No end in sight to soaring electricity prices

THERE is a tombstone in an English churchyard with the following six-word epitaph: “I told you I was sick.”

As the number of closures in the manufacturing and minerals-processing sector grows, it is worth reflecting on how and why the repeated warnings from these sectors about the debilitating impact of steadily higher energy costs were ignored.

Less than a decade ago, Australia enjoyed the lowest energy costs in the developed world. It was an intrinsic part of our comparative advantage as a trading nation. But today that advantage has largely gone.

As a result of the carbon tax, the renewable energy target and a range of other energy policy interventions at the federal and state government level, Australia has some of the highest electricity costs in the developed world.

Household electricity prices have increased by more than 110 per cent in the past five years, and are projected to increase another 7 per cent in 2014-15.

Australian businesses - which account for 70 per cent of total electricity use in Australia - have experienced an almost 80 per cent increase in prices since 2009 and there are more rises on the way.

The causes are not hard to find.

The carbon tax accounted for 16 per cent of the electricity bill for a typical large industrial user in NSW in 2012-13.

In 2013-14, the carbon tax added an estimated $6.4 billion to the nation’s tax bill. That’s equivalent to a 10 per cent increase in company tax revenue in one year.

Defenders of the carbon tax often point to schemes such as the Californian emissions trading scheme as examples of comparable effort by other nations.

But we should not forget that Australia’s carbon tax raised the same amount of tax in its first six weeks as the Californian scheme is projected to raise in its first two years.

Official estimates suggest that the RET will generate a transfer of $20bn from householders and industrial users by 2020.

We have turned an economic strength into a weakness and are beginning to feel the consequences. Across the Pacific, by contrast, the US has turned a weakness into a strength and is seeing its manufacturing sector expand rather than contract. 

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