The Carbon Price and the Cost of Living - The Climate Institute

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AECOM The Carbon Price and the Cost of Living 9 November 2011 19 Figure 10: Historical and projected food prices, including carbon price impact, 1985-2015 priceindex (198990=100) 350 300 250 200 150 100 50 0 Food,all Beef,vealandlamb Fruit Vegetables Mealsoutandtakeawayfoods Otherfoodproducts resturants,take wayfood,and otherfoodproducts trackthetrendforallfood vegetablepricesrangebetween 10%aboveand20%belowthetrend forallfoodduetoseasonalvariations fruitpriceincrease, CycloneLarry (Mar2006) meatpriceincreasesabovetrend withstrongexportpricesandreduced supplytomarketafterdrought (rebuilding onfarmstocknumbers) meatpriceeasing droughtdestocking (Sept2006) fruitandvegetable pricesimpacted byfloodsandCycloneYasi (Feb2011) historical data meatpricefalls asrainimproves cattleweightgain andstocknumbers (Dec2010) projections 1985 1990 1995 2000 2005 2010 2015 Source: Historical food prices ABS (2011a), projections calculated from Adams (2011). Additional information from ABS (2006b, 2011b), ACCC (2007), McRae (2011). The impacts estimated by the input–output analysis are somewhat larger than, but broadly consistent with, economic modelling of the impact of the carbon price on food prices over time (Adams 2011). Figure 11 shows the impacts of the carbon price as estimated by an economy wide computable general equilibrium model, assuming trend inflation of 2.5% per annum. - This analysis suggests smaller initial impacts on prices than our upper bound estimates (assuming full cost pass through) across all food sectors before 2015. Impacts increase gradually over time, but remain minimal, with impacts on food prices around the levels estimated by the input-output approach from around 2020. - These model results are consistent with the full cost pass through approach providing an upper bound estimate of price impacts.
AECOM The Carbon Price and the Cost of Living 9 November 2011 20 Figure 11: Projected food prices, with and without a carbon price, 2010-2025 priceindex(2012=100) 200 175 150 125 priceincluding pricewithout thecarbonprice thecarbonprice beef,vealandlamb grains dairy otheragriculture meatproducts otherfoodproducts chicken,other beef, vealandlamb grains dairy fruit,vegetables, otheragriculture meat products otherfoodanddrink products chickenand othermeats 100 75 2010 2015 2020 2025 2030 Note: nominal prices including inflation. Source: AECOM and CSIRO calculations based on Adams (2011). A final consideration in interpreting food price impacts is that studies have found that climate change is already impacting on food production and prices (Lobell et al 2011). Some studies, such as Nelson et al. (2010), find that in the absence of global emissions reductions, climate change could significantly increase the price of basic food staples by 2050 (such as the price of rice by at least 10%, and wheat by at least 20%). Assessing future impacts is complex however, as price changes will be shaped by changes in agricultural productivity trends, temperature, rainfall and water management, incomes (influencing food demand), international trade, and national policies (see Hertel et al. 2010). This makes it difficult to estimate likely impacts on world prices with confidence, although it is clear that climate change risks amplifying existing threats to food security among vulnerable groups in developing countries (see Turral et al. 2011). 3.4 The contribution of the carbon price to future electricity prices The impact of the carbon price on household electricity bills is a key issue. Here we examine impacts on retail electricity prices in the context of recent price trends. The analysis presented earlier, and in other recent reports (Treasury, 2011b, Nelson et al. 2010, ROAM Consulting 2011, SKM MMA 2011), suggests that household electricity prices could rise by approximately 10% in 2012/13 as a result of the carbon price, assuming full cost pass through to final prices. The most recent official projections forecast a 19% increase above inflation in national residential electricity prices between 2009/10 and 2012/13 (AEMC 2010), before accounting for the carbon price. The projected increases in residential electricity prices vary across different states and territories, ranging between 20% and 40% including underlying inflation. These increases are predominantly driven by increases in network and distribution costs as a result of growing peak demand for electricity (which results in increasing network costs per unit of electricity), and the need to replace ageing assets. Although all jurisdictions face similar issues, the relative contribution of generation, network, and the carbon price varies significantly.
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