Fact check: will scrapping the carbon price lower electricity prices?
Friday, May 17, 2013, 06:33 AM | Source: The Conversation
By Dylan McConnell
Fact check: will scrapping the carbon price lower electricity prices?Dylan McConnell, University of Melbourne
Tony Abbott has said he will scrap the carbon "tax", leading to a fall in electricity prices.
In his budget reply speech he stated:
We will abolish the carbon tax – because that's the quickest way to reduce power prices and take the pressure off cost of living and job security.
But will removing the carbon price really lower electricity prices, and if so, by how much?
A reasonable answer would be by around 5%, with an upper boundary of about 10%.
In Victoria, the state with the highest emissions intensity, carbon costs add 2.2 cents per kilowatt hour to electricity costs. Based on typical Victorian consumption of 5000 kilowatt hours per year, removing the carbon costs should equate to a reduction of roughly $110 per year.
The Australian Energy Market Commission issued a report in March analysing trends in electricity prices and their components. One component is wholesale costs, which increased 14% over 2011-2012 to 2012-2013, the period in which the carbon price was introduced.
However wholesale costs only account for around 37% of retail electricity prices.
Other major components of retail prices are transmission costs, distribution costs ("poles and wires"), and retail costs (which include costs like the Renewable Energy Target).
Over the same period transmission costs went up 27%, distribution by 11% and retail costs by 17%. These components are independent of the carbon price, and account for the majority of hikes in retail electricity prices.
It's worth remembering too that even without the carbon price, electricity prices are predicted to rise. [Climate Change Authority research](http://climatechangeauthority.gov.au/ret suggests that without the carbon price, the rise would with be slightly smaller, with retail electricity prices just 6% lower.