Why cost “benefits” are struck from analysis of energy policies

The Senate report into the shutdown of the Energy Efficiency Opportunities program was tabled last night. As expected, Labor didn’t bother to oppose it. The Greens produced a dissenting report.

As documented in my submission to the EEO inquiry, the ‘economic analysis’ on which the decision was based assumes zero economic benefits from continuing the scheme.

This seems to be an interesting trend in government analysis. The economic analysis for shutting the Australian Renewable Energy Agency not only assumes zero benefit from the use of their funds, but also includes as a major element of the savings, reduced compliance costs.

This is a voluntary program, so I would think any business that accepted the funds would factor such costs into its choice to participate! Does this also imply that all government funding of industry and innovation will be declared to have zero benefit, and indeed, incur business compliance costs? Or will compliance no longer be a requirement of government funding?

The Renewable Energy Target only seems to have been saved from a similar fate by a massive community and progressive industry campaign. It’s a pity that energy efficiency can’t get similar support.

At a state level we have seen a similar approach with Victoria’s Energy Efficiency Target (VEET) where an in-house cost-benefit study found the opposite of several other studies that found VEET (and indeed, a national version of it) was worthwhile.

The report from a group of business and community organisations released yesterday outlines the ‘interesting’ assumptions made in the government analysis. This comes on top of the creative economic analysis of the benefits of the East-West road link.

We are also seeing a trend towards including the loss of business asset value due to a policy change is included as a major factor in government economic analysis related to the energy sector. This redefines the responsibility of government to protect incumbent industries. Did the analysis of removal of support for the car industry include consideration of the lost asset value of that industry?

While governments have always tended to be creative with economic studies, present governments seem to have taken this to a new level. In Canberra, the Office of Best Practice Regulation seems to have been complicit by accepting the shoddy and distorted analyses – in contrast to their detailed and lengthy reviews of proposed energy efficiency regulations. I think we need an independent Inquiry chaired by someone like John Quiggin.

Ross Gittin’s article of last weekend, which discusses an emerging new approach to economic thinking about the economic inefficiencies of business (related to pay levels, but applicable much more widely) is of interest when discussing the above, as this provides a case for government intervention to overcome internal barriers to efficiency.

Certainly we found exactly those kinds of inefficiencies in EEO firms, and overcoming them was a key achievement of EEO.

 Alan Pears, an associate professor at RMIT, and a leading analyst of Australia’s energy markets.