Reducing emissions – energy efficiency style

Reducing emissions

The Energy Retailers Association of Australia (ERAA) is lobbying government in order to develop a more co-ordinated public policy response to improving energy efficiency for electricity and gas appliances throughout Australia.

The ERAA recently commissioned a PricewaterhouseCoopers report regarding public policy approaches to energy efficiency at a household level. The report addresses issues associated with the formation of public policy, while also identifying specific public policy options that appear promising based on international experience.

ERAA Executive Director Cameron O’Reilly says “The ERAA commissioned the PricewaterhouseCoopers study to inform government thinking on energy efficiency policy and to bring a retailer’s view to the table. The accusation that retailers are only interested in selling as much energy as possible ignores the contribution my member companies are already making to encourage energy efficient behaviour by customers.”?

The range of policy options addressed include: provision of information regarding energy efficiency alternatives; mandatory or minimum building and appliance standards; financial incentives; and, market-based initiatives or certificate schemes.

Improvements for market

The report, entitled Review of energy efficiency policy options for the residential and commercial building sectors, cites two market failures as having the greatest potential to undermine the efficacy of climate change policy – information asymmetry and split incentives.

Information asymmetry refers to consumers’ lack of convenient access to information regarding the range and effectiveness of energy efficiency options. Unavailable information results in opportunities foregone.

The report sees information provision as a key complement to any policy and is best driven by government, as foreshadowed in the Carbon Pollution Reduction Scheme (CPRS) Green Paper.

The report says that there may be a role for a nationally co-ordinated government organisation dedicated to advising consumers on energy efficiency. Such an organisation could provide a powerful focal point for co-ordinating a consistent message to the public and in attracting knowledge and funds from the private sector.

The issue of split or misaligned incentives occur when those responsible for selecting or purchasing equipment cannot access the benefits of improved energy efficiency, for example landlords or agents making energy efficient purchase decisions on their rental properties are not able to readily access the benefits from reduced energy consumption, giving little incentive to switch to more energy efficient standards.

Australian and state government rebate schemes for gas-boosted solar hot water systems are attempting to mitigate this issue by offering a point-of-sale discount on the hot water systems as well as stressing the savings to be made on energy bills.

Building and appliance standards are seen as an effective method in addressing misaligned incentives. The report states that there is a need to drive energy efficiency improvements within existing building stock.

The standards are also seen as an effective way to regulate the energy efficiency of newly constructed buildings. It is noted that appropriate measurement and enforcement is required to develop a more cost effective way of increasing energy efficiency.

In some Australian states, standards for energy efficient buildings are already being developed. For example, newly constructed and renovated Victorian houses are to be fitted to a “˜5 star standard’, which refers to homes that use 50 per cent less energy for heating and cooling compared to houses built before 2005. As part of the scheme, the installation of high efficient gas hot water systems is highly recommended. The Australian Minimum Energy Performance Standards are also expected to be expanded in the next three years to include gas water heaters.

A co-ordinated response

The report says that the recent focus on climate change and the expectation of rising energy costs as a result of introducing an emissions trading scheme in 2010 has led to an increased focus on energy efficiency policy at both the state and federal level, with policy makers focusing on the residential and commercial building sectors.

“With the stationary energy sector producing about 40 per cent of Australia’s total greenhouse gas emissions, energy efficacy is considered a cost effective way of both reducing emissions and assisting consumers adapt to price increases associated with the introduction of emissions trading,”? the report says.

However, the report states that this has resulted in a range of uncoordinated policy responses across jurisdictions, with overlap sometimes occurring. Energy efficiency target schemes for different states are likely to result in higher transaction and compliance costs than a national response. Two new state policies implemented at the start of 2009 include the Victorian energy efficiency target (VEET) and South Australia’s residential energy efficiency scheme (REES).

The report addresses ERAA’s concern with the lack of co-ordination among state governments’ to implement their white certificate schemes in a consistent way, undermining the national approach to the regulation of retail energy markets and creating additional costs for gas and electricity retailers.

Mr O’Reilly says “These schemes, in which retailers pay for energy efficient products and services for households in return for tradable certificates, are not unique to Australia…they have been trialled in Europe and, while delivering some results, the European Commission found they had done so with up to 40 per cent of expenses being attributable to transaction costs.”?

Because the transaction costs associated with energy efficiency policies represent a sizeable proportion of the overall costs of implementing such schemes, government must focus on reducing these costs to make energy efficiency more effective.

The report states that policies aimed at improving energy efficiency should generally be based on nationally-consistent framework whilst at the same time accommodating the needs of each state and allowing local innovation.

Deputy chair of the Australian Gas Association Andrew Creek says that different state and federal policies will lead to confusion in the appliance industry. “From a supply perspective, it is difficult to know which sort of appliances manufacturers should be making. It’s hard to tell how long they will be in vogue with government policy.”?

Recently, the Council of Australian Governments (CoAG) committed to the development of a National Strategy for Energy Efficiency. The report says this has the potential to encourage a renewed effort to develop innovative approaches and align existing policies and programs more closely so as to remove overlap and inefficiency.

The strategy will ensure national legislation for appliance energy performance standards and labelling to simplify enforcement and ensure consistency. This will aim to reduce transaction costs for business and accelerate the rollout of new standards and labels for products.

The report also stresses the development of more effective policy through Government and industry co-operation.

It says that gas and electricity retailers can play an important role in assisting government deliver energy efficiency outcomes, noting that collaboration between government and private stakeholders, such as energy retailers and appliance manufacturers, appears to have been effective in overseas jurisdictions.

However, it is important to ensure that adequate incentives are in place for retailers to seek out opportunities and that they are able to recover the costs of doing so.

Energy efficiency for the future

The report outlines the importance of energy efficiency policy in complementing policies such as the CPRS to reduce greenhouse gas emissions.

In order to do this, the report concludes that a range of responses will be required to address barriers to the uptake of cost-effective levels of energy efficiency, as no single policy option comprehensively addresses them all.

Mr O’Reilly says “We see that energy efficiency has a role to play in managing community acceptance of the higher energy prices arising from climate change policy, but we are also keen for outside stakeholders to understand that gas and electricity retailers alone cannot address consumer behaviour nor be held accountable for it.

“Now that we have some detail of the emissions trading scheme and renewable energy target, the third arm of climate change policy – energy efficiency policy – will come into greater focus in 2009. In doing so, it is important that government looks at energy efficiency policy as complementary to the emissions trading scheme and confine themselves to addressing market failures.”?

Leave a Reply