Pears Report Collection

188
From 1997 to 2016 Reflections on two decades. of energy and climate policy The Pears Report A collection of 75 articles from ReNew magazine by Alan Pears AM

Transcript of Pears Report Collection

Page 1: Pears Report Collection

From 1997 to 2016

Reflections on two decades.

of energy and climate policy

The Pears Report

A collection of 75 articles from ReNew magazine by Alan Pears AM

Page 2: Pears Report Collection

Pears Report CollectionThe Alternative Technology Association (ATA)

© October 2016

The Alternative Technology Association (ATA) is a not-for-profit organisation that has been promoting renewable energy, sustainable building and water conservation since 1980.

Level 1, 39 Little Collins St

Melbourne VIC 3000, Australia

Ph: (03) 9639 1500 Fax: (03) 9639 5814

Email: [email protected]

Website: www.ata.org.au

Reg No: A0017411T ABN: 57 533 056 318

While every care has been taken to ensure that the information contained within this booklet is accurate, the ATA takes no responsibility for claims made by content authors in this booklet.

We have credited images as originally printed and have made an effort, for this collection, to trace and acknowledge image ownership. Several of the images pre-date digital archiving, which has made this process difficult and has perhaps resulted in omissions. However, if you are the owner of an image that has been unacknowledged or incorrectly attributed, please contact the ATA by email with the correct details and we will update the citation as required.

Please also note that any references to websites, contact emails or phone numbers noted in the original Pears Report columns have not been updated for this collection, and may no longer be correct or relevant.

No part of this booklet may be reproduced without permission.

Acknowledgements:Thank you to Alan Pears for permission to present his 75 ReNew magazine columns in this collection, and for contributing additional summary content for the introduction.

Thank you to former Australian Greens leader and senator Christine Milne for providing the foreword.

Thank you to the RMIT Sustainability Committee Seedlings Fund for providing a grant to support the production of this collection.

Thank you to the editorial team responsible for bringing this collection together: Robyn Deed, Eva Matthews, Jacinta Cleary and Stephen Whately.

Design: Calan Stanley, PrintTogether.

Page 3: Pears Report Collection

Pears Report Collection

3

Foreword

IN 2015, at the United Nations Framework Convention on Climate Change Conference of the Parties, history was made. Faced with accelerating global warming and a rapidly closing window of opportunity to address it, world leaders agreed to constrain global warming to less than 2°C and to pursue 1.5°C above pre-industrial levels. They also agreed to do it without compromising the ability of people everywhere to access energy. The world had chosen a future powered by renewable energy.

As a result, questions about what the end of the fossil fuel age looks like and how to either drive or block the revolution around how we generate and use energy, has begun to occupy the minds of politicians, policy makers, investors and communities worldwide.

While some are inspired to rise to the challenge and to embrace the opportunities that existing technologies provide, others are struggling to come to terms with the magnitude and speed of the systemic shift that is required. At one end of the spectrum, some see the potential in virtual power plants—networks of batteries, solar panels and energy-efficient buildings linked together by remotely controlled software and data systems—and, at the other, people still cling to the old order of vested interests

echoing fossil fuel ‘base load’ across the floors of parliaments and financial institutions.

Anyone would think that this is a new conundrum and an unanticipated, wicked problem. It is not. For over 30 years, Alan Pears has been teasing out the complexities and absurdities of energy and climate policy in Australia. His foresight and lateral thinking, together with his practical experience, has made him the ‘go to’ authority on energy efficiency for the whole of my parliamentary career, going back to 1989. He has advised and assisted people of all political persuasions, governments, policy makers, researchers and non-government organisations, with a generosity of time and spirit and a degree of patience that makes him a national treasure.

To have this detailed, accurate and thoughtful collection of columns covering such a wide range of energy and climate-related issues over such a long period of time is an invaluable resource. It helps people make sense of a complicated area of policy and provides an understanding of exactly how Australia has ended up with a ‘one step forward, two steps back’ policy outcome on climate and renewable energy, and an even worse energy efficiency result.

But Alan Pears doesn’t just document

by Christine Milne

o Former leader of the Australian Greens (2012–15) and senator for Tasmania; environmental and community activist for 30 years, Christine Milne.

Phot

o: K

aren

Bro

wn

Page 4: Pears Report Collection

Pears Report Collection

4

“Alan Pears doesn’t just document what has happened...he provides a platform for action by insightful comment on what can still be done.”

what has happened. He provides analysis and ideas as to how things could have been done differently if the political will had existed. More than that, he provides a platform for action by insightful comment on what can still be done.

In my lifetime, the most amazing change has occurred and its evolution is a constant theme in Alan’s columns. We have gone from a time when you had little control over how much energy you used and no control over where it came from; when you were forced to be a passive recipient of power and petrol bills, and subjected to the whims of government or corporate rules and regulations. Now, people are taking control. It is possible to generate your own electricity from home or work, and increasingly control your own supply and demand, even to the point of making a profit from it, powering your car with it and reducing your costs and emissions to zero via storage. The vested interests of the fossil fuel age and their government representatives have not woken up to the fact that, while they can still block, frustrate and delay this revolution, they cannot stop it. The world has passed them by. What a source of hope for the planet!

The tragedy for our nation is the chaos and scale of the disruption, stranded assets and debt that is coming. Those who are in power are so blinded by their cosy relationships with, and income streams from, fossil fuels and existing networks that they fail to take advantage of the imagination and jobs that the renewable energy future and the climate challenge generate. They should be embracing and celebrating the projects and employment that the Renewable Energy Target, Australian Renewable Energy Agency, Clean Energy Finance Corporation and the Climate Change Authority have facilitated, instead of trying to tear them down.

But all is not lost. I am optimistic that our built environment, the amenity of our homes and offices, the efficiency of our transport systems, and our capacity to bring down emissions by taking back power—literally and metaphorically—will continue to explode. But there is one initiative that would make a huge difference...

Alan Pears and I agree that a major component of what is preventing the Australian community from contributing even more to a net-zero carbon society is the National Electricity Market. It is broken. After the two Senate inquiries

I ran, it is obvious that the market is designed to favour fossil fuels, the incumbent coal and gas generators and the network providers at huge cost to the climate and the community. My dissenting reports argued for the inclusion of an environmental objective requiring the market to deliver on greenhouse gas reduction, as well as reliable supply and affordable cost.

What is fascinating from reading Alan Pears’ work is to learn that, at the very beginning—when the NEM was being designed—an environmental objective was proposed, but rejected. What a difference that would have made to the energy landscape in Australia today if that had been adopted. What a difference it will make when that change is made now. It’s up to all of us to make it happen.

I hope, after reading these columns, you will be inspired to become an even more dedicated climate and energy activist. We have no time to lose. We need rigorous policy, inspiring advocacy and rapid implementation to empower people, halt climate change and save the planet. Alan Pears has given us a great place to start.

He has provided the platform from which we can all fly.

