August 08, 2012 - 11:15am
Australia must improve its energy productivity to maintain competitiveness in a world of rising fuel and energy costs and increasing carbon constraints. A national Energy Savings Initiative (ESI) is a critical component of this objective.
An ESI would:
- Lower consumers’ energy costs: Households could save $90-300 per year by 2020. Medium-sized businesses could save $10,000-23,700 per year.
- Lessen Australia’s exposure to increasing prices for energy: Australian electricity prices have been increasing significantly – regardless of carbon pricing – due mainly to investments in network infrastructure. In addition, fuel prices have risen and are expected to continue to rise. Global oil prices remain high, while Asian demand for Australian coal and LNG is putting pressure on domestic coal and gas prices.
- Increase domestic pollution reduction and reduce the cost of achieving Australia’s emissions reduction targets: Cost effective energy efficiency measures could achieve more than a third of Australia’s minimum 5 per cent target and a quarter of a 25 per cent target in 2020, and save more than $7.5 billion.
- Cut costs by replacing inconsistent state schemes: Energy retailers estimated that harmonising the existing schemes would cut their implementation costs by 12 per cent. Streamlining the bureaucratic task may also reduce the overall burden on government.Australia lags other countries on energy efficiency
Australia lags other countries on energy efficiency
- Australia has a higher proportion of energy intensive industries than many other countries, but even accounting for this Australia is less energy efficient and is improving more slowly than its peers. Australia lags behind the United States, Canada, the United Kingdom and New Zealand, among others, in terms of its improvement in energy efficiency over time.
- The era of cheap energy is over. Low cost energy has meant Australia has not invested in energy productivity. Despite our historically low cost energy supply, we pay electricity bills comparable to other countries. Australia can also no longer expect to be insulated from rising global prices for resources like carbon, coal, oil and gas. Domestically, expensive investment in electricity network infrastructure, driven by rising peak demand, is contributing to steep increases in power bills. Improved energy efficiency is vital to maintaining Australia’s competitiveness and building resilience to global and domestic economic forces.
A national Energy Savings Initiative addresses market failures that see consumers and businesses pay for unnecessary energy use
- Imperfect information - Consumers and investors often lack sufficient expertise in energy efficiency to make informed decisions, leading to under-investment in energy efficiency. A national ESI creates a financial incentive for energy retailers to educate their customers to reduce their energy consumption.
- Principal-agent problems - Split incentives (such as the landlord-tenant issue) often prevent investment in energy efficiency, particularly investments in water- or space-heating. A national ESI provides a split benefit for energy efficiency; eg. a landlord can sell credits received for investing in more efficient water heating, while the tenant enjoys reduced bills.
- Bounded rationality – overcoming the ‘hassle factor’ - People may see small investments producing small savings as not worth the effort, while large investments with long payback periods are low priorities. However, an ESI will facilitate aggregation of demand and supply.
- Lack of access to finance - An ESI creates a revenue stream in addition to the energy saved. This increases the return on investment in energy efficiency projects and reduces their payback periods, making it easier to attract finance.
Cost effective energy efficiency drives domestic emissions abatement and saves money
- Overcoming the market failures that forestall cost-effective domestic pollution reduction that would maximise the economic opportunities that come from acting on climate change, and reduce the budgetary cost of achieving Australia’s emissions reduction targets. By unlocking such investment, a national ESI also fosters jobs growth in the energy services and related sectors, accelerating transformation to a low-carbon economy.
- To illustrate, ClimateWorks identified roughly 50 million tonnes of relevant negative cost emission reductions in the industrial/commercial sectors compared to roughly 3 million in the residential sector.
- Existing energy saving schemes overseas have driven significant reductions in energy costs and emissions. In Europe, five countries have implemented - and expanded - their energy saving schemes. India is also implementing an efficiency trading scheme. Independent evaluations show that in the EU the total cost of saving a unit of energy is between two and six times smaller than the price for residential use of that energy. Moreover, energy efficiency has become cheaper over time – economies of scale have driven down prices for high-efficiency appliances or services, and companies have become more adept at marketing and delivering them.
The Energy Savings Certificates Scheme (ESCS) obliges all large energy suppliers to find energy efficiency improvements in commercial and residential building, industry, agriculture and transport. The first phase of the ESCS (2006-9) resulted in annual energy savings of 7.7 terawatt hours (TWh), or about 1.4 per cent of France’s annual electricity generation, and 1.83 million tonnes (Mt) of carbon pollution reductions. Consumers saved approximately EUR 1.4 billion ($AU 1.7 billion). In addition, clean energy sector employment grew by 28 per cent to 260,000 jobs. Nearly half of these were in the residential energy efficiency industry (110,000 jobs). In the second phase (2011-2013) France has increased its target fivefold and extended the obligation to the transport sector through motor fuel suppliers.
Example 2 - United Kingdom
The Energy Efficiency Commitment (EEC) began in 2002, and became the Carbon Emissions Reduction Commitment (CERT) in 2008. Large gas and electricity suppliers are required to improve energy efficiency in households. During the second phase of the EEC, it achieved 140 per cent of targeted energy savings, and delivered GBP 8.4 billion ($AU12.7 billion) of benefits to households in its last round, with every dollar spent by energy retailers delivering GBP 6 ($AU 9) worth of benefits to households. CERT is expected to deliver emissions pollution reductions of 293 Mt CO2e by December 2012, with a net present value to society of approximately GBP 17 billion ($AU 22 billion).
Example 3 – India
India’s ‘Perform-Achieve-Trade’ initiative creates a white certificate scheme covering eight industrial sectors (including aluminium, power generation, pulp and paper, cement, iron and steel). Its initial three-year phase began on 1 April 2012, and by 2014-15 is expected to save 10 million metric tonne of oil equivalent (mMtoe) and 27 MtCO2e.