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Tuesday, 11 September 2007

The Cost of Carbon

I'm no expert, but an article in today's SMH about the potential collapse of the Carbon Trading Scheme in NSW seems to indicate some very poor planning in the establishment of the current carbon trading schemes.

The average household electricity consumption in Sydney is 8.25 MWh pa*. Now, with the current value of a REC (renewable energy certificate) around $6 this means that generating this power from renewable sources (eg. hydro, photovoltaic, wind) would generate RECs worth $49.50 pa at current REC pricing.

In comparison, household electricity in Sydney costs around 9.2c per kWh, which means that 8.25 MWh pa costs a Sydney household around $759.00 pa. The financial benefit of a household converting to renewable energy is thus only around 6.5% at best. In reality, most households have a financial dis-incentive to "go green", as the only practical option is to pay a small surcharge to choose "green" electricity supply from their utility company. Not many suburban households are in the position to install solar, wind or hyrdo generating capacity for household use.

The entire REC system seems to be cumbersome, bureaucratic and costly to administer. I would have thought a much simpler solution would have been to just introduce a carbon tax of, say, $10 per tonne of CO2 generated, added to the bill of the end-user (household or industry). The funds raised could then be allocated by the government via grants to companies that actually generate large quantities of renewable energy. A $10 per tonne carbon tax would only add around 11% to the cost of electricity for a Sydney household. In comparison, the cost of electricity has only risen 7% between 1992/3 and 2002/3. Since the CPI increased by 31% in this period it means that the cost of electricity to Sydney households has dropped in real terms in the past decade, and would still be cheaper than in 1992/3 in real terms if a carbon tax was implemented.

Rather than waste time protesting about selling Australian uranium to Russia and China for their power-generating requirements, green groups would make better use of their time pressuring government to introduce effective economic incentives to reduce carbon emissions.

Then again, there's still the fundamental question of whether global climate change is causally linked to human carbon emission levels, or just coincidental. Since we still don't know exactly why climate varied in pre-historic times, just tweaking parameters in climate models until the increased atmospheric CO2 levels results in a match with the past century of climate data seems like poor scientific method.

* Data from NSW Parliment Hansard Record

Copyright Enough Wealth 2007


1 comment:

mOOm said...

Then again, there's still the fundamental question of whether global climate change is causally linked to human carbon emission levels, or just coincidental. Since we still don't know exactly why climate varied in pre-historic times, just tweaking parameters in climate models until the increased atmospheric CO2 levels results in a match with the past century of climate data seems like poor scientific method.

Based on my own research I am pretty certain about that. OTOH I'm not a fan of the research methods that are popular in the "climate community". But they don't like the kind of research methods (econometric time series modeling) we used either.