Lyn Allison (Victoria, Australian Democrats) Share this | Hansard source

The Energy Efficiency Opportunities Amendment Bill 2006 was passed in 2005, based on a policy recommendation from the Prime Minister’s 2004 statement on energy entitled Securing Australia’s energy future. The object of the Energy Efficiency Opportunities Act 2006 is to improve the identification and evaluation of energy efficiency opportunities by large energy-using businesses and, as a result, encourage implementation of cost effective energy efficiency opportunities.

The Energy Efficiency Opportunities Amendment Bill 2006 makes minor technical amendments to the act. The history of the federal government’s energy efficiency efforts date back over a decade to 1995 when the previous government introduced the Greenhouse Challenge program, a voluntary greenhouse reduction program for large businesses and corporations. Recently, the Greenhouse Challenge program became the Greenhouse Challenge Plus program, incorporating two other voluntary programs, Energy Efficiency Standards and Greenhouse Friendly.

The government said it wanted to improve energy efficiency through the National Framework for Energy Efficiency, or the NFEE, the specific implementation of which was agreed by Australian state and federal energy ministers in August 2004. The actions for implementation through the NFEE, stage 1, relate to energy efficiency in the built environment, continued support for appliance minimum energy performance, awareness and capacity building with the commercial and industrial sector. Requirements for energy efficiency beyond the incremental awareness and capacity building is referred to in NFEE, stage 2. The Ministerial Council on Energy outlines that, under a NFEE, stage 2, governments will consider possible further measures which could include broad based incentives. These measures would have the potential to deliver significant energy savings in addition to those being delivered through the NFEE, stage 1.

That statement was made by the MCE in December 2004. Two years later, there has been no further development or consideration as to what a broad based incentive for energy efficiency ought to look like. The problem with all of these schemes is that they are voluntary, and they have done very little to improve energy efficiency or reduce emission intensity or energy use.

It is noted that the original intent of the legislation, as outlined in the Energy Efficiency Opportunities Amendment Bill 2006, was to establish a framework for mandatory energy efficiency opportunities, assessments and public reporting of outcomes by large energy-using businesses, including compliance and enforcement arrangements. The scope for energy efficiency is enormous and, frankly, it is a disgrace that governments have taken so long to act. Energy efficiency is the least costly of greenhouse abatement activities. It results in real productivity gains and a reduction in energy consumed and, therefore, a reduction in energy bills and real savings to householders and businesses.

Australia’s historical performance and rate of energy efficiency improvement have been very poor compared with many other countries. Since 1973, Australia’s energy efficiency improvement has been significantly lower than those of major industrialised countries such as Canada and the United States. Economic modelling to estimate the benefits of energy efficiency was undertaken in 2004 by the Ministerial Council on Energy for the National Framework for Energy Efficiency. Economic modelling undertaken by the Allen Consulting Group and McLennan Magasanik Associates showed that if only a one per cent national energy efficiency target were adopted and achieved by implementing those efficiency activities that have less than a four-year payback, if 60 per cent of these less than four-year payback efficiency activities were implemented at no cost or at low cost and if less than four-year payback energy efficiency opportunities were those cost-effective energy efficiency activities, they would pay for themselves within four years. That is a 25 per cent return on investment, which compares with the current bond rate of 6.25 per cent.

The results of the economic modelling of a one per cent efficiency target using only cost-effective energy efficiency activities of less than the four-year payback would be the following net economic and environmental benefits in the 10th year: real investment increases of $586 million, real GDP increase of $1.582 million and a maximum peak demand reduction of 8,322 megawatt hours. That is a reduction in peak demand in the order of 25 per cent of the national electricity market and, as a result, it would make possible the retirement of older power stations and the deferment of capital investment required for new generation.

There would also be a reduction of 19 per cent in the average wholesale market electricity prices by 2014—that is a reduction in electricity bills, not an increase; a net present value of national savings in electricity and gas of $7.7 billion—that is savings not expenditure; greenhouse emission reductions of 28 mega tonnes of CO equivalent—that is a 10 per cent reduction in emissions from the stationary energy sector and a five per cent reduction in Australia’s total greenhouse emissions. We are talking about very substantial opportunities in energy efficiency.

The Australian Greenhouse Office report entitled Tracking to the Kyoto target, which was released in December last year, confirms that Australian government current and committed policies are inadequate to meet Australia’s Kyoto target. Even more concerning is that the AGO report indicates that greenhouse emissions are due to continue to increase strongly to 2020 and that Australia’s emissions will be 127 per cent higher than 1990 levels. The Business Council for Sustainable Energy estimates that for Australia to meet its Kyoto target a further six million tonnes of greenhouse gas emissions abatement is required by 2125. However, as long as the decision to implement the cost-effective energy efficiency opportunities through this legislation remains at the discretion of businesses, even if they have a no- or low-cost payback, these very clear economic productivity and environmental benefits will be lost.