Page 5: Pears Report Collection

Pears Report Collection

5

Pears Report Collection

ONE of the things that struck me when I started working on ReNew was the number of people who commented on the Pears Report, on how important it was to them, and how it was the first thing they’d read each issue. Inspired by this, I wrote in my first editorial that Alan Pears was so good we’d included him twice (in his report and an article on the carbon tax). In a later issue we even got to include him three times; it’s clear from our surveys and general feedback that our readers love Alan and they want more!

I see Alan’s columns and articles as encapsulating everything ReNew is about. They are passionate, practical and analytical; they don’t take the easy way out, with slogans or catch-cries, but rather seek to tease out subtle but transformative ways of looking at climate policy and, of course, energy efficiency.

Two cases in point spring to mind for me. One was Alan’s article on energy use in cooking. This can be a contentious area, as it is one of the lesser users of energy in the home and we don’t necessarily want to discourage cooking. Yet, it’s also clear that we could be doing a lot better. Why waste energy? The other is the notion of the rebound effect, which Alan so carefully analysed in a recent article, seeking to shift the emphasis from the negative to the possibility of positive flow-on effects.

It turns out the idea of flow-on effects had appeared before, in one of Alan’s columns back in 2010. As Alan’s analysis in this collection shows, many of the themes that Alan talks about in his columns are ones that he raised before others began talking about them, or that he’s returned to again (and again!), sometimes in frustration, sometimes in appreciation when something does change and sometimes in fascination at how little has changed.

It’s a history of climate policy that shows where we’ve been and, I would wager, where we need to go—to that ‘clean energy future’ that eludes us as we swing from the ridiculous to the sublime and back again.

Finally, this collection gives me a chance to acknowledge how Alan has been such a mentor to me personally and, not just me, but all the ReNew editors before me. Beyond the articles on which his name appears, Alan’s thinking permeates so much of the magazine. “Let’s check that with Alan” is commonly heard in the ReNew team as we tussle with a tricky question about energy efficiency or climate policy. His generosity in answering all those questions, along with writing articles and doing peer reviews, is one of the highlights of this role.

Editor’s note by Robyn Deed

o ReNew magazine’s managing editor Robyn Deed.

Phot

o: N

ick

Step

hens

on

Page 6: Pears Report Collection

Pears Report Collection

6

Introduction

I WROTE my first ReNew column on energy policy in issue 59, back in 1997. Seventy-five issues and 19 years later, we are preparing this eBook as a resource for those interested in the evolution of Australian policy and activity in clean energy and climate, as seen by a person who has been actively involved. Over the years, I have tried to provide progressive insights into the gory detail of energy and climate policy in Australia, while throwing in some practical ideas and ‘blue sky thinking’ to encourage people to think creatively about our energy future.

It has been a rather bleak period, with many false starts, blatant misuse of political and financial power, ideological agendas that ignored reality and community preferences, painfully slow progress and lots of mistakes. But it has been an interesting journey, with many lessons for people with an interest or role in major policy areas. And we have made some progress: indeed, we seem to be on the threshold of the long-awaited transformation of energy!

As I write this introduction, the gap between policy and reality is wide. It is a truly bizarre and dissonant time. But fundamental change is playing out before

our eyes, as pervasive environmental, social and economic changes occur, and disruptive technologies and determined people change entrenched industries. We have experienced many surprises, and we will see many more as Australia haltingly moves into an exciting and potentially socially, environmentally and economically better energy future, despite our leaders and energy supply industries—some of whom are belatedly joining the party.

I am cautiously optimistic about our future—but I have been naively hopeful in the past, so there are no guarantees that I’m right!

I hope you enjoy this collection of my columns and overview articles. This eBook is searchable and there is a basic index. You can choose how you approach the material: you may enjoy reading the overview articles or the columns in sequence; perhaps follow themes that emerge over time; or you may wish to read about key events. However you wish to use this resource, I hope you find it enjoyable, enlightening and useful.

by Alan Pears

o Alan Pears AM has contributed a regular column to ReNew magazine since 1997.

Page 7: Pears Report Collection

Pears Report Collection

7

Energy efficiency

Urban planning

Energy data

Energy reform

Climate policy

Renewable energy

Energy policy

Sustainable energy future

Articles

Energy efficiency: the invisible and under-valued energy source 11

Building and energy policy: the push for effective regulation 14

Efficient appliances: Stars, schemes and standards 16

Energy market reform: a case study of power and delusion 17

Climate policy: from ‘spoilt child’ of Kyoto to grudging action, then active blocking…and now? 20

Australian policy on renewables: politics and surprises 26

Australian energy policy: papers, politics and technology 29

The big picture: policy and sustainable energy 33

The Pears Report 75 articles as featured in ReNew magazine 35

How the fine print can help or hurt renewables - Issue 59 36

Renewables and Greenhouse policies - Issue 60 38

Mainstreaming renewable energy: what’s involved? - Issue 61 40

Will we have a fair and competitive electricity market? - Issue 62 42

Australia’s first real steps towards greenhouse response? - Issue 63 44

A sustainable energy future is in our hands - Issue 64 46

Harsh realities confront the electricity market and its administrators - Issue 65 48

Time for GreenGas? - Issue 66 50

1998: a year of shifting sands - Issue 67 52

Two percent renewables target—fact or fabrication? - Issue 68 54

The GST and sustainable energy - Issue 69 56

Topics

How to search this ebookThe eight introductory articles each look at a key topic. Each article contains links to the relevant Pears Reports on that topic.

Each Pears Report also has one or more topic icons at the top left of the page.

Alternatively, browse through the Pears Reports listed chronologically on this contents page.

You can also search for keywords via the find or search box in Adobe Acrobat.

The back button on the top left of each page takes you to the previous page.

Topics and themes over two decades

Page 8: Pears Report Collection

Pears Report Collection

8

The new barrier to sustainable energy - Issue 70 58

Two percent renewables target locked in—great news, but how did we win? - Issue 71 60

