JAKE'S VIEW
Jake's View
by

Raising electricity tariffs to cool demand is not the answer

The idea of enforcing good public behaviour by fining bad has some questionable side effects. And there is also a huge morality muddle waiting for us out when well-intentioned government makes value judgments on our behalf

PUBLISHED : Sunday, 07 May, 2017, 1:53am
UPDATED : Sunday, 07 May, 2017, 2:24am

... our profligate consumption ... will only be exacerbated by lower electricity tariffs. Thus rather than allowing the price of electricity to drop, the government should be raising it, subsidising those who cannot afford it in other ways.

Paul Stapleton, HKIE, May 2

For starters, I cannot see how our consumption of electricity can be described as profligate when, as the chart shows, it has been growing more slowly than the overall economy for the last 10 years. Yes, some workplaces and shops cool their premises too much but don’t ask Hong Kong people to turn off their air conditioners on a hot August night or climb 30 flights of stairs to their homes rather than take the lift. I just do not think it fits to characterise our overall power use as profligate.

Nor can we really expect lower electricity tariffs just because one civil servant suggested these might follow from a reduction in the permissible rate of return allowed our power utilities.

Their rate of return is based on their net investment in fixed assets. Look in your crystal ball and you will see plenty of government pressure in the future for greener power generation. This means costly investment in wind turbines, solar panels and the like.

But it will have to be backed up by investment in fossil fuel or nuclear plants. On cloudy, windless days you will still want electricity. Net investment in fixed assets is thus likely to go up more than the permissible rate of return goes down.

On another plane, however, this idea of enforcing good public behaviour by fining bad has some questionable side effects.

The most obvious is that it can addict government to exactly those practices it wishes to discourage if they become significant sources of revenue. The cause of free trade, for instance, was long held up in Europe because governments relied heavily on customs and excise duties.

A tax on unnecessary usage of electricity, if it is heavy enough to have a real impact on electricity consumption, is just the sort of widespread measure that could have this effect.

There is more to consider. When taxes are imposed on specific activities there are soon demands that the money raised be used only for specific purposes. Thus our government has a policy that land sales revenue can only be used for capital works. This alone can explain our excessive spending on bridges, rail and highways.

Why Hong Kong needs higher, not lower, electricity tariffs

At its worst you have something like the Securities and Futures Commission, which not only has its own protected revenues, the stock exchange levy, but is not required to obtain annual approval through the government’s formal budget process of how it spends that money. The SFC has thus become a classic law to itself. Paul Stapleton has not recommended this sort of hypothecation of revenues but, sure as water is wet, it will soon follow from penalty tariffs for turning the temperature setting down too far on air conditioners.

And what is too far anyway? I shiver at air con temperatures that my sister in law considers barely cool enough to be liveable. Has God sent down an edict to say, “22 degrees Celsius and no lower or else I’m pulling out my lightning bolts”?

There is a huge morality muddle waiting for us out there when well-intentioned government makes value judgments on our behalf. George Orwell had it wrong in his book, 1984. The danger is Big Mother, not Big Brother.