Wednesday, January 18, 2006

Rationally pricing residential air-conditioning

Overheard in a Fitzroy side-street:

“I fuckin’ hate it! I’ve spent all my life in Wodonga, and never had air-conditioning, and Wodonga’s way hotter than fuckin’ Melbourne!"

- one 20-something guy to another, when a couples of houses away from their front door.

The last decade or so has seen the air-conditioning of residential premises hit the mass-market in my home-town of Melbourne. This fact seems much more to do with changes in building design*, and possibly other factors, than any change in Melbourne’s climate.

Like most of Australia, Melbourne does have at least a handful of stinking hot days most years – days on which the chill blast of an air-conditioner at home would feel damn sweet. Even on these days, though, I find that effective relief from the heat can be had through a fan – as possibly aided by my living in a reasonably-designed building (a building in Australia qualifies for this by, at the very least, having no west-facing windows, unless such are heavily-shaded).

Fans use much less electricity than air-conditioners. I also find them healthier, overall, particularly for extended use. When I lived in Darwin a decade ago, while there was an air-conditioner installed, I only used it once or twice a year. My ceiling fans, OTOH, ran whenever I was home, and all windows and doors were usually open, for maximum natural ventilation.

Connected with the rise of the mass-market air-conditioning is the burgeoning power demand, in Victoria, on summer’s hottest days. The inherent nature of electricity supply means that considerable extra capital must be invested in power generation just to cope with the peak demand of a few days per year. Otherwise, the whole grid will fail – with much more serious consequences, of course, than those with air-conditioning installed simply being unable to use it.

I find such a scenario economically perverse – for, like that above-quoted speaker, I reckon that residential air-conditioning is almost always an exemplary, stupid and profligate luxury. I’m guessing that the above speaker was bitching about a shared power bill, and since I live alone, I am not saddled with someone else’s externality as directly as he. However, as a non-air-conditioning** consumer of electricity , I’m still unhappy about the extent of my cross-subsidy of the population at large. Overall electricity prices would/should be significantly less, if air-conditioning power supply – especially on peak/hot days – was rationally priced; that is, priced at its true extra marginal cost.

Logistically, this seems a tall order, so my suggested alternative solution is an air-conditioner license/tax, of say $500 annually per unit. While it wouldn’t be the easiest tax to enforce, next-door neighbour spies, like me, would have a natural incentive to dob in unlicensed air-conditioners. Such a license system also would be fairer that a sales-tax on new air-conditioners. Also, by applying equally to new and old air-conditioners, it would avoid creating a sales-tax-avoiding black-market in new air-conditioners.

The money raised by the air-conditioner license/tax would be reserved for capital expenditure to provide for peak power days. If the pool of funds proves insufficient for this, the license quantum should, of course, be raised. Either way, the days of cross-subsidisation would end.

* “McMansions” – new, large houses on small blocks – have a fair bit to do with this. As well as air-conditioning throughout being de riguer in such houses, their design – which necessarily entails large windows front and back – could not be more hot-box creating.

** Disclosure: I have an (old and clunky) air-conditioner fitted in my (rented) bedroom, which I have very occasionally used – at God know what cost to the atmosphere, not to mention my own respiratory system. If the license/tax came in, I would be delighted to get rid of the thing.

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