Government finally gets serious about greenhouse? - Issue 72 62

Emissions from energy grow—time for consumer action - Issue 73 64

Renewable Energy (electricity) Bill 2000—a tough lesson - Issue 74 66

Flawed renewable energy bill finally falls over the line - Issue 75 68

Building energy efficiency codes for Australia - Issue 76 70

Let’s use RECs to drive renewables growth - Issue 77 72

Oil—an underlying cause of terrorism? - Issue 78 74

Renewable Energy Certificates - Issue 79 76

Politicians face crunch time on energy and greenhouse - Issue 80 78

Energy efficiency finally seen for its cost advantage - Issue 81 80

Keep talking energy efficiency - Issue 82 82

Carbon and energy markets - Issue 83 84

Good news and bad news - Issue 84 86

Will interests converge on a path forward? - Issue 85 88

Making ourselves look good, but at what price? - Issue 86 90

Equal opportunity needed for sustainabiliy research - Issue 87 92

A lot of hot air - Issue 88 94

Securing more of the same - Issue 89 96

Speak up for a green future - Issue 90 98

Energy efficiency

Urban planning

Energy data

Energy reform

Climate policy

Renewable energy

Energy policy

Sustainable energy future

ArticlesTopics

Page 9: Pears Report Collection

Pears Report Collection

9

Government needs to lead, not follow - Issue 91 100

Energy-saving actions - Issue 92 102

Time to face facts - Issue 93 104

Report misses the mark - Issue 94 106

Whoops! - Issue 95 108

The nuclear distraction - Issue 96 110

The naked truth - Issue 97 112

No denying change is needed - Issue 98 114

Climate change realities - Issue 99 116

The good, bad and ugly - Issue 100 118

Trading and trade-offs - Issue 101 120

A promising future? - Issue 102 122

Ready to play ball? - Issue 103 124

Costs and benefits - Issue 104 126

What have we learnt? - Issue 105 128

Lost and found - Issue 106 130

Breakdown to breakthrough - Issue 107 132

More than lip service please - Issue 108 134

Sense of urgency required - Issue 109 136

Highs and lows - Issue 110 138

Lessons to be learnt - Issue 111 140

It’s all about big business - Issue 112 142

Energy efficiency

Urban planning

Energy data

Energy reform

Climate policy

Renewable energy

Energy policy

Sustainable energy future

ArticlesTopics

Page 10: Pears Report Collection

Pears Report Collection

10

It should be a no-brainer - Issue 113 144

Call a spade a spade - Issue 114 146

Seriously perplexing - Issue 115 148

Missing the mark - Issue 116 150

Playing carbon politics - Issue 117 152

The great gas debate - Issue 118 154

Energy efficiency on the agenda - Issue 119 156

Energy efficiency ignored again - Issue 120 158

A fundamental technology shift - Issue 121 160

How blocking change can backfire - Issue 122 162

If I ran an electricity network… - Issue 123 164

Energy inefficiency - Issue 124 166

Poles and wires welfare - Issue 125 168

Desperately seeking policy - Issue 126 170

Peak demand and ‘enoughness’ - Issue 127 172

The war on renewable energy - Issue 128 174

Future global energy giants - Issue 129 176

The end, not beginning, of an era - Issue 130 178

Electricity industry potential - Issue 131 180

The policy bizarre - Issue 132 182

Changing states - Issue 133 184

About Alan Pears: the ‘determined clean energy and climate advocate’ 186

Energy efficiency

Urban planning

Energy data

Energy reform

Climate policy

Renewable energy

Energy policy

Sustainable energy future

ArticlesTopics

Page 11: Pears Report Collection

Pears Report Collection

11

Energy efficiency: the invisible andunder-valued energy source

ENERGY efficiency has been frequently mentioned in my columns. I should declare my conviction that it underpins all practical sustainable energy paths. In issue 68 (1999), I was moved to express my frustration at the lack of recognition of the importance of strong energy efficiency policy and the fragmentation of the industry that delivers energy savings. Yet, even at that time and despite this lack of focus, energy efficiency was saving Australians billions of dollars annually.

But government policy was weak, and investment low (as also discussed in issue 79, 2002). So we were missing out on much bigger benefits. Indeed, under energy market reform, successful energy efficiency programs had been cut as governments realised that a decline in demand would reduce the sale price of energy supply assets! Most people struggled to imagine how much energy they could save and just focused on more supply. At the same time, the energy efficiency industry was (and still is) very diverse, so it was very difficult to mobilise and coordinate.

One challenge for energy efficiency policy (issue 77, 2001) is that, often, changes in energy consumption occur as accidental side-effects of policies

unrelated to energy. For example, banning smoking in restaurants led to the introduction of a lot of energy-wasteful heated outdoor dining areas. But, on the other hand, reducing speed limits on local roads saved fuel. I suggested then that we needed a ‘sustainability sieve’ for all policy decisions, so that their energy impacts could be addressed appropriately.

A major barrier to adoption of energy efficiency policy has been the narrow and conservative economic analysis used in evaluating its benefits (issue 81, 2002). This problem extends to widespread failure to recognise the importance of integrating energy efficiency with renewable energy—and, more recently, with storage and smart management—in order to achieve the best outcomes. For example (issue 85, 2003), how fast would a normal (heavy and inefficient) car go with the solar panel of a solar racing car on its roof?

Over time, we have seen a series of processes intended to identify the benefits of energy efficiency and to develop strategies to drive action. Unfortunately, few of these processes have delivered anything much in terms of real outcomes. My column in issue 82 (2003) flagged the beginning of what became known as the

National Strategy on Energy Efficiency, which sank without trace a few years later.

Australia’s energy policy makers have traditionally been heavily influenced by neo-classical economics. This was illustrated by the NSW Government’s 2004 Green Paper (issue 91, 2005), which dismissed energy efficiency in a couple of paragraphs, and the 2005 Productivity Commission inquiry into energy efficiency, which suggested the benefits may have been overstated and the adoption costs underestimated. After participating in the public hearings, I made more observations in issue 93 (2005) and commented on the final report in issue 94 (2006). This process was a serious attack on energy efficiency and it energised opponents to try even harder to block and delay policy progress, even though it exposed the superficiality of anti-efficiency arguments. Interestingly, the Australian Government carefully distanced itself from the report and its recommendations.

By 2005 we had begun to see significant state government programs appearing (issue 92). Both Victoria and New South Wales introduced mandatory schemes to drive industrial and business energy efficiency. While the Victorian scheme was

Page 12: Pears Report Collection

Pears Report Collection

12

o Among the first in the world to do so, Victoria and New South Wales introduced a mandatory energy rating labelling scheme in the mid-80s. While it took another 15 years for all Australian states and territories to fully legislate a national scheme, this was a critical step in public education and also manufacturing industry accountability. Australia’s easy-to-understand label set the global standard for energy labels, and many countries have adopted similar designs.

later cut by a conservative government, the NSW scheme has continued to deliver some strong results.

In issue 111 (2010) I noted that energy efficiency programs introduced as post-GFC stimulation measures had been very poorly implemented and that this seriously undermined public confidence in energy efficiency. It was frustrating that insulation was blamed for house fires when the real problem was hot and inefficient halogen lamps (issue 112, 2010). Evidence was also mounting that building energy regulations were being poorly enforced. On the other hand, we had seen dramatic improvements in the energy efficiency of TVs, coinciding with introduction of TV energy labelling. More broadly, energy labelling was losing profile due to lack of promotion and confusion over rating scales. It seemed that energy efficiency was just not a high priority for our governments.

My frustration with the ongoing lack of focus on energy efficiency emerged again in issue 113 (2010). Extensive studies by groups like ClimateWorks were showing that energy efficiency policy should be our top priority, but policy weakness continued. In 2009, we had seen yet another policy development process—the National Framework for Energy Efficiency, approved by CoAG (Council of Australian Governments). This led to little progress. It was followed, in 2010, by the Prime Minister’s Energy Efficiency Task Group (issues 112, 113). It produced a very good report, but the government didn’t even make a formal response.

My despair about energy efficiency policy increased in issue 116 (2011), when I reported that Australia was the worst performer in an International Energy Agency comparison of public investment in energy efficiency. Watching a TV panel discussion provoked yet another outburst from me on our failure to recognise energy efficiency (issue 120, 2012): I discussed some of the possible reasons for this blank spot. I continued this commentary in issue 124 (2013), pointing out the failure of the Australian Energy Market Operator (AEMO) to factor aggressive energy efficiency into its 100% renewables scenario and noting CoAG’s ‘behind closed doors’ review of energy efficiency programs that had led to many cuts.

