Fuel poverty and the emissions trading debate

Much as I hate cheap jargon, expect to hear a lot more of the phrase 'fuel poverty'. Basically it means paying a high percentage of your income in fuel costs (whether that be electricity or even petrol). Given high interest rates, rising inflation particularly in essentials such as food and constrained wages, the usual fury over fuel prices has been exacerbated as people actually start to feel like they are impoverished, not just inconvenienced by petrol prices. The potential for political trouble with the impending emissions trading scheme is palpable. Peter Garrett getting into contortions about including petrol into the emissions trading scheme demonstrates this clearly.

A major problem with emissions trading is the impetus for power companies to pass on the permit costs to their customers, namely the 90+ percent of them who have not taken up Greenpower schemes. The obvious solution is to redistribute the permit costs back to consumers. It seems likely this will be done by a tax credit system, which will probably have to pay credits quarterly in line with utility bills. The system would then be revenue neutral, provide almost no cash-flow issues for ordinary people and achieve carbon reduction targets by the government's overall cap on tradeable permits. The ACCC would have a key role in preventing price gouging by power companies inflating their carbon abatement costs.

However energy usage does not necessarily equate with income either, so government, in conjunction with power companies, will have to even out the discrepancies by commissioning large scale insulation and energy efficient appliance roll-outs to retrofit existing homes in line with new standards. Water companies are currently using similar tactics to improve water usage habits. Another option may be to commission a buyback of inefficient appliances and vehicles, an idea that Tim Flannery has recently floated. For those still under grave threat, short term payments could be made to top up tax credits for excess bills. A further key part of the puzzle lies in switching new power plants to gas co-generation or renewable sources. Government could mandate all new vehicles be run on either LPG or hybrid technology systems.

Running some decent advertising equating energy usage (or abuse) to extra power costs would create more of a sense of personal responsibility rather than government-imposed tax grabs.

The main challenges needing action are to compensate people affected by higher prices, spread the risk from energy bills more evenly across the population and most importantly, educate the people to understand how they can help with climate change and how the government is not committing daylight robbery.

A possible related reform could be brought into business taxation. Business could sign up for an eco-charter where they pay a reduced tax rate in exchange for signing up to stricter environmental standards and responsibilities. This could be particularly useful for corporations in counteracting the 'only duty is to shareholders' mantra, which has left corporate social responsibility aspirational at best. This would eliminate the need for onerous carbon input systems or providing wholesale tax credits for business.

Emissions trading is not a panacea but a market correction mechanism that allows lower emission fuels such as gas, renewables such as solar, wind and tidal and higher emission fuels such as coal to compete on an environmentally level playing field. Designed appropriately, it could potentially restructure our economic foundations in a way that promotes sustainable growth well into the future.