$11.2BN REFIT IS BEST ENERGY SAVER
25 September 2008
George Megalogenis
LOWER-income households should not receive full cash compensation for their higher energy bills under the Rudd Government's carbon pollution reduction scheme.
Instead, the welfare lobby is urging Labor to set aside $11.2billion of its proposed compensation fund to refit 3.5million households with energy-saving devices, from light bulbs and shower heads to ceiling insulation and new refrigerators.
The Brotherhood of St Laurence will argue in a report today that a cash-only handout is self-defeating because the compensation erodes over time, and would not help lower-income households reduce their greenhouse gas emissions because they would be likely to spend the money elsewhere.
"Whilst cash compensation is easy to administer, we believe that if it is the only form of assistance to low-income households it will be a sub-optimal and risky approach," the joint business-welfare report says. "It will also fail the fundamental purpose of the (carbon pollution reduction scheme), which is to change the behaviour of industry and consumers by sending a clear price signal for carbon polluting activities and inefficient energy consumption."
The report, prepared by the Brotherhood of St Laurence, accounting firm KPMG and former Victorian deputy premier John Thwaites, says a mix of income assistance and energy efficiency would be cheaper to the taxpayer in the long-run than a cash-only program.
The Rudd Government is expected to receive the wide-ranging report today.
The plan centres on an unprecedented audit of 3.5million homes over the next seven years. About 10,000 households would be visited each week, starting from next year.
The report says each targeted household would receive $1700 worth of energy efficiency products, plus another $300 to cover the cost of the audit. No money would change hands - the household would be asked if it wanted to participate in the scheme and the work would then be approved.
In some cases, a grant of up to $6000 may be available.
It is expected this would cover the installation of gas systems or air conditioning in some disadvantaged suburbs and regional or remote areas.
For the standard $1700 grant, a household, depending on the circumstances, could receive $70worth of low-energy light bulbs, another $95 for a high-efficiency shower head and $1530 for ceiling insulation.
The report estimates this household would save $355 a year in energy bills.
The sharp end of the report is its warning to the Government that electricity prices will rise substantially with or without a carbon reduction scheme - by up to 72 per cent by 2020 with carbon trading, and 52per cent without it.
"Simply handing lower-income households cash to cover these price hikes won't work," the report says.
"Although the federal Government has stated in the green paper that the provision of assistance will primarily be through adjustments to the tax and payments system and cash payments, this approach represents a risk (for three reasons).
"First, in the face of rising carbon cost, the magnitude of the funding requirement for household assistance is likely to double by 2020.
"Second, it compromises the price signal being sent through the CPRS, thus working against the overarching aim of the scheme.
"Third, it does not contribute to the task of reducing carbon pollution."
The report says cash compensation is further flawed because the payment is to be made retrospectively, which risks leaving vulnerable households out of pocket for up to a year.
"Low-income households spend a higher proportion of discretionary income on energy when compared with the average household," it says.
"It follows that because the consumer price index is based on the average household, there will be a gap that will need to be compensated.
"Also, low-income working households that do not receive benefits will miss out from CPI indexation."
The report concedes that left to their own devices, households would have no incentive to reduce energy consumption.
The cash would simply go elsewhere - to meeting living expenses, for example, or to pay for another product.
"There is no accountability for what will happen to the money, as households will have competing pressures on their budgets and there is no guarantee the money will be spent in the most targeted and effective way across all households," it says.
"Energy efficiency measures provide the most targeted and effective way of reducing low-income household energy costs."
Using modelling from KPMG, the report says the economy would save more money in the long run than the scheme would cost to run.
Copyright 2008 News Ltd.
The Australian
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