I still don’t know how to address this deep cultural barrier!

The Energy Efficiency Opportunities program was introduced by the Howard government, and was really Australia’s first serious industrial energy efficiency program. In issue 115 (2011) I reported on the scheme’s mid-term results. The scheme was delivering millions of tonnes of abatement at an internal rate of return on investment of better than 50% per annum, while also driving significant productivity-improving cultural change. The program was attracting worldwide interest, as industrial energy efficiency had been a difficult area. However, in 2014, the Abbott government shut down the program, despite ongoing impressive results and an independent review that recommended it continue. Soon after, the United Kingdom introduced a

Page 13: Pears Report Collection

Pears Report Collection

13

similar scheme! To my surprise, I haven’t discussed this appalling decision in my columns: I must have thought I had talked about it enough in my many submissions to government.

In issue 126 (2014) I turned to my own practical experience, as I replaced my old TV and fridge with new energy-efficient options. I was impressed with the product improvements over time, but frustrated that I couldn’t buy a fridge that was as efficient as the best available overseas.

I must be getting philosophical in my old age. In issue 127 (2014) I mused on the need for ‘enoughness’ combined with efficiency, when shaping our responses to future energy infrastructure solutions. The challenge is to meet our energy service needs to a high standard while not behaving as though we are ‘entitled’ and becoming wasteful. I think we are now close to being able to do this.

We are seeing another flurry of energy efficiency policy development, now incorporated under the language of ‘energy productivity’. This is an attempt to focus the attention of policy makers—after all, they love labour productivity, capital productivity and productivity in general. Maybe they will actually support some action to improve energy productivity! Key drivers of this new framework have been major reports by the Australian Alliance to Save Energy (A2SE) and ClimateWorks.

The federal government foreshadowed release of a National Energy Productivity Plan in its 2015 Energy White Paper, and this occurred in December 2015. At the same time, states and territories were stepping up (issue 133, 2015). For example, Victoria announced an ‘energy efficiency and productivity strategy’, while New South Wales had already released an energy efficiency strategy and the ACT was cranking up energy efficiency programs.

Innovation and energy efficiencyIn issue 91 (2005) I reported on my analysis of several Australian Government innovation publications. These described exciting research across a range of sectors, and made no mention of energy efficiency. Yet many of the projects—such as nanotechnology, optical fibres, microfiltration and many more—contributed to energy savings. This was a classic example of how invisible energy efficiency has been to policy makers. It is pleasing to see that, in 2016, energy efficiency (and other aspects of clean energy) is now seen as a potential outcome of innovation policy. The recent focus on ‘energy productivity’—getting more economic output from less energy—is also helping to focus policy attention on energy efficiency.

One exciting effect of improving technology is that it can change our reality. In issue 98 (2007) I reflected on how improved high-efficiency air conditioners in high-performance homes could achieve amazing results. For example, it was now possible to cool a bedroom using less energy than a ceiling fan or to heat using grid electricity while producing lower greenhouse gas emissions than gas heating. And, of course, rooftop solar or GreenPower could eliminate the emissions.

By the time of issue 110 (2010), we had significant experience of the cost effectiveness of energy efficiency savings for industries resulting from several state and national programs. These clearly showed large savings with very high rates of return on investment—that is, the emissions reductions were profitable. Yet, economic modellers seemed reluctant to incorporate such evidence into their models. And, of course, that old chestnut of the rebound effect was regularly raised. More recently, in issue 134 (2016), I wrote a full article about this, with the intention of putting it into context as a minor factor.

Energy efficiency trading schemes Given the success of the Renewable Energy Target (RET), energy efficiency advocates began campaigning for a similar target and trading scheme for energy efficiency, as I discussed in issue 79 (2002). Interest increased over time and, in issue 87 (2004), I discussed some of the challenges involved in developing effective schemes. More recently, these were called ‘white certificate’ schemes, and several states have introduced them.

In 2009 (issue 106) there was a Senate inquiry, driven by then Democrat senator Lynne Allison, into integration of the energy efficiency certificate schemes recently established in several states into a national one. The antagonism among economic policy makers to this proposal was truly remarkable. They claimed that they were too busy with developing the Carbon Pollution Reduction Scheme (CPRS), but there was an underlying scepticism about the worth of driving energy efficiency. I suppose I should have been used to this bias by then.

The state schemes in NSW, Victoria, South Australia and the ACT have evolved over time (issue 117, 2011), despite some implementation issues.

In 2013 a major report on a possible national energy efficiency scheme was published. In issue 125 of that year, I summarised the history of these schemes in Australia, then noted that this latest report showed substantial economic benefits from integrating the state schemes into a national one. Many questions still remain about how, when or if national integration will occur. S

Page 14: Pears Report Collection

Pears Report Collection

14

ALTHOUGH Victoria, followed by some other states, introduced residential building energy regulations from 1991, the momentum for national regulation only grew after Prime Minister Howard’s 1997 pre-Kyoto commitment to work with the building industry to implement voluntary standards and, if that failed, introduce mandatory measures. Not surprisingly, the building industry could not reach consensus on an approach. My column in issue 76 (2001) outlined the issues that had to be confronted after a formal agreement was reached in July 2000 to develop building energy regulations under the Building Code of Australia. There were deep tensions: community support for regulation was strong, but many in the building industry were (and, even in 2016, remain) opposed to effective mandatory measures. This process led to a first round of national residential regulations in 2003 (issue 82, 2003; 87, 2004), despite many technical and process challenges. A second round of regulations was flagged in 2005 (issue 91) and implemented in late-2006.

A key feature of Australian building regulation is that the national building code (now called the National Construction Code) is only a model code:

each state must adopt the code and is responsible for its administration. This leads to variations from state to state.

In 2002 (issue 81) the Victorian Government’s economic analysis of its proposed 5 Star regulations broke new ground. It used detailed economic modelling to consider the multiple benefits of building energy efficiency and

this significantly increased the estimated economic benefits of more stringent regulation. Unsurprisingly, in 2003 the Housing Industry Association called for delays in implementation (issue 82), and won some compromises (issue 85).

A serious tension in building policy is the gap between design intent and delivered performance. My column in issue 85 (2003) provided an example of the power of ratings based on real data. It explained how the Australian

Building and energy policy:the push for effective regulation

A serious tension in building policy is the gap between design intent and delivered performance.

Page 15: Pears Report Collection

Pears Report Collection

15

o Building energy efficiency started becoming a serious consideration in the early-to-mid 2000s, with governments looking at codes and regulations, and creating energy Star ratings for new home construction. Thermal performance, siting and orientation and fitting of energy-efficient appliances started becoming integral to the building process despite weak enforcement.

Phot

o: E

va M

atth

ews

One of the main arguments against building energy standards has been that they adversely impact on housing affordability. In issue 102 (2008) I argued that this was a flawed view of the situation. The reality is that, even if standards do increase sticker prices of homes (which is far from proven), higher energy standards deliver many cost savings, including lower running costs, lower peak energy demand, improved resilience of performance and health benefits. In 2016 we are just beginning to consider these multiple benefits. Change is certainly slow!

