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

I table the explanatory memorandum and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Introduction

The purpose of the National Market Driven Energy Efficiency Target Bill 2007 is to amend the Renewable Energy (Electricity) Act 2000 to introduce an efficiency trading scheme.

A carbon emissions trading scheme will result in new power stations switching to more efficient or lower emission generation technology such as going from coal to gas but not drive investment in end use energy efficiency.  Indeed energy efficiency is specifically excluded from an ETS as an offset for double counting reasons.

What the Bill does

This bill develops a framework for a separate market for energy efficiency and sets out reliable and credible monitoring and verification methodologies to guard against double counting and to meet ‘additionality’ criteria.

The Bill applies the principles of the Mandatory Renewable Energy Target to energy efficiency, referred to in Europe as white certificate trading.  Tradeable certificates are issued for verifiable energy efficiency savings from activities which are above and additional to those activities currently required through legal or regulatory arrangements such as Minimum Energy Performance Standards.  For example, a manufacturer who makes 7 star appliances where only 3.5 stars is the minimum would be awarded certificates equal to the energy saved over a given period.

A demand for these certificates is created by requiring electricity retailers (liable entities) to purchase and surrender certificates for the equivalent of 2% of their total sales.

The elegance of a the National Market Driven Energy Efficiency Target scheme is that not only will householders, business and industry retain an ongoing benefit of lower energy costs but there is significant public benefit in improved productivity in avoiding the need for $6 billion per annum in infrastructure augmentation. 

These Energy Efficiency Certificates are supplied and traded in the market. 

It is a particularly useful way to attract investment in hard to reach sectors such as rental buildings, weatherisation in low-income communities and measures with long paybacks.  It is also a means that the building occupant or the appliance owner benefits from the ongoing lower energy costs.

It is estimated by the European Commission that the technical potential for savings in total final energy consumption in the EU (15 countries) is about 40% and that the economic potential (cost-effective savings potential) is about 20%. For industry, this potential is estimated to be approximately 17% of current final consumption, 22% for the domestic and tertiary sector and 14% for transport.

This Bill proposes an annual target of only 1 percent in the first year followed by 2% per annum thereafter.  This results in an accumulative but conservative target of 20% by 2020.  This is in line with the European Commission energy efficiency target of 20% by 2020, understanding that EU is already more energy efficient so the  opportunity for energy efficiency is greater and cheaper in Australia.

Why the bill is needed

The Bill addresses the failure of the energy market to deliver cost effective energy efficiency and would realise low cost greenhouse abatement, productivity benefits to the economy and improved consumer welfare.  This Bill achieves this by creating a market and therefore incentives for energy savings and energy efficiency for buildings, appliances equipment and industrial processes which are additional to current energy efficiency practice required through regulation such as Minimum Energy Performance Standards.

The government has not satisfactorily prioritised energy efficiency as an important component of Australia’s energy policy.  Indeed the commitment of the government to develop a strategy for nuclear power industry but not for energy efficiency leaves the government open to criticism on the grounds of energy security, economic and environmental management.

The Australian Greenhouse Office Report “Tracking the Kyoto Target” released in December 2006 confirms that Australian government’s current and committed policies are inadequate to meet Australia’s Kyoto Target.  Even more concerning the AGO report indicates greenhouse emissions are due to continue to increase strongly and by 2020 will be 127% higher than 1990 levels.

Energy efficiency is essential to stopping high levels of energy waste and slowing the growth in energy demand.  Energy efficiency can delay the requirement for investment in additional generation infrastructure, allowing time for emerging clean energy technologies to commercialise. Energy efficiency can make deep and cost effective cuts in fossil fuel use and our greenhouse gas emissions.   If energy demand continues to grow unchecked and at current high levels then renewable energy and clean energy development chase a receding target.

It is essential that the potential of energy efficiency is realised as both a frontline climate change action but also to improved productivity benefits to the economy.  It is for these reasons the Australian Democrats are taking this initiative bill and showing leadership in this complex policy area.  “Negawatts” (or avoided energy consumption through energy efficiency) has become the single most important energy resource and is more secure than clean coal technologies and nuclear power.

