Efficiency: Can government and business get it right?

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Energy efficiency offers the cheapest, quickest and easiest solution to cutting emissions and controlling energy bills. So why isn’t it taken up more widely? Blame an inability to sell a simple message, and the power of vested interests for whom quantity is king.

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As one energy efficiency program was closed abruptly this week, and controversy continued to rage over another, a new $1 billion grants based scheme was quietly rolled out to try and encourage Australians – business consumers this time – to become more efficient about the way they use energy.

So far, the government’s interventions in the energy efficiency area have been colourful but erratic. We’ve had pink batts, green cars, cash for clunkers, and the solar hot water scheme, and state-based initiatives such as energy efficient light bulbs and standby controllers. All have been effective to some degree (some very much so), but none have really been successful in convincing consumers that energy efficiency is the easiest, the cheapest, and the least disruptive way of reducing emissions and minimizing energy costs.

It shouldn’t be this way, but it is. And those in the industry are scratching their heads as to why this is so and what to do about it. “If we can’t sell the message when energy prices are in the process of doubling, then we must be doing something wrong,” was the conclusion of some at this week’s Energy Efficiency Summer Camp, a summit of more than 250 industry professionals in Sydney.

And there are wider implications. As Jon Jutsen, the chairman of the Australian Alliance to Save Energy told the summit: “We are standing at a moment of great change, when all parts of the energy industry are reviewing their traditional models because they aren’t conducive to a lower carbon emissions world. Conservative centralized infrastructure investments now look risky and traditionally difficult investments in co-generation and other decentralized energy generation look attractive.”

And therein, perhaps, lies the problem. There are countless studies worldwide, from international bodies such as the International Energy Agency, to individual country authorities, that show that energy efficiency will need to account for 40-50 per cent of effort to reduce the world’s emissions. Mostly this is low cost and easily obtainable. But it does have implications for those who stand to gain simply by selling more energy, or who want to invest in other low carbon technologies. We’ve seen this in the push-back by energy generators against a national traded energy efficiency scheme (it’s complex and adds to compliance costs, they say), and in the debate in Europe about how far energy efficiency should be pushed in the absence of more ambitious emissions reduction targets.

One of the recurrent themes of this conference was that it was not technology that stands in the way of energy efficiency, but regulation. This is mostly about who stands to benefit (financially) from encouraging energy users to use less, but it is also how energy efficiency incentives can perversely dilute the efforts made elsewhere – when low cost abatement becomes the enemy of ambition, when it should be its greatest supporter.

Much of this problem lies in measurement, particularly in Australia. The Australian government likes to tout its National Greenhouse and Energy Reporting Act, but analysts are now pointing to the fact that this is inadequate. As Deutsche Bank’s Tim Jordan noted this week, NGER only publishes emissions data that is aggregated at the company level. “That makes emissions data for companies with diversified operations very difficult to interpret, and means that reported emissions levels are very volatile year to year as companies add or divest facilities.”

He notes that the US Environmental Protection Authority, by contrast, publishes detailed facility-level data, which makes it easier to compare a company’s performance to its sector peers. “Investors need official facility-level data or more detailed corporate disclosures to assess the impact of the carbon price on a firm’s profitability,” Jordan writes.

Anna Skarbek, from ClimateWorks, says this needs to be remedied, and it needs to be done quickly. ClimateWorks suspects that there is a lot of abatement that can be achieved at zero or at little cost, or even cost benefit, and this would make a 25 per cent reduction target (the one that accords with the science), a lot more obtainable than is currently recognized by government and their advisors.

And time is of the essence, Skarbek says, because by early 2014, after just 18 months of the carbon price, the newly created Climate Authority to be led by ex RBA chief Bernie Fraser will be making a call on how deep Australia’s abatement task should be. “We may find that we could easily double the target, but unless we have that data, we can’t make that call,” she says.

The prime minister’s task force on energy efficiency, which was delivered in late 2010 but which the government is still wrestling with, highlighted the fact that Australia compares badly with the OECD average on energy intensity, and has done comparatively little in terms of programs and standards, simply because energy has been so cheap and formed such a small part of business and household expenses. Indeed, it says there has been such limited demand that most Australian financial institutions do not even have the intellectual property and products needed to finance energy efficiency, meaning that few projects that have been proposed have gotten the finance to go ahead.

The task force said that, if its recommendations are taken up, which include a national “white certificate” energy efficiency trading scheme, it still may not be able to catch up with global competition, but the gains in energy efficiency and fall in energy consumption would lead to lower wholesale prices, and lower profits for existing generators — possibly of between $600 million and $1.5 billion over the period 2012 to 2020. It noted, however, that this “does not represent a loss to the economy”, as there is a countervailing benefit to energy users through lower energy costs. It put the net benefit to the economy from the scheme of $6.6 billion.

