The carbon tax introduces a power-pricing anomaly as businesses battle rising electricity costs.
The carbon tax introduces a power-pricing anomaly as businesses battle rising electricity costs.
I HAD a conversation with an established restaurant owner a couple of weeks ago and the chat got around to what plans there were for the business.
At the time the owner was considering significant changes to the restaurant, which would pitch it at a slightly lower end of the market.
In part, the reasoning was it could charge the same prices and reduce costs. It seems at the top end of the market there is a limit to what people will pay; but they will pay the same price for a dish served in a less rarefied atmosphere.
So what did that mean for the restaurateur I was speaking to?
Less labour was one obvious cost reduction. That meant fewer people with fewer skills required. In some ways the restaurant is lucky. Not every business can so easily adopt a business model that cuts staff and requires fewer skills. Bad luck for those on the labour side of the equation, I guess.
But while labour was viewed as the place where costs could be most readily cut, the reason was not just the rising expense of employees, who have well-paying alternatives and are on generous awards that particularly hit the hospitality industry.
A bigger issue appeared to be cost of power. This restaurant claimed to have seen power costs triple over the past five years.
Obviously, that cost is mainly due to state electricity charges, which have risen dramatically – both to catch up with years of subsidisation and to reflect the rapidly increasing cost of fuel and infrastructure.
Apart from doing away with linen table cloths (cleaning services are energy-hungry businesses) there is not much a restaurant can do to reduce its power consumption … more salads maybe? In fact, energy usage in hospitality, like anywhere, is a function of economic success – cook more dinners; use more power.
Thus, writ small, we are seeing the result of rising energy costs. The equation is less employment and less service because energy is a more basic element of a meal than the style in which it is delivered.
At this stage the example above is directly attributable to state government policy. That is a decision I accept because the Western Australian government has simply had to make electricity cost-reflective.
But there is a high cost. Businesses, and households, will bleat loudly because their subsidised power has been taken away from them just as their energy use has skyrocketed and their ability to pay for it has been threatened.
Regrettably, subsidised state electricity charges were used not as an engine of growth – targeted at business development or employment generation – but were simply applied indiscriminately as a political tool, which became an addiction.
The state now has to wean us off that addiction at a time that is probably not brilliant. Needless to say, it is taking the opposite tack to the restaurateur – increasing prices without changing the level of its service.
It is a pity the state did not get to this point sooner, because we now have the confluence of two government-linked energy price increases.
Carbon tax
The carbon tax, dare I mention it, will simply add to that problem. The difference is, in my view, it is not necessary to have introduced it right now. Even if you believe that the production of CO2 and its equivalent greenhouse costs ought to be cost-reflective in an environmental sense, this is not the time to test the theory.
Federal Labor ministers have dined out on the fact the sky has not fallen in at the July 1 introduction of the carbon tax – a point that shows either their lack of understanding of the tax, their lack of concern for the economy or their need to score some political points before the tax takes hold. Or maybe it is a combination.
Unlike the GST with which the carbon tax is compared as an economic reform, there is not an automatic dial-up of prices as the date changed. Furthermore, the GST replaced a host of other taxes, it was not a new one lobbed on top of the old.
The carbon tax will creep in as each day the things we use will contain more and more elements that require energy derived from fossil fuel to create.
An Australian-manufactured car bought today is unlikely to have a carbon tax component because its energy-intensive production took place over the past few months. A roast chicken bought at the corner deli will be more immediate, even if the vendor does not realise it yet.
Off-peak users hit
The carbon tax will also distort the cost of energy consumption in a new way due to its indiscriminate application.
Many businesses have been structured around the use of cheaper off-peak energy as power companies move to smooth the volatility of consumption in order to reduce the capital cost of generation and improve the efficiency of energy production.
This latter desire is environmentally positive because efficient electricity generation produces less CO2 – just take your car for a country drive and see how many more kilometres you travel on the same tank of fuel.
But the carbon tax is about CO2 equivalent units, which are, relatively speaking, proportionately higher off-peak than the cost differential.
So businesses that use off-peak power won’t get an off-peak carbon tax. The new charge will be added to their bill, which means, as a percentage, they will be hit much more by the cost of the tax than businesses, or consumers, that use peak hour power.
Just to be clear, here is the explanation from Synergy: “The carbon charge passed on to customers is passed on as a unit cost.
“Therefore, for time-of-use customers, it is the same per unit cost, irrespective of the time of day they are using electricity.
“Therefore, for a business customer on the T1 tariff, the carbon charge – approximately 2.2899 cents per unit – will be the same at off-peak times as peak times, meaning the proportion of the carbon charge on the cost of energy at off-peak times will be higher than at peak times.
“After 1 July, customers on T1 tariff (typically the top end of Synergy’s customers by usage) will be paying 18.232 cents per unit at peak times and 13.0860 cents per unit at off-peak times.”
By my calculations, that is a rise of more than 14 per cent for peak customers and more than 21 per cent for off-peak users in those brackets – accounting for nearly half the rise in those costs. That is part of a 184 per cent increase for those off-peak customers since 2007 and a 167 per cent rise for on-peak T1 users in the same period.
Such rises are at the top end of impacts on business customers but are not far off what many other commercial customers would feel, although the carbon tax element diminishes as usage falls and the overall price rises.
In each bracket of user, however, it is the off-peak consumer of electricity that is hit hardest by the price increase related directly to the
carbon tax.
• mark.pownall@wabn.com.au