What are the barriers to the uptake of energy efficiency? Commonsense economics suggests that, if energy efficiency has such a strong case for being cost effective, energy efficiency would be implemented through the invisible hand of the market. However, the Ministerial Council on Energy and the National Framework on Energy Efficiency have documented those known barriers. Lack of information, high transaction costs, access to finance, low-order management priorities and split incentives are some of them. Relevant information is not always available at the right time to the right people to enable informed energy efficiency choices to be made. Policies and programs that only provide information do not address or overcome behavioural barriers and inertia. As energy is a small proportion of total expenditure for most consumers, the potential savings are not perceived as justifying the necessary investment in time and effort to consider and implement energy efficiency improvements.

Many organisations do not have easy internal or external access to the necessary expertise or tools to identify or take advantage of the available energy efficiency opportunities. There are limits and priorities on the capital available to any organisation, and energy efficiency has to compete for this capital with other potential investments. Organisations appear to use a higher hurdle rate for energy efficiency investment than they use for other investments. In some situations, the financial incentives are split—the person or organisation that would need to invest in the energy efficiency improvement is separate from those who would gain the benefits from the resulting reduction in energy use. There is also uncertainty about the consistency and adequacy of resources and the continuity of government measures over the long term. Energy efficiency is not broadly integrated into the current curricula of TAFE colleges and universities or in the professional development programs of both professional and trade organisations. There is a lack of evidence of achievements from energy efficient applications and government measures as a result of a lack of consistent measuring and reporting of energy use and efficiency.

So, while NFEE stage 1 goes some way towards addressing these barriers, they are still very real There will always be real barriers when the government relies on voluntary implementation of cost-effective energy efficiency opportunities. The uptake of energy efficiency is a front-line tool in the transition to a carbon constrained future. It is the least-cost abatement activity with positive economic and productivity benefits, yet energy efficiency is also the most underutilised policy with the government, which has not progressed past voluntary measures. Energy efficiency implementation is much too important to leave to the goodwill and voluntary undertakings of corporations, however socially responsible those may be.

Energy efficiency implementation is, we say, much too important to leave to the goodwill and voluntary undertakings of corporations, however socially responsible they may be. Some will progress and others will have it as a low priority. As the act is currently written—that is, identification and reporting but leaving the implementation to the discretion of the corporation—it will result in the same policy failure that was seen in the mid-nineties when corporations were required to undertake audits but not to implement the recommendations even when it resulted in reduced costs and improved profitability.

Mandatory energy efficiency schemes already exist in places such as Italy and the UK. The energy efficient opportunities implementation of the UK schemes is predominantly delivered through energy retailers in order to simplify the administration. In Europe other energy efficiency schemes are developed with a trading component and therefore incorporate incentives for the implementation of energy efficiency activities. In Europe these schemes are referred to as white certificate trading. Currently the Victorian government requires all EPA licence holders with an energy usage greater than 500 gigajoules per annum—that is greater than 100 tonnes of energy related CO equivalent and equates to $15,000 expenditure—to identify, report and implement all cost-effective energy efficiency activities with a payback period of less than four years. The Victorian government has announced an energy efficiency target. While details have yet to be released, I understand that a mandated energy efficiency target with a trading component is being considered in order to create further incentives for the implementation of efficiency activities. The New South Wales Greenhouse Gas Abatement Scheme, while primarily a carbon abatement program, also creates incentives for the implementation of efficiency activities. These are just a few examples of where energy efficiency policies are being introduced and supported with targets and frameworks to deliver real and mandated efficiency outcomes.

If this bill passes in its present form, the result will be a lot of energy audits but little implementation and productivity or economic benefits. The Democrats have circulated amendments that will deliver a broadened level of participation. For instance, the current act applies only to corporations that use 0.5 petajoules of energy per year and it is anticipated that that will only apply to 250 corporations. Making the scheme mandatory and lowering the threshold for participation will reduce Australia’s greenhouse emissions by 10 per cent and result in real productivity gains. Our amendments will require corporations to implement those opportunities with a less than four-year payback—that is, it would be no longer at the discretion of the corporation but become a mandatory requirement. If the company has implemented all cost-effective energy efficiency activities with a less than four-year payback then the company is not required to act further.

We would also reduce the threshold for participation to include commercial and industrial organisations with greater than 1,000 tonnes of energy related CO equivalent emissions or energy consumption of greater than 5,000 gigajoules, whichever is the lesser. Lowering the participation threshold would bring in 5,000 companies to implement those efficiency activities. Those 5,000 biggest energy users would all be companies that would have more than 200 employees. So we are not talking here about small organisations. Clearly, there is a range of economic, national, social and environmental benefits to be gained from improving energy efficiency throughout the economy. It will result in gains in economic growth, consumer welfare and employment. It is in fact the most cost-effective greenhouse abatement activity there is. It will also ensure improved energy infrastructure utilisation and reduce energy supply costs. Another advantage of energy efficiency is that it can defer new capital investments until such time as cleaner generation technologies become less expensive and are geared up in terms of our own industry here in creating them.