Is the RET responsible for the decline of Australian manufacturing? > Check the facts
Who: “[The renewable energy target (RET)] has already put up power prices for industry to such an extent that manufacturers are shutting down and moving overseas.” Senator Ron Boswell.
The claim: Rising electricity prices due to the RET are an important contributing factor in the decline of manufacturing in Australia.
The facts: According to the ABS electricity makes up 1.32% of manufacturing’s sales revenue. According to the Australian Energy Market Commission the RET has increased retail electricity prices by 3.5% (the RET’s impact on industry electricity prices is not publically available).
Therefore if we use the retail price impact as an indicative estimate of the industry price impact, then the impact of the RET as a percentage of manufacturing’s sales revenue is an increase of 0.046%.
In 2013, the government issued manufacturing firms partial exemption certificates (PECs) for a total of 32 tWh of electricity. The effect of PECs is to exempt some electricity that eligible manufacturing firms use from the price increase caused by the RET. This amount of electricity makes up about 12% of total electricity production in Australia.
The long run average of the Australian dollar between when it was floated in 1983 to the beginning of the mining boom meant one Australian dollar bought 70 US cents. More recently the Australian dollar has been at parity with the US dollar with the mining boom having been an important factor in pushing up the Australian dollar. Although the Australian dollar has fallen in the past 6 months it is still around 30% higher than its long run average. This means that exporters including manufacturing exporters face a 30% reduction in price in Australian dollar terms because of the high dollar.
The finding: The RET has had a relatively tiny impact on the costs of manufacturing. A far larger cause of the decline in Australian manufacturing has been the high Australian dollar.
Discussion of evidence: The RET’s effect on manufacturers’ costs has been relatively tiny making up just 0.046% of revenue. This compares to a hit of around 30% because of the high Australian dollar. The average daily change in the exchange rate is more than 10 times greater than the impact of the RET.
The figure of 0.046% of manufacturing revenue over estimates the impact on manufacturing since it does not include the 32 tWh of electricity that has been exempted from the RET. The PECs would have had the effect of further reducing the already small impact of the RET on electricity prices.
Manufacturing in Australia is in a dismal state. We no longer produce; vehicle tyres, refined oil, domestic white goods, electrical and electronic goods, clothing, footwear to any notable extent. When a company in Australia gets big enough, it ups stumps and relocates overseas to take advantage of cheap labor, lack of OH&S laws and environmental considerations. The price of electricity is such a small component in costings the pathetic statement by Senator Boswell is nothing more than a political rant designed to garner personal relevance within his own party.
While Boswells rant is a political beat up, using the retail price in this piece completely invalidates any conclusions drawn. I’m sure there is someone out there assesing the effects of the RET on industrial electricity prices you just have to put in the work to find them.
Also, renewable energy lowers electricity prices through the merit order effect. So the costs associated with purchase of RECs are displaced by the lower electricity price – this has been detailed in the work commissioned by the CCA
I believe that psychological studies have indicated that to try to counter lies by repeating the lie and then stating the facts can be counter-productive. Readers tend to remember the lie and forget the facts.
Better to start with the facts. For example in this case the article might have started with something like “It can be shown that the impact of the RET as a percentage of manufacturing’s sales revenue is an increase of 0.046%, contrary to claims made by Senator Boswell, who said …”
[…] The original article was published in Facts Fight Back. The article can be found here. […]
[…] The original article was published in Facts Fight Back. The article can be found here. […]