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Power bills to rise faster without carbon price.

November 2, 2010

Rod Sims, chairman of IPART

What I said yesterday has been confirmed by Rod Sims, an eminent economist who chairs the Independent Pricing and Regulatory Tribunal in NSW.

His comment answers the question posted by Roger the Surf on this site yesterday. He wanted me to explain my comment that any delay in introducing an ETS is now causing more upward pressure on the price of electricity than an actual living, breathing emissions trading scheme would.

Sims puts it this way:

By not having a carbon price we are going to have energy price increases anyway… Nobody will invest in coal-fired power stations given the uncertainty about what the policy is going to be in the future, but without a carbon price they don’t have the price signal to invest in the most efficient alternative either, which is baseload gas generation… Instead they’ll invest in wind and inefficient open cycle gas plants and the inefficiency of that mix of plant will drive up generation costs and prices.

Well said.

Mr. Sims added that a carbon price should also mean that over time governments will phase out expensive greenhouse programs like solar feed-in tariffs and even the renewable energy target. The carbon price will produce – far more affluently – the shift to cleaner fuels. This would take more pressure off power prices.

He repeated an argument that was made by Roger Wilkins, former head of the NSW Cabinet Office and now head of the Commonwealth Attorney-General’s Department, who reported on renewables to the Federal government. Wilkins argued that if you set a price for carbon through an emissions trading scheme you force a shift to renewables in the most efficient and most affordable way. Price carbon appropriately, he said, and you don’t need subsidy for renewable projects. Price carbon and the market will ensure a shift of investment to the most efficient renewable source.

Or as Sims puts it in today’s SMH interview:

The main reason to have a carbon price is that it is the lowest cost way to meet any given level of greenhouse reduction… If we introduce a carbon price it will mean we don’t need these high cost abatement schemes. It should replace high-cost schemes like the feed-in tariff and also over time the renewable energy target as well.

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