Posts Tagged ‘carbon dioxide emissions’

What’s wrong with pricing carbon anyway? Lessons from an old film laboratory.

I think there’s a lesson about the carbon price that can be found in the now dying business of film processing.

pipes

Tony Abbott talked about a “great big new tax”. If nothing else, that misrepresentation of the nature of the carbon price suggests that he really opposes it for the sake of opposing the Labor government that introduced it, not because he thinks it is bad policy.

The thing is, I don’t understand what the objection to pricing carbon really is.

ImageSome years ago I worked for a large film processing laboratory. It’s an almost dead technology now that cinema is digital, but in the heyday we processed millions of feet of film each week. That used a lot of water and chemicals – some of which, while not the worst substances ever invented, were not at all good for the environment. Those chemicals turned up in the processing wash water and other used chemical outflows, and in the early days went straight into the sewer. Because they didn’t break down like organic waste, those chemicals would eventually find their way into the rivers and ocean.

No big problem at first – it was a small operation, and the chemicals were diluted with heaps of water. But as we grew, the Water Board took more interest. And we found we had to pay. We had to pay for every litre of water we took from the mains, and again for every litre of waste that went into the sewer. Then they measured how much of those chemicals were in the waste water, and we had to pay for that. If we exceeded an agreed limit, we had to pay a hefty penalty rate as well.

You’ll notice this is a bit like paying for carbon dioxide emissions. Small companies – not a problem. Bigger ones charged according to how much they emit. But we never for a moment thought of our charges as a “tax”. It wasn’t a “sulphite tax” or an “ammonium tax”. It was simply a fee we had to pay to release pollutants into the system.

DSC00060How did we react to these increasing charges? We looked for different chemicals that weren’t such a problem. We found ways to recycle more of the waste chemicals. Our chief chemist developed a system for recovering and recycling up to 90% of the wash water we used. This turned out to be world-beating and the technology was adopted by labs in other countries. We developed systems that even the huge labs in Hollywood didn’t have.

Why is it so hard for fossil fuel users to take the same approach to reducing their costs?

Joe Hockey, the new Federal Treasurer, criticises the carbon “tax” saying it is misconceived because it won’t reduce the use of electricity. He says it’s an inelastic commodity: in other words, we use the same amount even if the price goes up. As it happens, even that isn’t true.

But the point of pricing carbon isn’t to reduce electricity usage: it is to reduce carbon dioxide emissions. It’s an incentive for companies to look for other ways to produce electricity, to reduce their costs – and a way of raising some of the funds necessary for that. That won’t happen overnight, it takes a long time to replace generating plant. But that’s a good reason to start sooner and not to give up.

chemmixBack in the film laboratory, any suggestion that the water and discharge fees were a “cinema tax” or designed to reduce cinema attendance would have been ridiculous. But that, in effect, is what the critics of pricing carbon are saying. Any suggestion that the charges would make our lab in Australia uncompetitive was just nonsense. Labs around the world used the same processes, and pollution problems were the same everywhere. Our response was based on a sense of environmental responsibility as much as on costs. And it actually made us more competitive, not less.

That company has now closed down its film processing operations.  It wasn’t financially ruined by environmental considerations: as before, it moved with the technology, and it’s now a successful digital post-production facility. It’s in Mr Hockey’s electorate. Perhaps he and his Coalition colleagues should take a lesson from its story, and reconsider their dismissal of new technologies, and their obstinate determination to abolish carbon pricing. It should be an effective tool in the challenge to clean up emissions and stem climate change.

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Still paying to be green?

Electricity bills will be going up for all of us – even those who pay extra to buy “Green Power”.  Are we getting what we have been paying for?

Australia’s dependence on coal for generating electricity is higher than almost any other country’s. Of course we have lots of coal, mostly easier to get out of the ground than in many other countries. But we also have lots of sunshine and wind, and so since it’s been known just how much climate change is affected by the carbon dioxide emissions from burning coal, many Australians (I’m one of them) have chosen to pay extra for their electricity so that the providers can source more of it from green energy: sun and wind.

