Efficiency: Can government and business get it right?

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.”