In issue 115 (2011) I discussed the introduction of the next round of national building energy regulations, which meant homes in most states would have to meet a 6 Star rating instead of the previous 5 Star level. I pointed out that the new regulations also introduced requirements for efficient lighting and water heating, which are typically provided by the builder. I had some reservations about the approach taken for hot water.

Recent research I discussed in issue 130 (2015) has opened up discussion about future building energy policy. The field results show that 6 Star homes are working well in winter, but have similar or higher cooling energy use in summer. I looked at a number of possible reasons for this, and some paths forward. S

Building Greenhouse Rating Scheme (now NABERS) led to identification of serious energy waste in a building that was designed to be efficient and which had been assessed by energy auditors as being efficient.

Recognition of the gap between design intent and actual performance, as well as increasing consumer interest in information on building energy performance at time of sale or lease of existing buildings, drove action on energy disclosure (issue 90, 2005). The ACT introduced a scheme for homes in 1999 and CoAG’s Ministerial Council on Energy agreed to explore it in 2004. As is usual in energy efficiency, progress has been slow (issue 97, 2006).

December 2005 was the crunch time for building energy regulation (issue 95), when the Building Codes Board released its proposals for mandatory 5 Star home ratings and our first-ever energy regulations for non-residential buildings. Some industry groups even managed to convince three Commonwealth ministers to issue a press release criticising the proposals and declaring them to be disastrous for the building industry! Luckily, state governments stuck to their positions and the proposals were adopted, despite opposition from the Commonwealth and some industry groups.

In this column (issue 95), I also questioned the view that high-rise buildings were necessarily energy inefficient. Historically, this had been the case but, with appropriate regulation and good design, it did not have to continue to be.

Page 16: Pears Report Collection

Pears Report Collection

16

Efficient appliances: Stars, schemes and standards

performance. This could automatically alert users to faults and poor management, as well as providing early maintenance warnings. It would also potentially save a lot of energy, inconvenience and costs associated with failures. Many cars now have this feature and some building diagnostic systems are heading in this direction. I will keep pushing this one!

In issue 128 (2014), I was pleased to be able to comment on a government report about the progress of our appliance efficiency program. From a base year of 2000, it was delivering 13.5 million tonnes of abatement annually (about 2.5% reduction of total Australian emissions) at a cost of minus $119 per tonne of emissions avoided, or about $300 reduction on annual household energy bills. If analysis of emissions trading had factored in such successes, the economics would have looked a lot better. And, as noted in issue 133 (2015), the appliance efficiency scheme has survived a major government review with flying colours. Phew!

Australian appliance energy policy has traditionally focused on appliance labels and mandatory performance standards. We need a much more comprehensive approach. So, in issue 132 (2015), I mapped out an agenda to take appliance efficiency policy into the next decade. There’s plenty to do! S

MANDATORY appliance energy labelling, initially for refrigerators, was introduced in New South Wales and Victoria in 1986–87, and progressively spread across other states and types of appliances. To complement labelling, proposals were made in the early-1990s to introduce Mandatory Energy Performance Standards (MEPS) to remove the worst-performing products from the market. MEPS introduction was delayed until 1999, due to the power of economic fundamentalists in state governments, particularly Victoria. In issues 76 and 77 (2001), I reported on the exciting results of research that showed appliance efficiency improvement was costing minus $31 per tonne of emissions avoided. Further research suggested that standby power use consumed almost 12% of household electricity and was growing at 8% annually. This eventually led to action aimed at reducing standby power.

My column in issue 88 (2004) explored some of the emerging issues for appliances, particularly the ‘sleeper’ issue of clothes drying and the failure of appliance energy policy to act quickly on the explosive growth of large, energy-guzzling flat-screen TVs. Indeed, TV energy labelling was only introduced in late-2009, well after the horse had bolted from 2004. I also explored the question of whether it was a crime to try to stay

cool in hot weather. I pointed out that using a high-efficiency air conditioner in an energy-efficient house would use very little energy relative to the benefits it offered. The refusal of the electricity industry and governments to promote such efficient solutions highlighted the failure of energy market reform and, since then, has cost Australians billions of dollars in unnecessary investment in electricity supply infrastructure.

In issue 93 (2005), I explored some of the limitations of our appliance energy labelling scheme. I suggested that web-based calculators could help. In 2015, the Australian Government released a mobile phone app along the lines I suggested back in 2005.

Energy-efficient lighting has provided an interesting example of the interplay between technology improvement, expansion of industry capacity to provide efficient solutions, and the desire of politicians to be seen as green (issue 96, 2006). This was reflected in the early discussions about the case for regulating lighting efficiency improvement and the dilemmas created as people tried to frame practical policy.

In issue 102 (2008), I began raising the idea that we needed to build into appliances and buildings the capacity to track their own actual performance against benchmarks and design

Page 17: Pears Report Collection

Pears Report Collection

17

Energy market reform: a case studyof power and delusion

(issue 65, 1998) that action to help rural communities to adopt clean energy solutions would reduce energy subsidies and offer ‘win–win’ outcomes: 18 years later, this finally seems to be happening!

While economists generally argue that markets deliver lowest cost outcomes, by 2001 (issues 77, 81) electricity prices were beginning to increase. This is an example of businesses charging the price the market will pay, which may not be low.

The explosive growth of inefficient air conditioning in thermally disastrous buildings (issue 88, 2004) was another example of the failure of energy market reform. As I pointed out, a high-efficiency air conditioner in a well-insulated and shaded building would use little energy and contribute little to peak demand. Instead of promoting efficient buildings and equipment, we spent tens of billions of dollars unnecessarily expanding energy supply infrastructure. As concerns about possible blackouts increased, I wondered (issue 90, 2005) where the community education and policies were that might have avoided the crisis and the wasted investment.

By 2007, energy reform was beginning to fray around the edges (issue 101, 2007). Prices had begun to increase, while

MY FIRST ReNew column (issue 59, 1997) summarised the evolution of energy market reform from the early-1990s to 1997. It was a bleak story, with staggering contrasts between the promises and the realities. It was a story of powerful energy organisations and aggressive economic fundamentalists putting simplistic ideology, profit and their own interests ahead of the public good, and governments allowing this to happen. They undermined growth of renewable energy and energy efficiency, increased fixed charges and exploited the weakness of the ‘light-handed’ energy regulators.

I foreshadowed a ‘bumpy ride’, ongoing market distortions and regulatory failure. Unfortunately, it turned out I was right. I did manage to find one glimmer of light: the creation of the Sustainable Energy Development Authority (SEDA) by the NSW Government. This tiny organisation played a vital role in development and implementation of some excellent programs, including what is now NABERS (originally the Australian Building Greenhouse Rating scheme) and GreenPower.

