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December 2012

One key issue around all environmental problems is transparency. If those affected, or those who believe that might be affected by some form of pollution or other environmental degradation are not able to access the full information about the real state of the problem, it is very likely that the gravity of the situation is going to be exaggerated. On the other hand, government environmental departments and industry tend to keep information under a closed lid, apparently for the very reason to prevent exaggeration of the actual situation. This behavior than simply promotes guess work, conspiracy theories, alarmism, and defensiveness on the part of industry.

There are few examples where these problems of transparency are successfully resolved, typically by involving the public directly in monitoring environmental conditions. Surface water quality is a prime example, as it can be monitored easily and cheaply by members of the public (e.g. high school students), who go and take samples, and report results on the main water quality parameters. There are programs like this throughout the world, including one in Sydney called Streamwatch.

This program is funded by the main water supply utility, Sydney Water. Since 1990, this program involved 170 local schools, whose students took part in testing water quality in waterways. However, Sydney Water recently decided to revamp this program, and shift it away from direct public involvement, and into administration of the Australian Museum. The main reasons cited are costs savings (only about $100,000 a year, really peanuts), and potential risks to collectors of samples (I have not heard any reports of any accidents ever happening). So, not very compelling reasons.

While I am sure that the Museum is going to do a good job in testing and reporting water quality with utmost integrity, tarnishing of transparency by cutting the direct involvement of the public is going to be detrimental. People are already starting to ask: Who and why wants to mud the waters?

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The debate about the introduction of smart metering for electricity consumers has recently gained momentum with several news stories raising suspicions about this supposedly revolutionary way we consume electricity, and consequently emit green house gasses. It seems that governments in Australia (both state and federal) are keen to press on with the rollover of smart meters, and some of the commentators suggest that this may be under the influence of the concerned corporate sector. The main idea behind smart metering is to bridge the gap between consumers of electricity and its producers. If consumers had a way to know the real cost of producing electricity at a time of consumption—and prices serve to provide this information—they may be able to respond by curtailing their ‘discretionary’ consumption at times when costs (and prices) are high. This should in theory result with less consumption overall, and importantly less consumption in critical times, reducing the risk of blackouts, and therefore the need to ‘gold plate’ the electricity supply system, which has been widely identified as the main reason for recent rises in electricity prices.

The arguments of the critics of smart metering are reasonable: this shifts the price risk (at least in short-term) from producers and distributors to consumers, and imposes extra non-monetary burden on consumers, who have to worry on the daily basis about the price of electricity, on top of all other things.

However, some evidence from recent experimental economics work that we conducted, shows that consumer are willing to respond to changes in prices in real-time, if that means that they can fare better in monetary terms. My own experience with time-of-use (ToU) pricing (peak, off-peak, shoulder) in our family house is that it is not overly difficult to shift electricity consumption around in response to electricity prices. Since we have been on ToU pricing, my family and I have managed to drive the peak period consumption (2 pm – 8 pm; the price at peak times is about 4 times the price of off-peak) to a minimum. Our electricity bill has actually decreased, even though our consumption of power has somewhat increased.

Now, what does it all mean for green house gas emissions? Smart metering and pricing of electricity are likely to significantly reduce demand in peak periods, but probably increase the electricity use in off-peak periods. Given that peak electricity is supplied typically by either less carbon intensive generators (i.e. gas fired turbines) or by renewable sources (e.g. solar, wind) it is likely that the moving around electricity consumption will mean a slight shift towards more carbon intensive, off-peak sources (e.g. coal fired turbines). This short-run effect however will amount to a very small, if any, increase in emissions, as the off-peak electricity generators are running their turbines irrespective of the demand (can’t shut a coal fired station over night and fire it up again in the morning). In the long run, the ability to curtail peak consumption as a result of smart metering will mean that the need to build new power stations will abate, as the existing generation portfolio will be more efficiently utilized. In turn, this means potentially significant savings in green house gas emissions by avoiding building new large power stations that, at least in Australia under current economic conditions, are likely to be coal-fired.

So smart metering, while having its downsides, also has positives in terms of reducing the need for investing in poles and wires to meet few short hours of extreme peak demand, and also reducing the need to build new power stations to cater to that demand. It has some good prospects to save us some money on the electricity bill, and while perhaps not showing reduction of emissions on individual bills, certainly avoiding new increase in overall emissions over a period of time.

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