Recently I contributed an opinion piece for the ABC's online forum in which I argued that the Government's proposed Emissions Trading Scheme (ETS) should be exposed for what it is – yet another tax (via higher electricity prices) on ordinary Australian households.

As expected, most respondents criticised me for being a climate change denier (a crime, it would seem, just one step below Holocaust denial). And yet nowhere did any of my critics suggest how much extra they'd be prepared to pay to ensure their greenhouse gas emissions would
be reduced.

Much microeconomic theory (ie the branch of the dismal science which tries to explain how economic 'agents' – individuals, companies, governments, and so on – interact financially with one another) is devoted to distinguishing goods for which the demand is 'elastic', that is influenced by changes in price, from goods whose demand is 'inelastic'. The latter category is often highly represented in tax systems, as the consumption of 'sinful' products like cigarettes, alcohol and petrol is usually thought to remain constant irrespective of price increases imposed by money hungry governments.
Given that the generation of baseload power via brown coal is the single largest source of CO2 emissions in Victoria, any likely ETS must achieve a reduction in energy usage to be effective. If the demand for electricity is relatively elastic, then a relatively small increase in power prices might be enough to reduce our collective usage of it. Unfortunately, I fear that for most of us our daily consumption of power is determined more by habit than by price. We switch lights on and leave them burning in empty rooms.

Increasingly large TVs are often played as a form of background distraction to mundane tasks like meal preparation, cleaning up or ironing clothes. And how many of us really make the effort to reach behind pieces of furniture in order to switch off appliances at the wall?

If such habits remain deeply ingrained, then a mild rise in the price of power generated by the sort of ETS-lite currently proposed by the Liberal Party may cause little if any reduction in greenhouse gas emissions. As a result, a more comprehensive ETS policy could force electricity prices substantially higher (200% to 300% increases are not out of the question) in order to alter people's behaviour.

The example of petrol prices during 2008 is deeply instructive here, in that when they fluctuated between the 'normal' range of $1.10 to $1.40 per litre, motorists' driving habits remained largely unchanged. When, however, petrol spiked over $1.60 per litre (at a time when global oil prices hit almost US$150 per barrel) then cars were left at home, and trams, trains and buses became increasingly crowded.

Assuming the Rudd Government remains committed to the environmental cause most voters still say they support, then get ready for a few bouts of 'sticker shock' within 18 months' time as ETS-heavy utility bills begin thudding into consumers' letterboxes.