In 1998 (issue 62), the Australian Competition and Consumer Commission (ACCC) had published a long list of issues

with the design and operation of the National Electricity Code that needed to be addressed. Eighteen years later, many of these issues have still not been dealt with. I pointed out that, while the early stages of energy market reform had focused on environmental and social benefits, key policy makers simply ignored them and governments chose not to pull them back into line. Important infrastructure supporting energy efficiency and renewable energy had been dismantled. I finished the column by listing ways that energy companies could be expected to manipulate markets to discourage sustainable energy solutions and, indeed, they have done so.

In 2002 (issue 80), a major review of market reform was conducted by former Energy Minister Warwick Parer: it similarly found serious problems (issue 83, 2003). Its proposals were limited but, even so, most have still not been implemented. My comments criticised its focus on stop-gap measures and lack of consideration of social justice, environment and emerging clean energy options.

The need for a Renewable Energy Target was another example of the failure of market reform; in this case, a failure to encourage renewable energy. I suggested

Page 18: Pears Report Collection

Pears Report Collection

18

o While powerful interests vested in the fossil fuel industry ensured that dirty power has remained the primary energy source for many decades, smarter energy solutions—a greater focus on energy efficiency (and technologies such as smart meters that allow consumers to monitor and adjust their energy use) and renewable energy sources such as solar—started entering the market after the turn of this century.

Phot

o: w

ww

.isto

ck.c

om/a

cilo

forward—such as managing peak demand; more creative, consumer-friendly pricing structures, and providing vulnerable households with efficient equipment and rooftop solar.

I continued the exploration of smart consumer-side energy solutions in issue 122 (2013) and also discussed the Senate Inquiry into electricity pricing established by the Gillard government after pressure from the Greens and others. The scale of the mess, and the disconnect between energy companies, regulators and energy policy makers, and everyone else, was visible for all to see in the Hansard records, as well as in the main report and ‘additional comments’ from the Greens and Nick Xenophon.

The Inquiry published its report and I commented on it in issue 123 (2013). It described the shambolic Australian electricity market and policy framework, and the deep cultural problems and conflicts across the sector. The sector was failing on the key criterion of protecting the long-term interests of consumers. Of course, the big question was: what would government do to deal with the complex problems exposed?

A major focus of this column (issue 123, 2013) was my thought experiment

risks of power blackouts (some due to cooling water shortages for coal power stations) and gas supply limits were emerging. I advocated aggressive demand management and smart pricing as an alternative to investment in more supply infrastructure. This suggestion fell on deaf ears and the seeds of our present over-capacity problem were sown.

At around the same time, there was increasing scrutiny of how well retail electricity markets were working (issue 103, 2008). Market advocates claimed great success in Victoria, which led deregulation. Others were worried by aggressive and misleading sales techniques and possible unreasonably high profit margins. This was just the beginning of a long-running debate and more market failure.

By issue 117 (2011), the nature of the ‘energy war’ was becoming very apparent. The incumbent energy industry was investing heavily in new infrastructure, while new, nimble competitors were emerging from many directions. The industry tried to use its political and market power to block competition, while others challenged them. In issue 121 (2012), I explored the ‘energy war’ and made a few suggestions about paths

Page 19: Pears Report Collection

Pears Report Collection

19

Unfortunately, in issue 133 (2015), I had to provide yet another update on activity in the energy war, as AEMO continued to produce fantasy forecasts, and energy companies exploited weaknesses in energy market rules and governance, while the Brotherhood of St Laurence exposed outrageous inequity in the Victorian retail electricity market. I wish it was over.

Smart metersA key element of energy market reform was the introduction of improved metering so that consumers could get better feedback on their energy use and energy suppliers could introduce economically efficient time-of-use pricing. My column in issue 90 (2005) discussed some of the issues and assumptions underlying modernisation of metering. On reflection in 2016, smart metering is another example of the failure of energy market reform: only Victoria has rolled out the technology, with limited functions. The electricity industry is now increasingly uncertain about the best path forward, as their ‘economically and technically rational’ approaches, which involve charging people more for using power when they need it most, provoke consumer backlash. S

on what I would do if I ran an electricity network. This provoked wide interest, and it does seem that some network operators are moving in the directions I suggested; for example, building links with consumers and welfare groups, selling in-home smart and storage technologies, and working with regional communities to build alternative energy systems.

My column in issue 125 (2013) outlined the findings of the Productivity Commission’s 820-page report on electricity networks. It could only be described as scathing. But, it still clung to some invalid assumptions; in particular, the view that electricity networks are ‘natural monopolies’ that are entitled to recover their costs, no matter how flawed their investment decisions. I described this as a welfare system for electricity networks.

The extent of the disconnect between energy policy makers and the rest of the world, mentioned earlier, was reinforced in an Australian Energy Market Commission report I commented on in issue 126 (2014). On a more practical level, in that column I also discussed the potential benefits of a ‘thin pipe’ (a small-capacity cable that trickle-charges local storage approach to electricity network design. The Standing Council on Energy and Resources (issue 127, 2014) also illustrated the pervasive nature of the problem by, yet again, deferring introduction of demand-side bidding into the electricity market—something that was seen as essential in the 2002 Parer

Review. The only winners from this are the incumbent electricity businesses, some of which are owned by state governments.

In the same column (issue 127), I mused about the potential role of micro-storage and smart management, built into major appliances to manage their peak loads and reduce the cost of wiring and electrician labour within homes. When people discuss the economics of innovations like storage, they usually fail to recognise subtle cost issues like this, yet they could make the difference between consumer acceptance and failure.

In an attempt to look beyond the bleak events of recent times, in issue 128 (2014) I looked at some of the exciting organisational models being explored by communities, local governments and others as we move beyond the unsustainable framework we have struggled with for so long. I continued this train of thought and, in issue 131 (2015), I made an attempt to reframe thinking about electricity. I pointed out that a lot of the capital invested in delivery of electricity services is actually on the consumer side of the meter, in wiring and appliances, and that there is much more scope for profit in the retail end of the electricity market, especially with household and commercial sector consumers. There are big opportunities for those who can bring new perspectives to energy. These may include appliance manufacturers, builders, IT businesses and many more.

Page 20: Pears Report Collection

Pears Report Collection

20

Climate policy: from ‘spoilt child’of Kyoto to grudging action, then

(and cheapest to run) brown-coal power stations capturing more market share, while low prices encouraged higher consumption. The conflict between energy market reform and climate policy was becoming increasingly obvious!

Also in that column, I made a radical suggestion that governments could drive down energy costs through strong investment in sustainable energy solutions (both renewable supply and energy efficiency) to create a glut in the electricity market and put pressure on coal generators. I also proposed that a small levy could be used to provide the capital for this investment, which would deliver a net reduction in energy costs for consumers. It is interesting to see that, since 2009, the combination of declining demand and excess generation capacity (partly driven by the RET and rooftop solar) has indeed reduced wholesale electricity prices and cut consumer costs relative to what would have been, and the outcome has included closure of some coal power stations.

Through 2000 and 2001, a series of discussion papers on options for abatement action, including emissions trading, were released to promote discussion. Debate intensified, as

CLIMATE policy was the topic of my second column (issue 60, 1997), in the lead-up to the ground-breaking Kyoto Conference. I highlighted the challenges of managing change, especially in a context where Australian business was actively playing a ‘victim’ role, supported by conservative governments and dubious economic modelling.

