Power industry's carbon gift
Despite the price of carbon crashing, Contact Energy is yet to alter the carbon levy it imposed on customers when the Emissions Trading Scheme began in 2010.
And Contact may not be the only power company overcharging customers for carbon.
Prices on the carbon market have plunged to about $5 a tonne for NZ carbon credits, and around $4 for imported foreign credits.
Contact Energy, which had carbon costs of $30 million in the year to the end of June 2011, confirmed to the Sunday Star-Times that is yet to review its levies which add 0.77c per kilowatt hour to the price of electricity for consumers and 0.27c per kilowatt hour for gas.
Those levies were introduced in 2010 to pay for a carbon cost which was then expected would cost around $25 a tonne.
A review will happen soon, Contact said.
One analyst, Dr Geoff Bertram of Victoria University, calculated the difference between the real cost of carbon and what consumers are being charged is producing a $566 million windfall for the power generators. Analysis from the Ministry of Energy produced a similar figure (see Rod Oram, page 24).
However, both studies were made some years ago before the price of carbon descended to its current lows.
Bertram said generators are not bound to observe what the carbon price actually does. However, he said there is no way in the world to calculate the real extent of the windfall profits being made by generators because the market is "completely untransparent".
Focusing on Contact may be unfair as it is more open than others about carbon costs and pricing. Big emitters also use forward contracts to buy carbon credits, which the ETS requires them to surrender to the Government once a year, potentially boosting the cost from carbon current values.
Fuel retailer BP has also attempted a level of openness about carbon costs,with a chart that breaks the cost of unleaded 91 into its constituent parts.
For the period March to June 2012, carbon costs made up around 1 per cent of the price of the fuel.
That would imply a carbon price of about $17 during a period where the price of carbon didn't top $8.
But BP said the chart was only meant to be “indicative” to demonstrate to customers the reasons why petrol cost so much, and was not intended to accurately reveal its carbon costs.
It said the variable price of carbon means that the cost can range from about 0.5 per cent to about 1.5 per cent, and it added: “BP's pricing to customers is reflective of the market rate that it pays for carbon”.
Z Energy and Gull also say they all pass on the price of carbon but, like BP, do not reveal their costs.
Instead, they say, they compete on price at the pump and that carbon is just one more input cost. It's an argument electricity retailers could also rely on, barring cartel-like behaviour.
If forward contracts for carbon have resulted in carbon prices passed on to consumers being above the market price for carbon, that should not be repeated in the current year, unless prices track down further.
Some carbon market participants believe the carbon prices could go lower in New Zealand, especially as the ETS has no caps on the number of foreign credits that can be surrendered, unlike the EU and Australian schemes.
- © Fairfax NZ News
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