There's a row going on about energy price rises, as you know. This blog rather nicely lays out one view. Now, we all know that energy prices are going to rise in the future: the government's specifically taxing us all to make sure this is true. However, underlying that is another argument: does this mean that the average family will be paying more?
In one corner we've the DECC and the various environmentalists. No, the higher prices will encourage people to substitute. They'll insulate, wear woolly jumpers, use less energy anyway. In the other corner we've a political advisor called Ben Moxham who calls this all wet. People won't in fact change their behaviour all that much and the average energy bill is going to go way up.
It'sd a bit of a pity to get involved in such a lovely catfight really, should just get some popcorn and settle down to watch. However, there's a reasonable way of calling this argument, by using a little basic economics.
What the DEC is really saying is that energy demand is highly elastic to price: change the price and you'll get quite large changes in behaviour and demand. What Moxham is really saying is that this is tosh, energy has a low elasticity. We don't change our behaviour much when energy prices change. So, who is right?
Well, Moxham, obviously, for energy famously has a low elasticity of demand in relation to price. As every environmentalist bemoans when they see that rises in petrol taxes don't immediately have us all cycling to work. Because, you see, we don't change our behaviour very much when energy prices change.#
We shouldn't be all that surprised at the DECC's insistence though. They're not the first and won't be the last government department to shout, as if at the panto, "Oh Yes It Is" about one of their favoured policies. Sadly, they also won't be the last to be wrong while doing so.