I seriously misjudged the extent of opposition, naively suggesting that the climate change science debate was largely over. I highlighted the emerging, but largely ignored, views that we could manage climate change without undermining our economy. We even had some real experience of businesses profiting from climate action under the voluntary Greenhouse Challenge program.

I did, however, issue a cautionary note, suggesting there were no guarantees for growth of renewables, that the ailing nuclear industry saw global warming as its big opportunity, and that the ‘economy versus environment’ debate was still very much alive.

My column in issue 63 (1998) reviewed activity leading up to and following the Kyoto Conference and the Kyoto Protocol, which created the global framework for climate response that is still a key element

of 21st century climate policy. I tried to be positive, despite acknowledging Australia’s embarrassing ‘spoilt child’ role at Kyoto and the powerful forces blocking effective action. For example, I pointed out that the then-Labor opposition was committed to stabilising emissions at the 1990 level. And the Howard government had made some significant commitments, including measures that led to the introduction of the RET, and appliance and building energy standards. But I misjudged the trends towards splits within traditional political alliances. For example, at that time the gas industry supported climate action, as they believed they would benefit at the expense of coal. Such splits turned out to be short-lived, as the fossil-fuel industry rebuilt common ground to oppose climate response.

I discussed the merry-go-round of greenhouse policy again in issue 72 (2000). In particular, a very comprehensive Senate Inquiry report The Heat is On applied more pressure for action.

In issue 73 (2000), I reported on the latest greenhouse inventory data (for 1998), which showed emissions from electricity generation had risen by 10%, as energy market reform led to our dirtiest

active blocking ... and now?

Page 21: Pears Report Collection

Pears Report Collection

21

o 2015 is so far the hottest year on record, but as the graph shows, decades of above-average and increasing global temperatures have come before it. Unless we want them to keep climbing to the point where life is no longer sustainable, strong and comprehensive climate action is needed now. Our inaction has already locked-in serious climate impacts.

Imag

e: w

ww

.ncd

c.no

aa.g

ov

interests played heavily on this argument and used dubious economic modelling to support it. We now see the reality that a lot of climate response can be cheap or even profitable and, compared with the cost of allowing climate change to continue, is very attractive. We are paying a high price for the failure of policy makers and business to see the economic fundamentals of innovation.

As 2006 progressed, pressure on the Australian Government to act more effectively on climate change continued to ramp up. In issue 95, I outlined various government attempts to ‘be seen to act’ and to use economic modelling to undermine public support for action: very sad.

Issue 97 (2006) saw me pointing out that most analysis of the costs and benefits of Australian climate action had actually set the value of avoiding adverse climate impacts to zero: that is, the costs of action were being evaluated without comparison to the benefits. Economic modelling using this approach was misused by politicians to scare people into inaction. Until the

mentioned in my columns in issues 75, 80, 81 and 82 (2001–02). This reflected the increasing pressure on the Howard government to take stronger climate action. At the same time (issue 77, 2001), confusion and concern was emerging about the financial risks for businesses of cutting emissions ‘too soon’ and potentially missing out on possible future incentives: the debate risked degenerating into farce.

In a pattern that’s now familiar, climate was kept as a minor issue by the major parties in the election (issue 78, 2002), despite the determined efforts of the Greens and Democrats.

By 2004 (issue 86), the tensions in climate policy were becoming visible. While energy-related emissions had increased by 29% since 1990, the ‘free kick’ from inclusion of land clearing in Australia’s Kyoto baseline meant that we were on track to meet our (weak) Kyoto target. Our apparent ‘success’ allowed government to avoid the tough decisions on energy. At the same time, the increasingly obvious gap between government policy and climate science meant business was beginning to see risks: when reality was finally accepted, there could be very rapid policy changes, which could make life difficult for business. It has taken a while for this to play out, but the recent rapid divestment from fossil fuels and the impacts of the explosive growth of renewable energy on traditional energy businesses are now reflecting this discontinuity.

This column (issue 86, 2004) also touched on another key failure of Australian climate policy: the deeply held belief that acting to cut emissions would be costly. Governments and vested

Page 22: Pears Report Collection

Pears Report Collection

22

due to conservative assumptions about the impact of innovation and the cost of abatement measures! The Garnaut Review also emphasised, for the first time in a major Australian policy document, the significant long-term economic benefits of climate action and the conservatism of most economic modelling of these benefits.

In my next column (issue 107, 2009), I explored some of the implications of the GFC for climate policy. I saw some upsides; for example, from closure of old and inefficient industrial plant. Locally, the government flagged some ‘green jobs’ programs among the other stimulus measures. On the other hand, the proposed CPRS included multi-billion dollar subsidies to energy-intensive industries and coal power stations.

In my 50th column (issue 109, 2009), I focused on the Copenhagen Climate Conference. This led me to review the lack of progress in climate policy over the preceding two decades. A key issue was that Australian energy policy, which was our dominant source of emissions, had been pursued in isolation from climate policy. Indeed, energy policy had been the biggest barrier to delivery of effective

advent of the Abbott government, this was a low point in climate politics.

Climate politics was becoming increasingly tricky (issue 99, 2007) as the Howard government tried to push nuclear power and protect fossil fuel industries with a ‘measured approach’ to emissions trading. Meanwhile, the Coalition government was trying to label the stronger climate policies of the Greens and Democrats as wrecking the economy, and to split Labor on the nuclear issue. While I didn’t mention it at the time, the Greens’ Re-energising Australia analysis, to which I contributed, provided a comprehensive vision of a successful, sustainable Australian economy that is still relevant today.

Increasing numbers of people and progressive businesses were focusing on shifting to ‘net zero emissions’ in response to climate science and frustration at the lack of leadership. In issue 99 (2007), I supported this approach, but flagged a few complications in defining the term and in using offsets without adequate focus on actually cutting total global emissions.

An important step on the path to development of an emissions trading scheme was the Garnaut Review, led by

prominent economist and policy maker, Professor Ross Garnaut. My column in issue 103 (2008) was written in the early stages of this process. I had mixed feelings. On one hand, it was clear that the process would be thorough. On the other hand, Prof Garnaut was on the public record as saying “if the price [of emissions] is established at the right level, there is no need for other public policy measures.” However, he also acknowledged that market failures might require alternative responses. Overall, I was nervous!

In 2008, the global financial crisis (GFC) impacted heavily on development of climate policy (issue 106, 2009). It seriously constrained development of emissions trading, now known as the Carbon Pollution Reduction Scheme (CPRS). At least the crisis raised questions about the effectiveness of ‘free markets’ and the credibility of many economists! However, the GFC also increased concerns about the ‘costs’ and impacts of the CPRS on the economy. The fearmongers had fertile ground, despite evidence that we were already benefitting from savings on energy bills through energy efficiency, and modelling that showed very small economic impact—much of which was

“The Garnaut Review also emphasised ... the significant long-term economic benefits of climate action”

Page 23: Pears Report Collection

Pears Report Collection

23

justified) scepticism. In issue 126 (2014), I tried to find some glimmers of hope among the debris.