Australian energy efficiency policy

Australia’s energy demand is growing at almost 2.5 per cent per year and Australia is one of the most energy wasting countries in the world.  Our wasteful energy practices are costing Australians over $6 billion dollars per annum in infrastructure investment—money could be better spent in other areas. 

The fact is that energy efficiency is not currently a priority.  Less than a $3 million dollars was budgeted in 2006 /07 for energy efficiency, the Energy Efficiency Best Practice Program was de-funded and the Energy Efficiency Opportunity Act only requires voluntary action

Furthermore, the National Framework on Energy Efficiency has stalled and both stage one and two were inadequately resource—in both human and funding terms, leaving the State governments to deliver. 

The Prime Minister’s Solar Cities project trials demand side management, energy efficiency and distributed generation actions but this will not necessarily mean broader implementation and will doubtless further delay these technologies.  The technical issues and regulatory barriers are already known and need to be addressed through energy market reform.

Even the long term recommendations of the Parer Review in 2002 to prioritise energy efficiency and demand side management have been ignored.

The Government’s 2012 ban on incandescent light bulbs in favour of compact fluorescent lights is a step in the right direction but will address less than 0.5% of energy use. 

The National Building code has only now implemented a minimum requirement of 3.5 stars for housing, when Victoria has demanded 5 stars since 2004.

Why Energy Efficiency is an essential energy policy component

It is essential that the potential of energy efficiency is realised at least cost and improves productivity. 

However energy efficiency is conceptually challenging and difficult policy to communicate to the public.  Energy efficiency is not about sitting in the dark or doing without.  Energy efficiency is about creating an investment environment for reducing energy waste and the development of energy efficient technologies and innovation. 

Cost effective energy efficiency activities are those that pay for themselves within 4 years.  That is, a 25% return on investment.  However, the majority of energy efficiency activities will pay for themselves within 2.5 years and 60% of energy efficiency activities can be implemented at no cost or at low cost delivering a 50% return on investment.  This compares with the current bond rate of 6.25%. 

The barriers to energy efficiency are complex but have been documented as part of the National Framework on Energy Efficiency.

Lack of information, high transaction costs, access to finance, lower order management priorities and split incentives are some.  Relevant information is not always available at the right time to the right people to enable informed energy efficiency choices to be made.  The 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 aren’t 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 also appear to use a higher hurdle rate for energy efficiency investments than 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 that will gain the benefits.

There is uncertainty regarding the consistency and adequacy of resources, and continuity of government measures over the long-term.

Energy efficiency is not broadly integrated into the current curricula of TAFEs and universities, or 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.

The proposed National Market Driven Energy Efficiency Target Bill 2007 is a way of addressing the current barriers to energy efficiency and creating solutions for the other 99.5% in energy use and energy waste.

Potential for Energy Efficiency

A big impact on greenhouse abatement and improved productivity is possible through improved energy efficiency using existing technologies.  According to the International Energy Agency, energy efficiency could contribute to 80% of avoided greenhouse gases while substantially increasing security of supply.

On 4 May 2007 the final report of Working Group of the International Panel on Climate Change said energy efficiency is one of the key mitigation technologies to achieve required greenhouse reductions.

Typical of the energy efficiency opportunities in Australia currently is the 10% of household energy that is used for standby power when there is no technical reason this can’t be reduced to almost nothing.

Economic modelling by “The Allen Consulting Group” and McLennan Magasanik Associates in 2003, showed that achieving a mere one percent national energy efficiency target using only cost effective energy efficiency activities of less than four year payback would result in substantial net economic and environmental benefits in the tenth year. 

That includes real investment increases of $586m and real GDP increases of $1,582m

Maximum peak demand would be reduced by 8,322 MW—a reduction in the order of 25% of the National Electricity Market.

It would make possible the retirement of older power stations and a deferment of capital investment required for new generation.

Average wholesale market electricity prices would, by 2014, be reduced by 19%.  Net present value of national savings in electricity and gas would be $7,769m.

Greenhouse gas emissions would be reduced by 28 MtCO2-e.  That is a 10% reduction of emissions from the stationary energy sector and a 5% cut in Australia’s total greenhouse emissions.  Only an additional 6 million tonnes of abatement is required by 2010 to meet our target

Implementing just those energy efficiency activities with less than a three year payback would forgo the need for 25 nuclear power stations.

