA to use the second 'pretty charts consultant' to cherry-pick the facts and data from the hardcore economic modeller to suit its lobbying objectives. Meanwhile, it can leave out a range of data that might place the results in a broader context that could be inconvenient or could be used to expose the weaknesses in its assumptions and results.
For example, the current head of the ACCC, Rod Sims, when he was at Port Jackson Partners, was the 'pretty charts consultant' for the BCA in its effort to extract lots of free permits for polluters from the emissions trading scheme.
Sim’s report – Bringing specific company economic perspectives to bear on the ETS design – was one of the most appalling cases of cherry-picking and intransparent analysis I’ve ever come across in public policy. The report plucked out 14 assorted companies and assets which served to create an impression of impending doom and disaster from carbon pricing. Of course, when you bothered to take a more comprehensive look – such as that undertaken by the Grattan Institute – it became rather more apparent that things weren’t nearly as bad as the 14 case studies the BCA had selected.
Now, the BCA have performed the same trick with the report, Impact of green energy policies on electricity prices, to support its lobbying campaign to have the Renewable Energy Target watered down. According to the BCA “this analysis clearly shows the high cost of the carbon tax and other green energy policies on business and the community”. And it highlights that these schemes now account for 40 per cent of the cost of electricity for some businesses.
The BCA’s press release states: “To reduce the cost of the RET on consumers, the BCA is calling for the RET to be amended to a true 20 per cent of Australia’s electricity demand by 2020.”
Now, apparently, a hardcore energy market modelling analyst, in ROAM Consulting, was involved in developing the report alongside a group called Synergies Economic Consulting (who aren’t known as energy market modellers). Yet, for some strange reason, the report the BCA released provides no detailed modelling results of impacts on wholesale electricity prices and other assorted detailed breakdowns on underlying results that you would typically expect to see from ROAM.
This is all rather interesting because ROAM Consulting prepared another report just a few months ago for the Clean Energy Council. That report, where Synergies Economic Consulting was not involved, did provide those highly detailed breakdowns, finding that:
Repealing the RET would increase retail electricity bills
In the longer-term, in the absence of new renewable generation being built, wholesale electricity prices will increase from their current levels in response to demand growth and generator bidding strategies. The increase in wholesale electricity costs is greater than the costs of the RET in the medium- to long-term. Average residential electricity bills would be $51 a year higher in 2020, an average of $100 a year higher beyond 2020, and could be as much as $140 higher, if the RET is repealed compared to the BAU [business as usual]scenario.
Now, it is true that this earlier report by ROAM focused on end-price outcomes for household consumers, not businesses, unlike the recent report from the BCA. Nonetheless, the RET’s effect in lowering prices in the wholesale electricity market, illustrated in the chart below, would apply to all consumers.
If the RET was repealed NSW, South Australia and Victorian businesses would pay $25 more per megawatt hour by 2020. To put that in perspective, this is equivalent to reintroducing the carbon tax. Tasmanians see a smaller benefit, about $15, which rises over time and West Australians see an average benefit of about $10 from 2020-30. Queenslanders see a more limited benefit because ROAM doesn’t expect much new large-scale renewable capacity would be built in that state.
Figure 1: Change in wholesale electricity prices per megawatt-hour from repealing the RET
Of course, all this information seemed to be missing from the report that was authored by Synergies Economic Consultants. Instead it contained the following estimates, below, of the subsidy cost associated with the RET (‘LRET’ and ‘SRES’) alongside costs associated with the carbon price and state-based emissions reduction schemes, such as feed-in tariffs (FiT).
Now, feed-in tariffs have already been closed by all state governments and the carbon price is likely to go this week. Focusing solely on the LRET and SRES, the costs of this scheme are under a cent per kilowatt-hour. Converting it to megawatt-hours it equates to less than $10.
This cost would be the same for businesses as households, except for those businesses that receive substantial exemptions because they qualify as emissions intensive and trade exposed – such as aluminium smelters, steel mills, chemical plants, LNG facilities ... the list goes on.
Figure 2: Average electricity cost impact per kilowatt-hour of Australian emission reduction policies
So is this a huge cost impost once we take into account ROAM’s analysis that seemed to be so conveniently left out by Synergies Economic Consulting?
Well, first of all we need to consider that, in fact, the cost of the LRET will rise over time while the SRES will decline. Overall, the cost ends up higher, according to ROAM, hitting about $18 per megawatt-hour in 2020.
Yet even businesses that receive no exemptions in Victoria, South Australia and NSW end up clearly ahead while those in Queensland, Tasmania and WA will pay approximately $3 to $10 more for their electricity.
So how significant is $3 to $10 more for electricity? Based on the BCA report the current $10 per megawatt-hour cost equates to 10 per cent of large energy consumers’ bills, those who aren’t eligible for exemptions.
To put this into its proper context the Australian Bureau of Statistics has assessed how big electricity is as a proportion of many industries' total costs in its 2008-09 survey Energy, Water and Environment Management.
The answer is not that much, as the table below details. On average electricity accounts for 0.64 per cent of total expenditure. And 10 per cent of 0.65 per cent equals .... not very much at all.
Figure 3: Electricity as a proportion of total costs and impact of 10 per cent rise
Electricity portion of total expenditure
10% price rise as portion of total expenditure
Forestry and fishing
Accommodation and food services
Transport, postal and warehousing
Information media and telecommunications
Auxiliary finance and insurance services
Rental, hiring and real estate services
Professional, scientific and technical services
Administrative and support services
Public order, safety and regulatory services
Education and training (excluding government)
Health care and social assistance (excluding government)
Arts and recreation services