Broken street light promise penny wise, pound foolish

In amongst the slash-and-burn Victorian state budget, one of the promises that got abandoned was a promise to kick in part of the cost of installing energy-efficient street lights.

The project comes from a campaign run by the Municipal Association of Victoria in the run-up to the 2010 election. Their fact sheet explains that they sought around $50 million over four years to help with the cost of upgrading from mercury-vapour lamps to more high efficiency fluorescent lamps. The total cost of replacing every street light in Victoria was stated to be $120 million, and this would save $7 million in electricity costs and 78,000 tonnes of greenhouse emissions.

Now the project has been postponed, according to the government due to “current fiscal conditions, unresolved contestability issues, high abatement costs, emerging technologies which are yet to receive full registration for the scheme and the unknown impact of the federal government’s carbon tax.”

Issues of contestability and new emerging technologies may be genuine. But the rest of the reasons appear, at least on the publicly available information, to be yet another piece of dumb surplus-preserving politics. Yes, it’s only a small one, but indicative.

Let’s assume, for the moment, that the entire project cost was funded by the state government, and went straight on to the government’s debt bill. What’s the interest bill on $120 million on Victorian government debt? Well, at the moment, 10-year Victorian government bonds are yielding 4.89%. That makes the annual interest bill on 120 mill precisely $5,868,000.

Now, let us remind ourselves, the electricity saved is supposed to be worth $7 million a year.

So, even before we’ve considered emissions reduction, we’re collectively over a million dollars better off! Any CO2 abatement achieved over and on top of that is a free bonus! And given that electricity prices are rising for reasons which have nothing to do with the carbon tax, the win will likely get even bigger over time.

And, contrary the claim that the impact of the carbon tax is “unknown”, it’s very well known what the short-term impact of the carbon tax is. It will make electricity more expensive.

The precise impact on the cost of electricity is hard to predict, because the whole point of the carbon tax is to encourage everyone, including electricity generators, to change their behaviour to reduce emissions. But, in the short term, it’s not unreasonable that the carbon intensity of electricity generation won’t change immediately. So the savings are going to be somewhere reasonably close to the price of the 78,000 tonnes of CO2 emissions claimed by the MAV. What’s 78,000 tonnes of CO2 emission reduction worth? In the first year of the scheme’s operation, where the cost is precisely $23 per tonne? $1,794,000.

In summary, just replacing the damn lights would put us all collectively ahead over $3 million a year, each and every year, and likely rising over time.

But thanks to what appears to be government surplophilia, debtophobia, greenophobia, and sheer bloody-mindedness, we’ll have to wait at least another year for sensible policy.

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