Pick a number between 1 and 10. Now multiply it by ten. Now multiply it by ten again. Now add some non-negative integer x.
Write it down.
Congratulations! You’ve just officially modelled the impact of the removal of the carbon tax on household electricity prices. Please send the answer you’ve just derived (justifying all assumptions and showing all working) to Parliament House, where the Treasurer of the Commonwealth of Australia will file it away for later use in an interview with the national broadcaster.
This at least seems to have been the method by which the Treasurer obtained an estimate of the impact of the carbon tax repeal for an average household’s electricity bill as he walked into the studio where he was booked to have a cosy little chat with Fran Kelly, broadcast free of charge to taxpayers by the AB of C. When the topic of carbon pricing came up, Mr Hockey said:
Under Freedom of Information, Treasury released documents last week that showed the electricity prices have come down $550 per household as a result of us abolishing the carbon tax.
The number $550 did appear on a little sheet the Treasurer had in his hand, one that had come from his department. To be strictly accurate, it appeared next to the words “average household costs” — that is, the cost of all goods and services rather than just “average electricity bills”, which the document said ‘would be around $200 lower’ without the carbon tax — and, to be sure, the 9% decrease in electricity bills also mentioned by the document implies, together with the $550, that the annual household electricity bill is now about $5500, instead of the ~$2000 that the average household actually spends, and of course, the $550 seems wildly out of step with the Australian Energy Market Commission’s price impact estimates from last year:
But this is the carbon tax debate, baby! Don’t like the unapocalyptic abatement cost numbers the economists give you? Select your own, like Greg Hunt did. Inconvenienced by the fact that our trading partners are implementing emissions trading schemes? Evolve an elaborate medieval casuistry like Chris Kenny’s, according to which, if you exclude the countries whose emissions trading schemes are new, and countries whose emissions trading schemes are not connected to the European Union’s scheme, and emissions trading schemes that have been announced but not implemented, and emissions trading schemes that operate in sub-national regions rather than national ones, and emissions trading schemes that operate in gay, atheist Europe, and emissions trading schemes that operate in countries that have been satirised by Sacha Baron Cohen, no ‘serious’ countries are implementing emissions trading schemes. Reckon the price of wind-generated electricity sounds too low? Literally pick any big number you like and use that, like Alan Jones did last week on Q&A. Whatever works for you.
(It’s worth pointing out just quickly that the $200 — the one that would have been the correct figure for Joe Hockey to use in his interview with Fran Kelly — is just the result of a modelling exercise; it’s probably in the ballpark, but it’s an ex ante estimate from a computable general equilibrium economic model, not an estimate derived from empirical observation of what actually happened in Australia. No diss on Treasury, who came up with the number—this sort of thing is very hard to do. The 9% counterfactual is about what Frank Jotzo and Marianna O’Gorman estimated to have been the actual price response in their post-repeal impact study.)
I’d have a little more to say about the slovenly journalistic culture that permits and encourages this sort of thing, but I have to go and file my tax return so I can do my part to prop up Mr Hockey’s budget. I’ve worked it out on a piece of butcher’s paper and I think I owe $500. Or $30,400. Or $13. Whatever.