From the carbon price Treasury modelling:
Carbon pricing will change the relative prices of goods and services and there will be an initial increase in the level of consumer prices. An initial impact will occur in 2012-13 with the introduction of the price, with a smaller step up in 2015-16, when the scheme moves to the international carbon price. For the core policy scenario, carbon pricing is estimated to raise the overall consumer price level by 0.7 per cent in 2012-13 and by a further 0.2 per cent in 2015-16, for a total of 0.9 per cent in 2015-16. Beyond 2015-16 there will be minimal implications for ongoing inflation.
Today the CPI figures are out. The Australian reports:
The consumer price index (CPI), a key measure of inflation, rose 1.4 per cent in the September quarter, after rising by 0.5 per cent in the June quarter, the Australian Bureau of Statistics said.
It is the first set of inflation data released since the introduction of the federal government’s carbon tax on July 1.
The CPI was expected to rise by 1.1 per cent in the September quarter for an annual rate of 1.7 per cent, according to an AAP survey of 15 economists.
According to The Age:
One economist said the larger-than-expected jump in consumer prices was in part due to the introduction of the carbon tax.
RBC Capital Markets senior economist Su-Lin Ong said the carbon tax had moved inflation up faster than anticipated, but that it was still comfortably within the RBA’s target.
“There is clearly some impact from the carbon tax there, but the core measures, which strip out a bit of that, are also firmer,” she said.
What does the ABS say? Well the single largest contributor in the quarter was the Housing Group and …
The main contributors to the rise were electricity (+15.3%), gas and other household fuels (+14.2%), property rates and charges (+5.8%) and new dwelling purchase by owner-occupiers (+0.9%).
15.3 percent increase in electricity prices? In one quarter? What did Treasury modelling say about that? Oh, yes:
The carbon price leads to an average increase in household electricity prices of 10 per cent over the first five years of the scheme.
The real (additional?) scandal, however, is this:
The ABS will not be able to quantify the impact of carbon pricing, compensation or other government incentives and will not be producing estimates of price change exclusive of the carbon price or measuring the impact of the carbon price.
This came up in Senate Estimates (HT: Noodle)
Senator CORMANN: … Who made the decision not to quantify the impact of the carbon price or price changes exclusive of the carbon price? Was it the ABS or the government?
Mr Sutton: I might just pass this question to Mr Hockman. He has expertise in this area. I will ask him to address that question.
Mr Hockman: The Statistician made that decision on the advice of the staff of the prices branch. It was based very much on our experience with the introduction of the GST, where we did attempt to measure that and separate out those effects. The complication is that you never fully know the counterfactual situation of what underlying movements in prices were actually occurring. The real complication comes in measuring what you might call the second-round or downstream effects of such a change. The indexes are designed to measure overall movements in prices. We are confident that we will get the full impact into the measures of all of our price indexes, both the CPI
and the producer price indexes, but we do not believe that we can meaningfully separate out the various factors that in any particular quarter or any particular period impact upon those price movements. The job is to measure the movement, not the reasons for the movement.
Senator CORMANN: I refer you to a statement in February 2009 by the Governor of the Reserve Bank. In relation to the carbon tax, he said that the Reserve Bank ‘should be able to look through the initial increase in inflation’ when assessing the consequences for monetary policy. If the ABS cannot or will not measure what the RBA is supposed to be looking through, how will the RBA actually be able to look through what has not been measured and focus on the carbon price exclusive change in the consumer price index?
Mr Hockman: They face a different issue. They are not looking at, perhaps, the precision that we need when we are producing an index. We would need to be able to measure it at each and every component. They know directionally what is going on. We believe that, at least if people are interested in those things, they should be free to try to model those movements, and then the RBA can focus on the things they think matter to them, in terms of trying to predict where inflation will be heading post-carbon tax.
Senator CORMANN: But it is too hard for the ABS?
Mr Hockman: With the resources we have, certainly, Senator.
