I read with interest this piece in the Sydney Morning Herald about green consumers of ActewAGL who appear to be charged for the carbon tax on their bills despite being told that their electricity emissions were zero. The reason for the confusion is that green energy has never been about actually purchasing green energy. Instead, when you sign up for that you are paying extra for the retailer to do things that promote zero emissions energy — this could range from investing in solar or wind power to purchasing offsets. In principle, you net emissions are zero but your electricity emissions continue to be positive. Hence, the carbon tax.
This is one of the sticky issues associated with climate policy. If the government had been willing to charge consumers directly for the carbon tax, or, more to the point, had a properly operating cap and trade system where you could get credit of activities that offset emissions, then a consumer purchasing green power could avoid having to pay a carbon price. Instead, largely for political reasons, the government chose to charge suppliers. That means that an electricity retailer pays a carbon tax and passes it on to all consumers. That is what we are seeing here. To be sure, green consumers reduce the electricity retailer’s carbon bill but that benefits everyone. So they are, in effect, giving a donation to non-green energy consumers. That is something I am pretty sure they didn’t have in mind.
Of course, it might be easy to blame government climate policy for this but, in reality, it is likely a consequence of poor electricity price regulation. Specifically, it is too low for electricity retailers to really want to manage their carbon bills. The best way to do that would be to offer green energy consumers a price reflecting true costs of green energy and to offer non-green energy consumers a price that incorporated the carbon tax fully. I suspect that the reason that does not occur is, in fact, that green energy consumers were a great way of being able to charge consumers, “above cap” pricing and to rebalance would require them to raise prices on non-green energy consumers that are already at the cap. So they can’t actually do this or, more to the point, have no profit incentive to engage rebalance properly.
This is going to force regulator’s hands to finally deal with green energy in electricity retail pricing. But it will also require some thoughts about climate policy. Specifically, while wholesale electricity pricing is a pool, there is no scope for entry by green energy specialised generator-retailers because they too would be subject to a carbon tax. The fact that electricity markets exist and can be designed is an opportunity for sensible climate change policy. But from the looks of it, lots of people have dropped the ball.