Kyoto will be bad for energy prices and the economy

Mark Latham has been talking about a “secret tax” on energy to fund renewable resources.

A concern – and not necessarily something to be believed.

The Coalition doesn’t (and shouldn’t) believe in Government discretion and the levying of taxes on markets to distort outcomes. The MARKET can achieve this without the Government doing it.

So using the example of renewable energy, if people want to put solar panels on the roof and buy “green power” from their electricity retailer, then they can do it. They, the market, the consumers can do it of their own free will. If they believe so strongly in the environment, then they should sign up for green energy at home. If they don’t want to, then they shouldn’t have to. (As an aside, how many Greens have actually signed up for “green power”? You know the old saying that money talks?) For a government to levy a tax just doesn’t make sense, unless you are from the left, in which case legislated theft is utterly normal.

Latham will have you believe that signing the Kyoto Protocol is good for Australia. My view is it will be a DISASTER!

Firstly the key to Kyoto is reducing emissions to 8% above 1990 levels. Australia is currently only 1.8% above those levels anyway, so there’s no real need.

Secondly, and most tragically, if Australia signs the agreement, it will open up international carbon trading. I am torn on this issue. Emissions trading is a great idea in that it attaches a price mechanism to pollution. The Government puts a cap on the total amount of pollution in the air and then everyone is allowed a “share” of that pollution allowance. If someone decides that they will not longer pollute, they get credits worth the difference of their polluting and non-polluting levels.

Then, each credit can be traded worldwide. Currently, such credits, which are measured in tons of carbon dioxide are estimated to be worth between $10 and $700 per ton. Let’s assume that it is a conservative midpoint of around $200 per ton.

What most of Victoria’s coal fired power plants will do is immediately weigh up the profit they make from selling electricity versus the profit they will make from shutting down the plants and reaping the rich rewards from carbon credits and selling them on the open markets. Obviously the environment will improve, but the price of electricity will then SKYROCKET to maybe 8 or 9 times its current price (according to Ken Edwards, the CEO of NextGen Energy), or at least until the profits from the sale of electricity equal the profits from the sale of credits.

If you believe that it’s not so bad if coal-driven baseload energy prices skyrocket – as “we can always cut down electricity usage or get some solar panels”. But the big point, and this has barely been discussed, is that industry, particular Victoria’s manufacturing industry, which thrives on cheap coal fired electricity may have to shut down. One study showed immediate losses of at least 15,000 jobs and a reduction in Victoria’s GDP of 8% in the first year. We are talking a cataclysm, or at least some very serious ramifications for baseload heavy industry.

Toyota, Holden, Ford, Comalco, Alcoa just to name five big manufacturers, will find that their already substantial electricity bills will go through the roof. It will not be worthwhile or economically feasible to operate in Victoria anymore. While we currently have one of the lowest electricity costs in the world due our massive reserve of coal under the LaTrobe Valley (500 years worth at last count), by turning our back on coal and forcing Australians into green we do so at great peril.

Labor’s idea of Kyoto is warm and fuzzy but it is a false economy. Idealistic, but extremely bad outcomes.

For a detailed examination of the Kyoto Protocol and the disaster it promises to be for Victoria, download this report prepared for the Victorian Government.