Quite astonishing. Treasury can ‘estimate’ the price impact, the RBA can see through the prime impact and the ABS cannot or will not. Cormann was too nice – he should have advised the ABS to try harder or even offered more money to them to actually produce the figures. I would do the former but the Liberals are soft.
Update: Electricity prices graphed here.
Julia Gillard, “Electricity prices: the facts” 7 August 2012
So 10 per cent actually means 15.3 per cent. Luckily Gillard’s lack of numeracy skills doesn’t affect the Budget. Oh, wait…
Milton Von Smith
24 Oct 12 at 1:06 pm
Macquarie dictionary will fix that.
Sinclair Davidson
24 Oct 12 at 1:08 pm
Yes. Here’s how they’ll do it:
In other words, 15 becomes 10. Perfect!
Milton Von Smith
24 Oct 12 at 1:11 pm
And I guess that also means that when Gillard says that the GST is 10 per cent, it is really 15.3 per cent.
Milton Von Smith
24 Oct 12 at 1:14 pm
The Q2 electricity price increase would also reflect annual increases in network charges for some jurisdictions.
Sleetmute
24 Oct 12 at 1:22 pm
[...] Sinclair Davidson has some good points at Catallaxy: How is that Treasury modelling going? Share this:ShareDiggEmailRedditPrintStumbleUponTwitterFacebookLike this:LikeBe the first to like [...]
A taxing time … | pindanpost
24 Oct 12 at 1:27 pm
Nice try, but no cigar. Here’s what TD Securities and the Melbourne Institute said before Gillard’s speech:
Pretty unequivocal.
Milton Von Smith
24 Oct 12 at 1:28 pm
Treasury is a running joke.
Just another example of the long term damage being done to Australian institutions under Rudd-Gillard government.
H B Bear
24 Oct 12 at 1:31 pm
Sorry, I meant Q3. For example, Ausgrid in NSW increased its network charges by about 10% on 1 July. Energex in Qld by even more. As network charges make up about 50% of the customer bill, this could explain most of the extra 5%.
Sleetmute
24 Oct 12 at 1:56 pm
According to the ABS organisation chart, Hockman isn’t even responsible for Prices Branch, yet he speaks to their resource issues. I guess he was briefed. Seems strange though that someone directly responsible didn’t answer Cormann.
Keith
24 Oct 12 at 1:58 pm
Again, nice try, but no cigar. The government said that the ten per cent impact of the carbon tax on electricity prices would take place over 5 years. But we have had a 15 per cent increase in the first month. And there are more carbon tax increases to come.
Milton Von Smith
24 Oct 12 at 2:18 pm
That 15.35% quarterly increase in the price of electricity seems to be the highest on record at the ABS by a decent margin. Next highest was 11.32% in Sept 2009 (RET) then 10.92% in September 2000 (GST)
thegoat
24 Oct 12 at 2:29 pm
Yes, they said the contribution of the carbon tax to electricity price rises would be 10%, not that the electricity price rise would only be 10%. There’s a big difference between the two statements!
Have a look at the September 2011 CPI figures. Electricity went up almost 8% in the same quarter last year. No carbon tax involved.
Chris
24 Oct 12 at 2:50 pm
Sinclair, does the ABS break down the 15.3% into carbon tax and other? You can check the breakdown at IPART at least for NSW. Don’t drop to the same factual inaccuracy as the regular posters here.
SteveC
24 Oct 12 at 2:59 pm
SteveC – No. The ABS claim they cannot do that calculation. TD claim they can and it was 14.9%.
Sinclair Davidson
24 Oct 12 at 3:17 pm
No Steve, we don’t do factual innumeracy. You do.
You are supporting Gillard’s innumeracy.
.
24 Oct 12 at 3:19 pm
Sinc, that varies significantly from the IPART figures. Was one of your links to the TD figures?
SteveC
24 Oct 12 at 3:37 pm
No – MvS linked to it above. Link here.