Of course, as Tim Kelly of the Conservation Council of SA points out in “The Hidden Carbon in GreenPower“, the “green” electricity that comes to my house is no different from the plain stuff that comes to my neighbour’s house. But the supplier (in my case, Origin Energy) is supposed to match this demand for green electricity with the proportion it buys overall, and it has been understood that the surcharge it has been collecting (5c/kWh) should therefore match the additional costs it faces.

Now, ostensibly because of the so-called carbon tax, electricity is going up – quite substantially in some cases. I’ve been studying my bills, together with the new price structure that Origin has published, to try to understand why I’ll paying more.

Origin offers a range of price structures, so my analysis only applies to what I pay. However, some very interesting facts emerge.

Up to now, after a standard daily service charge, there is one rate for the first 1,750kWh (in a quarterly bill), and a second, higher rate for what we use over that amount. In my case, we don’t reach the 1,750kWh on the summer bill, but go well past it in the winter. There is also a much lower rate for off-peak power (which we use for hot water) and then there is the 100% green electricity surcharge – which up to now has been exactly 5c/kWh on the total amount used.

Not all those rates are going up. The green energy surcharge is coming down from 5c/kWh to 3.08c/kWh. If the price rises are being sheeted home to the “carbon tax”, it’s hard to see why this shouldn’t be totally eliminated – but more of that later.

The daily service charge and the initial rate are going up, the latter from 20.6kWh to 26.8c/kWh. The breakpoint is coming down from 1,750kWh/qtr to 1,000kWh/qtr. And there is a second breakpoint, at 2,000kWh/qtr, after which electricity will cost 37.73c/kWh. So, except for a small range of usage, the rate per kWh will go up around 30%.

So in my case I’ll be paying at least some of my bill at the higher tier rate even in the summer quarter. Over the year, it looks as though I’ll be paying about 14% more.  If I wasn’t already paying the green surcharge, it would be closer to 26% or 27%.

Power costs for green and non-green users

Origin is very precise about its green surcharge: a reduction from 5c/kWh to 3.08c/kWh. Not 3c, not even 3.1c: but 3.08c. A reduction of exactly 36.4%. I think that suggests that they know quite precisely how much it costs them to service a green customer compared to a non-green customer. It is hard to see why those paying the green surcharge should have to bear any of the carbon tax costs.

There is an obviously simple explanation: that a great part of the price increase has nothing to do with the carbon tax, but is simply the increase in the costs of maintenance, replacing infrastructure, wages, etc, which applies equally across the board.  I have written to Origin asking them to confirm that this is the case, and for their assurance that this explanation will be circulated with the next round of bills. I’ve had no response.

If it’s not the case, then the remaining 3.08c/kWh of the 100percent green surcharge is simply being used to subsidise non-green customers, and reduce the impact of the increases on them.  And I’m not happy about that. It’s one thing to pay extra to reduce one’s own contribution to greenhouse gases: something quite different to pay extra to allow other householders’ emissions to continue.

Apparently some other providers are not reducing their green power surcharge at all, arguing that the tax is applied to their total costs, and they cannot calculate the proportion of carbon costs that should be borne by individual customers. This exposes the entire green surcharge system as even more of a fraud.

My calculations show that those paying quarterly bills up to $700 for normal coal-fired electricity will find they are now paying almost exactly what green users were paying before the rise.

The corollary of this is that those currently paying for green electricity could cut their price rise to virtually nothing (or less for big users) by discontinuing their green surcharge.

It’s a temptation, in the face of such a big increase, and the evidence that the surcharge isn’t actually directly related to emission-free electricity. I guess some will do just that, but I also guess that Origin will be expecting very few to do so: these are people who have already chosen to pay more than they had to, on a point of principle.

However, if there is a drop-off of customers paying the green surcharge, will Origin revert to a lower proportion of green energy (thereby increasing their reliance on coal-fired power and presumably increasing their carbon tax liability)? This, surely, would not be a good outcome for the carbon tax.

Arguably, the existence of the surcharge has been a big factor in persuading many people that renewable energy is simply “too expensive”. But given that, regardless of any cost increase due to the carbon tax, the costs of all forms of renewable energy are steadily falling, that won’t continue to be the case. Already we are told that wind and coal costs are more or less on a par in South Australia.

So finally, we must ask how much longer we will be expected to pay any premium at all to encourage suppliers to buy green electricity.