These are already the demonstrable conclusions from experiences elsewhere. The conference hear from Lara Ettenson, from the Natural Resources Defence Council in the US, who noted that while California has the highest rate of electricity costs per kw/h in the US, their bills are on average 27 per cent less than the rest of the US – because they use less power, thanks to tough energy efficiency regulation implemented over the last 20 years. And to illustrate the point that the economy does not fall apart when environmental benefits are factored in, California produces twice as much GDP per kw/h as the the rest of the economy. A total of 5 gigawatts of new generation, or 11 average sized coal or gas plants, has been avoided. And in California, it is estimated that 20 energy efficiency jobs have been created for each fossil fuel job made redundant.

Wanxing Wang, the program director of the China Sustainable Energy Program, noted that the Chinese government had targeted energy efficiency as a key part of its energy policy, and part of this was to close inefficient, and highly polluting, coal fired power stations. Indeed, it had nearly doubled its 50GW target, and had closed nearly 90GW of old, inefficient coal-fired plant. That’s nearly double the size of the entire Australian grid. In the US, it is expected nearly 60GW will be closed down by efficiency rules. None of the plants will receive payments for closure, a ruse in which Australia stands unique in the world.

As Jutsen noted in the final communiqué of the summit, individual Australian companies have already demonstrated that it is possible to reduce emissions by half, using established technologies such as co-generation, as an example. But regulation remains the biggest barrier to wider deployment. “Like all reforms, there will always be entrenched business models to overcome and vested interests at play,” he said. “Only this week in the press we have seen some of the existing energy providers claim energy efficiency schemes will add to their regulatory burden. This should be seen for what it is: an attempt by existing entrenched providers to protect their commercial interests.”

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  1. Stephen Derrick 8 years ago

    I did not attend the Energy Efficiency Summer Camp, but I hope there was some discussion about the rebound effect, also known as the Jevons Paradox. Put simply, the proposition is that increased energy efficiency simply leads to greater consumption. There is a wealth of literature on this subject. Without regulation and energy efficiency standards, there is little incentive to reduce consumption of something that has become relatively cheaper. This is most certainly the case in business. David Owen has written about this topic and his recent book “The Conundrum: How Scientific Innovation, Increased Efficiency, and Good Intentions Can Make Our Energy and Climate Problems Worse” is well worth a read.

    • Dean 8 years ago

      @Stephen Derrick, rebound effect is indeed a problem, but only estimated to be about 10% so doesn’t negate the value of energy efficiency.

    • Steve 8 years ago

      The issue of efficiency needs to be approached from both ends of the equation – demand and supply.

      Unfortunately the best method of achieving a noticeable reduction in energy use is through legislating a comprehensive energy efficiency policy binding to all sectors with incentives for first adopters of efficiency measures. However, this would be extremely unpopular due to large upfront costs, despite the long term gains benefiting everyone.

    • Robert Foster 8 years ago

      In terms of the residential sector ,for the householder, rebound or “comfort creep” (if it occurs) is not an issue as it represents discretionary behaviour. If it occurs then it indicates that the householder is valuing improvements taken in comfort above the potential financial savings that could be realised if their comfort requirements were left unchanged following the application of the improvement measure.

      Of course at a state or a national level, in terms of reducing greenhouse gas emissions it is a factor that does need to be taken into account but it should not be overplayed. Take heating and cooling for instance, the concern with a rebound effect is that following the application of an improvement measure the householder will choose to take some of the savings in the form of comfort, more rooms heated or cooled or higher thermostat settings in winter and lower in summer. Whilst this may occur, you must appreciate that a trend towards higher levels of comfort is occuring anyway. More and more home owners are opting for whole of house heating systems for instance and everyone knows about the massive uptake over the past 10 years of air-conditioners (this has nothing to do with a rebound effect). Even the concept that householders will set their thermostats higher in winter and lower in summer is questionable. Better insulation and effective shading means that surfaces such as windows, walls and ceilings stay warmer in winter and cooler in summer. The tendency in poorly insultated dwellings is more likely to be to have higher thermostat settings in the winter to compensate for the chilling effects on the body of cold window and wall surfaces and the drafts those surfaces create.

      One thing is for sure , governments of all persuasions need to put a greater effort into collecting data on building performance and user behaviour so that better estimates of the likey impacts of energy efficieny programs can be made. The building industry is probably worth close to $100 billion per annum yet the investment in such research is probably less than one 1/1000 of 1% !

  2. Richard Koser 8 years ago

    I agree: facility-level energy use data should be provided, otherwise comparison is impossible. They must be available, because they were presumably used to tally up the company-level total.

    As for enforcing energy efficiency, where to start? Why don’t we look at what California has done over the past 20 years, if they’ve achieved so much?

  3. Chris Fraser 8 years ago

    I wouldn’t understand this hope that we must look to generators and retailers to drive a surge of efficiency. I say forget about them, but i notice there are legislative requirements for efficient new buildings. Mostly, these requirements only require the equivalent of a four or five star rated home. What if an incentive could be given for uprating an approved 4 four star building to 6 or 7 star ? Being careful, of course, that this improvement makes an adequate return. And being even more careful of the bona fides of the Occupant. That is, making sure the Occupant doesn’t use the savings to turn his airconditioning down to 17 degrees.

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