Sinclair Davidson
24 Oct 12 at 3:45 pm
I doubt that TD and the MI separated the carbon tax from network tariff rises. They’re macroeconomists, not power market experts. Look, saying the carbon tax caused electricity prices to rise 15% might be a good soundbite for the Opposition, but it doesn’t stand up to scrutiny.
Sleetmute
24 Oct 12 at 4:18 pm
BTW, if you don’t believe me – check with Bugsy. I’m sure he will agree.
Sleetmute
24 Oct 12 at 4:20 pm
That’s not what the TD article says at all. It simply says “Due to the introduction of the carbon tax from 1 July, the price of electricity rose by 14.9 per cent and gas and other household fuel prices increased by 10.3 per cent.” No attempt to apportion the rise between carbon tax and other causes. No data, no modelling, nothing. Just an unsubstantiated assertion. To assert that it is all carbon tax is simply fanciful. So no, not unequivocal, instead disingenuous.
The IPART(NSW) report for July 2012 says (and after all they are the ones who SET the domestic retail price):
And the diagram on page 4 of the linked article shows the carbon price portion to be 8.9%
And there’s hundreds of pages of submissions and modelling for those figures, as opposed to a press release from the Melbourne Institute.
But I don’t expect that to have any effect on the fact free zone that is Catallaxy.
SteveC
24 Oct 12 at 4:32 pm
So you’re saying that the carbon tax put up prices in one quarter alone by nearly 9%, before the price floats?
Fail.
.
24 Oct 12 at 4:34 pm
That’s certainly what IPART said dot. As opposed to the 14.9% asserted above. As the proportion of coal generated electricity drops (as is already happening), the proportion of the price due to carbon tax will also drop.
SteveC
24 Oct 12 at 4:44 pm
Okay – so what we have is as follows:
TD – “Due to the introduction of the carbon tax from 1 July, the price of electricity rose by 14.9 per cent and gas and other household fuel prices increased by 10.3 per cent.”
I interpret that statement as TD saying the carbon tax contributes 14.9 percent. Now maybe they haven’t expressed themselves clearly, but I can’t see any other interpretation.
Then we have IPART: “the introduction of the Commonwealth Government’s carbon pricing mechanism, which contributes the other half of the average price increase.” That is about 9 percent. Somewhat less than 14.9 percent but still a lot, lot more than Treasury’s 10 percent over 5 years. And still the ABS can’t do the calculation at all.
Sinclair Davidson
24 Oct 12 at 4:51 pm
Sinc, Treasury estimated (see Table 5.19) a 10% impact on electricity prices in 2012-13 (when the carbon tax was $23/t) and an 11% impact by 2015-16 (when the carbon tax is $29/t). I suppose this is because they assumed electricity prices would keep rising between 2012-13 and 2015-16 for other reasons.
Sleetmute
24 Oct 12 at 5:26 pm
SteveC – That unfortunately is not true. The actual coal usage will not change much due to the spinning reserve issue, coupled with low efficiency open cycle gas. The actual empirical saving of CO2 emissions due to solar plus wind is very close to zero (link, link). It may be a bit better for solar PV than for wind, but nonetheless it will be a lot less than 100% net CO2 saving (and indeed on LCA basis probably no saving at all, but much of the overall emissions from panel manufacture won’t attract the carbon tax).
That will not change without a decent CO2 free fast response load levelling function. If you use gas turbines their efficiency nearly doubles going from quick response open cycle to steadily operated closed cycle. Same for coal baseload.
Also as far as wind goes, most of the low hanging fruit (suitable sites) have been taken, and remaining sites are outside the top efficiency envelope.
Wind in particular is a really bad idea empirically and environmentally. Just ask a bird or a bat.
Bruce of Newcastle
24 Oct 12 at 5:26 pm
Bruce, didn’t i read we are already shutting down some big coal plants?
SteveC
24 Oct 12 at 5:29 pm
I wonder how much farmland has been lost due to conversion over to solar and wind farms?