What complementary policy is required?

This proposed bill is only one component required in realising the full economic potential of energy efficiency.  Complementary policies and actions around minimum energy performances standards (for appliances, equipment and housing) is required as is the need for up to date, credible and reliable data on how we use energy.  Quality analysis and data are essential to inform energy infrastructure investment programs and policies.  Currently policy makers are using out of date and conservative estimates of the energy efficiency potential resulting in underestimation of the true potential for energy efficiency improvement.

What they say about energy efficiency

The G8 Summit declaration of June 2007 said that improving energy efficiency worldwide is the fastest, the most sustainable and the cheapest way to reduce greenhouse gas emissions and enhance energy security.

The International Energy Agency says energy efficiency is one of the major tools for strengthening security of energy supply. But not only does it save energy, it reduces costs and lowers CO2 emissions. Existing efficiency technologies can sharply reduce energy consumption per unit of GDP, at relatively low or sometimes even negative costs and with a similar or even improved service. Energy prices are an important signal. In focusing market interest on energy efficiency opportunities, but governments too, must play an important role.

The IEA estimates that 10% of world energy demand could be saved by 2030 simply by seizing available energy efficiency opportunities and applying policies and measures currently under consideration. This outcome would benefit security of supply, economic growth and environmental protection as non-consumed energy, obviously, is the most secure and does not pollute.

The US National Action Plan for Energy Efficiency presents policy recommendations for creating a sustainable, aggressive national commitment to energy efficiency through gas and electric utilities, utility regulators, and partner organizations. The recommendations, if fully implemented, could save Americans billions of dollars in energy bills over the next decade, contribute to enhanced energy security, and improve the environment. Leading organizations across the country are taking specific actions to make the Action Plan a reality.

Newsweek, 10 Jan 2007 reported that efficiency is also a great way to lower carbon emissions and help slow global warming. But the best argument for efficiency is its cost—or, more precisely, its profitability. That’s because burgeoning energy demand requires immense investment in new supply, not to mention the drain of rising energy prices. In the International Energy Agency (IEA) emissions-cutting strategy, consumers and industry would have to invest $2.4 trillion over the next two and a half decades in more-efficient equipment, improved buildings and better-mileage cars. But those investments would slash fuel and electricity bills by an estimated $8.1 trillion and avoid another $3 trillion of investment in oil wells, pipelines and power plants. Each dollar invested in efficiency generates more than $4 in savings, while the “payback period” is usually no more than four years.

On Jan. 10 2007, the European Union unveiled a plan to cut energy use across the continent by 20 percent by 2020. Last March, China mandated a 20 percent increase in energy efficiency by 2020.

A report by the American Council for an Energy-Efficient Economy was released in June 2007, Potential for Energy Efficiency and Renewable Energy to Meet Florida’s Growing Energy Demands and identified that Florida could save $28 billion by using energy efficiency strategies that are available now.  Using energy efficiency policies alone (such as efficient windows, compact fluorescent light bulbs, and ENERGY STAR appliances) can nearly offset the state’s entire future growth in electric demand by the year 2023. Florida would also create more than 14,000 jobs in 2023. The direct and indirect jobs created would be equivalent to nearly 100 new manufacturing plants relocating to Florida, but without the demand for infrastructure and other energy needs.  Specifically, the study found that energy efficiency measures could cut demand by 19.9 percent and at a cost of 3.5 cents per kilowatt-hour, only about half of what new power plants would cost.

Energy efficiency is a factor of economic development.  Experience has shown that, in many circumstances, it is cheaper to save a given quantity of energy—or to avoid using it—than it is to produce it. This means that huge financial resources can be transferred from energy supply development to more valuable activities which better fulfil the needs of population (health, education, etc.). Beyond this global effect, the direct effects of energy efficiency on productive activity are significant: improvement in industrial productivity, development of new activities and creation of jobs in all economic sectors and all geographical areas.

The environmental benefits are even clearer: the energy which creates the least pollution is that which is neither used nor produced. Each time the energy consumption for a given need is reduced, the emission of pollutants is also, automatically and proportionally, reduced.

I commend the bill to the Senate.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.