Why focus group testing may be telling politicians something different to the statistical evidence

While the analysis of the statistical evidence presented in part one of this series indicates that there’s not that much to be afraid of with pricing carbon, politicians don’t seem to think so. Partly this has been the result of some rather bad timing and mismanagement around energy policy.

Air conditioner penetration in households jumped at the start of this decade driven largely by their plummeting cost. This resulted in increased strain on electricity networks as peak demand soared. Yet state-owned electricity networks were caught in a bind as state governments sought dividends, while at the same time preventing electricity companies from increasing prices to residential consumers.Meanwhile, gas prices in WA have increased dramatically, driving up the costs of gas-fired electricity generation.

Something had to give and power outages in several of these states, as well as electricity privatisation in NSW, forced state governments to only recently allow increases in residential electricity prices. The end result has been that consumers have been hit with a sudden energy price shock of around 20-50 per cent, per year, for the next three years, rather than a more gradual increase that would have occurred with more rational policies.

In Victoria, which has had more rational electricity pricing policies, consumers are nonetheless being asked to pay an upfront fee for the roll-out of smart meters, which many haven’t even received yet. Those who have got their smart meters can’t really perceive what’s so “smart” about them, considering there’s no accompanying improvement in energy information that they receive. It would have been better to charge consumers for these smart meters progressively over a longer period of time, with offsetting benefits to account for lower meter reading costs.

These price increases have made voters especially sensitive. They have also resulted in a degree of confusion as voters incorrectly attribute the price rises to an emissions trading scheme, rather than their actual cause.

In addition, energy has some fundamental attributes that make us especially resentful about price rises. While it’s clearly a useful product, it is consumed without much thought or thanks. We all take great delight in the television we paid over a thousand dollars for, but we don’t feel the same way about the extra few dollars incurred on the energy bill to operate it. The same goes for petrol. Chests swell with pride over a new car costing $30,000, but our faces go red with anger if petrol prices increase by 10 cents a litre. There is no satisfaction to be gained in a bigger electricity or petrol bill.

I suspect that this is partly caused by feelings of powerlessness in the face of energy price rises. Purchasing decisions made in an emotional moment can lock in energy consumption requirements for many years to come. Yet often we dedicate little conscious thought to such consequences. Switching to public transport may be a highly impractical alternative if you don’t work in the CBD, or you choose to send your children to a school that is a long way from home because it has a good reputation. You’d like to reduce the heating bill, but the house you fell in love with came with a central heating system that can’t be restricted to just the living room.

In the case of electricity, consumers often lack a basic understanding of the major drivers of their electricity consumption and so often don’t even know how they might reduce their bills. Studies of energy consumption behaviour find that people tend to hawkishly monitor lights being left on, but don’t realise that the old drinks fridge in the garage consumes more electricity than all the lights put together.

Also, in terms of gas and electricity, we find out the price and the overall bill some time after the deed is done and it’s too late to do anything about it. By contrast, in the supermarket, when the price of bananas goes up, you tend to notice it and can choose to purchase apples instead. Then there’s the fact that, in many households, much of the energy consumption is driven by children, whose behaviour is difficult to control at the best of times.

This makes energy almost an involuntary good, where you don’t have enough information or freedom in the short-term to choose how much to consume. So even though you may spend far more money on paying off the car or the new television, you still resent an extra $100 on your electricity bill. With the car and the television, at least, you made a conscious choice, and they both represent a noticeable improvement on what you had in the past.

These factors have combined to make politicians scared of carbon pricing, in spite of the statistical evidence about its comparatively small impacts on household budgets.

Tristan Edis is a research fellow in the energy program at the Grattan Institute

The final instalment of  the 'Putting a price on carbon' series – Overcoming the fear factor – will be published tomorrow.