Gab
24 Oct 12 at 5:30 pm
Sleetmute – its not our place to suppose what Treasury might have assumed. We can only go on what they said they did assume and how they report their results. Of course, if they had made their models and modelling available for audit we’d have a clearer understanding of their results, but they didn’t.
Sinclair Davidson
24 Oct 12 at 5:33 pm
SteveC shown up again for being a complete twat, liar and lefty shill.
Go fuck yourself
harrys on the boat
24 Oct 12 at 5:37 pm
Agree with you they should have been more transparent. But the bottom line is that the Q3 CPI effect is consistent with what they said for 2012-13.
On the longer term impact, you have presumed that 9% (will be) “a lot, lot more than Treasury’s 10 percent over 5 years”, but you have not put forward any justification for that.
Sleetmute
24 Oct 12 at 5:49 pm
Sleet – not ‘will be’. 9 percent over one quarter must be a lot larger than 10 percent over 40 quarters – unless you believe the remaining 1 percent will be spread over the next 39 quarters.
Sinclair Davidson
24 Oct 12 at 5:54 pm
SteveC – Yes, but that is mostly due to lower power consumption by the aluminium industry. Kurri smelter has been closed (the biggest reduction) and others have lowered production. Like losing weight by cutting your leg off, I don’t think it really counts as a saving.
You will note also that even the Federal government has been walking back commitments to close brown coal generation capacity. Munmorah is also supposed to permanently close, but this too may be walked back. I suspect the overall generation capacity is closer to the edge than they would like generally known.
Unfortunately the wind does not blow best when temperatures are hottest and coldest. Which is when peak usage occurs, meaning backup generation capacity has to take over. Here that mostly means coal since the gas industry is not as advanced as in the US. Santos now has a fracked shale gas well operating, but that is only the one well.
Bruce of Newcastle
24 Oct 12 at 5:57 pm
Sinc, no reason why not.
Sleetmute
24 Oct 12 at 6:13 pm
I should add that the expansions of Bayswater and Mount Piper are going ahead. They were approved quietly during the height of the power selloff fights in the NSW ALP Government, which led to Mr Iemma being kicked out. At the time there was a lot of concern in the media about potential blackouts in a few years. This anxiety seems to have disappeared because of the aluminium capacity reductions, but ordinary growth in consumption will soak up the freed up capacity pretty quickly.
Bruce of Newcastle
24 Oct 12 at 6:14 pm
[...] from the previous thread on the carbon tax and electricity prices I have graphed the change in electricity prices using the ABS CPI data (tables 12 and 13). ABS data [...]
Electricity CPI at Catallaxy Files
24 Oct 12 at 6:29 pm
Bruce, I will as sure as shit be turning the aircon on those days when I think the system is stressed. This government will only deal with a problem when it has the potential to lose them votes.
Winston Smith
24 Oct 12 at 9:19 pm
Which is why I like solar PV in general principle (except I have to pay taxes for other people sticking it on their roofs – relative NPV calc says it doesn’t make sense for me).
Solar PV made in China neatly matches aircons made in China. Both peak around 3pm. Has a sort of symmetry or something.
Unfortunately solar PV in one street doesn’t necessarily match aircon draw in next street, so the Ergon’s of this world have been plumping big ugly galvanised transformers on power poles all around the suburbs to cope with the voltage rises. That’s the other reason why electricity prices have gone up. When they say ‘poles and wires’ I think they mainly mean ‘big ugly transformers’.
Bruce
24 Oct 12 at 9:43 pm
which is exactly why we need time of day metering and pricing.
SteveC
24 Oct 12 at 9:45 pm
1.4% when transport fuel prices actually decreased.
Ripper
24 Oct 12 at 10:38 pm
Hahaha! To justify the carbon tax and previous failure to invest or get out of the way and let the private sector do it.
What an arsehole.
.
25 Oct 12 at 9:36 am