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A little-noticed part of Labor’s climate policy could push up retail power prices by between 8% and 25%, economist Danny Price has claimed, with price hikes in Victoria exceeding the impact of the former Labor government’s carbon tax.

Price, who helped devise the Coalition’s climate policy, told Guardian Australialast week the main plank of Labor’s policy – a new style electricity emissions trading scheme – was exactly what he designed for Malcolm Turnbull in 2009 and mirrored what the Coalition’s Direct Action plan would almost certainly have to become to meet Australia’s greenhouse targets. He said the price rises under that scheme would be “minimal” for many years.

But Price has now modelled a second plank of Labor’s policy – a scheme under which big brown-coal generators, near the end of their operational life, would submit bids for how much money they would need to receive to shut straight away and deal with the community and employment fallout. The cost of the winning bid would be paid for by all the other generators in the market, who would enjoy higher prices because of their competitor’s closure.

The academics who first proposed the idea, Frank Jotzo and Salim Mazouz, estimated it could cause a one-off rise of between 1% and 2% in retail power bills, while recent modelling by analysis company Reputex found the impact could be even lower – between 0.2% and 1.3% – or that perhaps there would be no price rise at all.

“For residential electricity bills, falling network costs may completely offset any cost impact of the new policy, with retail energy prices expected to fall out to 2020,” said Bret Harper, associate director of research at Reputex.

“The closure of a large coal generator is likely to have a negligible impact on residential electricity bills.”

But according to Price, in a brief to clients of his firm Frontier Economics, that did not “ring true” and he modelled the example of Hazelwood, a brown coal-fired power station that produces over 20% of Victoria’s electricity and produces 3% of Australia’s greenhouse emissions, suddenly closing down under the scheme in July 2017.

He found this could cause a short term price shock adding up to 25% to retail prices in Victoria, falling to between 14% and 15% in a few years as investments in other energy sources came on line. In New South Wales and South Australia, connected with Victoria in the east coast electricity market, the retail price increases would be an initial 13% or 14% falling to 8% or 9% over time, he said.

Despite Price’s praise for sections of his policy, Labor’s climate spokesman Mark Butler said Price “helped Tony Abbott write his Direct Action policy” and “regularly rails against our policies to expand renewable energy, so I’m not surprised that he is again campaigning against our Climate Change Action Plan”.

“Labor has responded to overwhelming calls in the electricity industry for government to adopt an orderly framework around the transition from Australia’s heavy reliance on coal fired power to modern, clean energy. Mr Price’s opinion is directly at odds with modelling from the ANU and energy analysis firm, Reputex. That modelling supports electricity industry projections that average household power bills will decline in real terms over the period to 2020,” Butler said.

Jotzo, an associate professor at the Crawford School of public policy, and Mazouz, a principal at the Centre for International Economics consultancy, responded to the substance of Price’s claims.

“The key point is that without effective carbon pricing, an exit mechanism of some form is needed for an orderly transition from old coal-fired power stations to renewables. There is a broad consensus about this in the policy community and in industry. Danny Price attacks our proposal for how this could be achieved but does not offer any solutions,” they said.

Source: The Guardian