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Crikey says: rent-seeking from generators

The Greens will struggle to hold Senate power, new polling reveals. Naturally they’d want brand differentiation from Labor, writes Bernard Keane. Plus Marius Kloppers’ BHP legacy, and the damning reports into swimming. Plus Crikey is inside (and outside) the Geert Wilders circus.

One of the more sordid aspects of the debate over Kevin Rudd’s carbon pollution reduction scheme was the incessant and apocalyptic complaining from coal-fired power companies. Chinese-owned TRUenergy, in particular, was one of the most vocal critics of the CPRS, claiming it would send the company broke years before it commenced, that it would lead to the lights going out on Victorians, that it would cause economic dislocation “for generations”.

As Crikey repeatedly pointed out at the time, while the company’s executives were warning of the four horsemen of the carbon apocalypse in public, their message to investors was very different: the company was upbeat about the Australian market and the carbon price.

But the result was even more generous treatment of Australia’s biggest polluters under subsequent iterations of the CPRS and, eventually, of the carbon price scheme successfully introduced by the Gillard government with the support of the Greens and crossbenches, via huge handouts over the “energy security fund”.

Now that the carbon pricing scheme has been in operation for over six months, we can match up reality with the dire predictions from industry. And that’s exactly what a new report for Environment Victoria has done. In examining the pricing impacts for electricity, the report’s authors conclude:

We have calculated that Victoria’s brown coal generators have been able to pass through an estimated 111% of the cost of the carbon price in the spot market, or a little over 100% after accounting for the cost of emission permits that need to be surrendered for electricity used in the process of generating electricity at the power stations. This is a higher level of pass-through than was expected. Modelling studies conducted in anticipation of the carbon price had predicted different levels of pass-through, although the expectation in most studies (and by the government) was that generators in the NEM would not, on average, be able to fully recover the costs. In Victoria, the higher emission-intensity generation was expected to be able to pass through around 80% of the emission cost.”

As a result, the report concludes:

… assuming a continuation of the observed pass-through percentage, the Victorian brown coal generators can expect to accrue additional operating profits somewhere in the range of $2.3bn to $5.4bn (Present Value) depending on emission prices in future. The lower end of this range corresponds to lower expected emission prices in future. Even if pass-through percentages fall significantly, Victoria’s brown coal generators would still be likely to improve their net profits as a result of the Energy Security Fund payments.”

Well done, TRUenergy. Your performance in 2009 was classic, and highly successful, rent-seeking.

4
  • 1
    Posted Wednesday, 20 February 2013 at 3:15 pm | Permalink

    Thanx for this report.

    I never understood why the power companies couldn’t pass on the full cost of the carbon tax. Perhaps forecasters didn’t expect that Australia’s economy would be as strong as it turned out to be.

  • 2
    Dogs breakfast
    Posted Wednesday, 20 February 2013 at 6:00 pm | Permalink

    Most annoying.

    It always worried me that the intent of the carbon tax, if it were to work, was to raise prices, in particular for the greenhouse intensive industries.

    The concern was always that they would have an excuse to pass on great price increases, while at the same time being refunded the carbon tax through carbon credits.

    I suspect, as with most things, that these things are designed carefully by public servants and their consultants, and then bastardise mercilessly by the politicians who don’t seem to care that they have rendered the damn thing useless.

    See ‘Mining Tax’ for another example.

  • 3
    Dogs breakfast
    Posted Wednesday, 20 February 2013 at 6:01 pm | Permalink

    It always worried me that the intent of the carbon tax, if it were to work, was to raise prices, in particular for the greenhouse intensive industries.

    The concern was always that they would have an excuse to pass on great price increases, while at the same time being refunded the carbon tax through carbon credits.

    I suspect, as with most things, that these things are designed carefully by public servants and their consultants, and then bastardise mercilessly by the politicians who don’t seem to care that they have rendered the damn thing useless.

    See ‘Mining Tax’ for another example.

  • 4
    Dogs breakfast
    Posted Wednesday, 20 February 2013 at 6:03 pm | Permalink

    How strange! It wouldn’t let me post it the first time, and then it put it up twice.

    I plead not guilty.

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