KEY POINTS:
The economic climate in New Zealand has changed considerably in recent months. Mortgage interest rates have been rising, there has been a downturn in the housing market, finance companies have regularly been going into receivership and now the public are seeing ominous signs of substantial rises in food and fuel prices.
The reason for most of the price rises to date is the international increase in food and oil prices. But rises in the price of transport fuel and electricity which are of the Government's choosing are being planned for the next three years but are now under review.
Firstly, in the transport fuel area, a regional fuel tax of up to five cents per litre is to be imposed to cover a half share of the cost of rail electrification in Auckland. The Prime Minister has recently indicated that this will be limited to about one cent per litre in the immediate future.
Secondly, under the proposed emissions trading scheme, a charge was to be placed on all petrol purchased from January 1, 2009. When the scheme was announced last September, the Government estimated that this would increase the price of petrol by four cents per litre in 2009. The introduction of this charge has now been deferred until January 1, 2011.
That estimate of an increase of four cents per litre assumed an international market price of only $15 per tonne of carbon dioxide emissions. Recent estimates range from $15 to $50 per tonne. The latest Treasury estimate is based on a price of $22 per tonne but most commentators say it will be at least $30 and the present price of carbon credits for 2008 on the European market is around US$38 ($49) per tonne. Therefore the actual petrol price increase in January 2011 is likely to be somewhere between 8 and 12 cents per litre.
Thirdly, the biofuels sales obligation was to be progressively implemented from July 1 this year but is likely to be delayed if the Government cannot obtain sufficient support in Parliament to pass the necessary legislation. The Biofuel Bill is now reported to be languishing in a select committee as international concern grows about the new fuel's impact on food prices around the world and the clearing of rainforests to grow crops.
This biofuel sales obligation will require the oil companies to invest heavily in new terminal infrastructure of storage tanks and blending facilities, or else be heavily fined for not meeting the obligation. The oil companies estimate that meeting the obligation will add between seven and 15 cents per litre to the cost of all transport fuel sold in New Zealand, although others believe that this estimate is on the high side. And unless the biofuel used is subject to firm sustainability criteria, this obligation will do very little to reduce greenhouse gas emissions.
Combining the three price rises indicates an increase of between 20 and 32 cents per litre of petrol over the next three years. The National Party has recently estimated a mid-point figure of 25 cents per litre.
Electricity price rises resulting from the emissions trading scheme will come into effect from January 1, 2010. The Government estimated at the September 2007 launch of this scheme that electricity prices would rise by five per cent as a result. But again, this assumed a very low international price of $15 per tonne of carbon dioxide emissions, so electricity prices could actually rise by 10 per cent or more from 2010.
Industry groups have recently suggested that households could use less electricity but family budgeting services have replied that struggling families often have older, less efficient appliances which make it harder to save power, and many have poorly insulated houses which they are unable to improve.
The Prime Minister has said that people on low incomes will be compensated for this rise in electricity price, but she has not said how this will be done.
In my view, when the Government is expecting the public to face up to overseas-imposed price increases and tougher economic times ahead, avoidable energy price rises cannot be justified.
* John Blakeley is a research fellow in the School of the Built Environment at Unitec, Auckland.