In issue 133 (2015), I discussed a range of issues related to the government’s new policy agenda, including the need for what I called ‘indirect action’, where policies that deliver widely valued benefits—such as public transport—also cut emissions. At least the shift of focus away from carbon pricing was opening up serious consideration of a more diverse range of policy tools and measures. This may turn out to be one good outcome within an overwhelmingly negative picture.

Carbon pricing and trading I first discussed carbon trading, which I described as a ‘cargo cult’, in issue 65 (1998). I acknowledged that pricing carbon fundamentally made good sense, but that the rush to capture rights to abatement, the convenience of buying offsets, and the attraction of buying cheap international permits of dubious quality meant more attractive investments in local energy efficiency and renewable energy were being ignored. I concluded that “we need to make sure sustainable energy options will be fairly treated in emissions trading schemes…Given the level of prejudice and ignorance that exists, this won’t be easy.” Prescient words, unfortunately, as discussed later.

By late-1999 (issue 69), the debate over carbon pricing was heating up as large emitters began to evaluate the scale of impacts on them. At the same time, a study found that energy market reform had increased emissions by 8 million tonnes of CO2 annually. Also, energy companies were planning to build many new fossil-fuel-fired generators. I commented that “Australia is moving

climate policy. I referred to a report by McLennan Magasanik for the Total Environment Centre, which documented the fiasco. I also reflected on reasons why Australia had such a strong voluntary abatement sector and why we were global leaders in discussion about how voluntary abatement action could be encouraged while emissions trading was introduced. The chronic failure of our leaders simply meant people who accepted climate science had to take action themselves!

I also explored the challenges of responding to the tensions between developed and developing countries with regard to abatement action. I suggested that one way of breaking down the stereotypes was for developed countries to pay developing countries when they exported high-efficiency appliances or renewable energy products to developed countries. By rewarding developing countries for manufacturing and exporting low-emission products, developed countries could fund the payments through a small levy on imports, while developing countries would gain an incentive to produce lower-emission products. The savings on energy bills would be much larger than the cost of the levy. Sadly, my proposal has never been adopted. I still think it would be transformative.

In issue 112 (2010), I tried to put myself in the shoes of a CEO of a large, emissions-intensive business—to try to imagine how they might be thinking about the possibility of stronger climate response policy. It was a disturbing experience: there seemed to be many incentives to oppose action and few to support strong climate response.

The Carbon Farming Initiative (CFI) was a topic in issue 115 (2011). This was an

incentive scheme to encourage farming and forestry carbon storage by allowing projects to create carbon credits, with the government cancelling Kyoto permits to match the credits created. This approach was intended to ensure the abatement/storage activity was additional to ‘business as usual’. I pointed out that this provided a model that could be applied to other voluntary abatement action. More recently, the CFI model has been adapted to become the Emissions Reduction Fund, the core of the Coalition government’s climate response policy. Unfortunately, in this role it is inadequate, as it doesn’t send a broad signal for all emitters to cut emissions.

Also in that column, I noted that funding for a number of clean energy programs had been cut to help fund recovery from the summer’s extreme weather events. How’s that for short-sighted thinking!

From late-2011, Australian climate policy reached a new low (issue 117, 2011), led by hysterical and ill-informed opposition leader Tony Abbott. At the same time, intensive negotiations between the Gillard Labor government, the Greens and other crossbenchers led to development of a new Clean Energy Future package that combined carbon pricing (see below) with a range of other complementary measures. With the benefit of hindsight, setting a fixed carbon price at $25 per tonne of CO2 for the first three years, at a time when global carbon prices fell to much lower levels, turned out to be its Achilles’ heel. This allowed opponents to attack it as a ‘tax on everything’.

After a change in government, Australian climate policy was turned on its head under Prime Minister Abbott. Instead of ‘polluter pays’ we moved to a ‘pay the polluter’ model amid much (mostly

Page 24: Pears Report Collection

Pears Report Collection

24

perilously close to a ‘lose–lose’ greenhouse strategy”.

2003 was a watershed year for carbon trading (issue 83): the NSW Government introduced its Greenhouse Gas Abatement Scheme, which required energy retailers to surrender abatement certificates for emissions above specified benchmarks. NGACs could be created by projects that included renewable energy, energy efficiency, fuel switching, methane emission reduction, etc. Many people, including me, believe this was the world’s first comprehensive emissions trading scheme.

By 2006, several state governments were showing their frustration with national inaction on carbon trading and began to develop state-based approaches (issue 94). In this column, I also explored how emissions from air travel were seriously underestimated by the Kyoto accounting method: more recent IPCC (Intergovernmental Panel on Climate Change) analysis suggests emissions from air travel are two-to-five times higher than estimated under Kyoto methods. This has major implications for the tourism sector that no one seems to want to discuss! I followed up this problem in issue 119 (2012), where I referred to UK research that suggested the problem of indirect impacts of air travel could be dealt with by flying lower, in warmer air (although this has its own issues).

2006 also saw more visible splits within Australian business over climate policy (issue 96), as increasing numbers of firms began to recognise the risks of—and the opportunities from—action. An outcome of all the debate, supported by high-profile actions such as ex-US vice-president Al Gore’s An Inconvenient Truth presentations, was that both major parties

made election commitments to introduce emissions trading. But, as I explained (issue 101, 2007), there were many tricky aspects to consider—as Kevin Rudd found out when he tried to introduce his Carbon Pollution Reduction Scheme a couple of years later.

In my column in issue 102 (2008), written as we awaited the outcome of the election that would see Kevin Rudd become Prime Minister, I expressed my nervousness about some aspects of emissions trading schemes (ETS). It seemed likely that targets would be weak and distant. Also, it had become clear that powerful economic policy bureaucrats, encouraged by industry lobbyists, saw an ETS as an opportunity to get rid of many existing (supposedly economically inefficient and messy) energy efficiency and renewable energy policies and programs. Indeed, that is what happened.

By mid-2008 (issue 104), my concerns about how emissions trading would be implemented in practice were crystallising. For example, the Wilkins Review was set up within the Finance Department, with little publicity, to evaluate which existing climate policies were ‘complementary’ to carbon pricing. This rang loud alarm bells—for good reason, as it turned out. I also wondered how effective a price signal would be in changing behaviour, given that it would be small in comparison with factors such as currency exchange rates, energy price rises driven by other factors, and so on.

In the same column, and in issue 107 (2009), I also raised the question of how voluntary abatement action by individuals, progressive businesses and local and state governments would be affected by an ETS. It became clear that motivation could be affected, and that

o Cutting carbon emissions also provides other benefits such as reducing air pollution, but policy makers failed to emphasise the multiple benefits of climate action.

Phot

o:w

ww

.Fre

eIm

ages

.com

/Mas

hiba

Page 25: Pears Report Collection

Pears Report Collection

25

production plants. Modernisation was also driving closure of inefficient industrial facilities. Australia could learn a few lessons from the Chinese.

How climate statistics shape perceptionsMy column in issue 114 (2011) explored the design of the National Greenhouse Gas Inventory and its influence on policy priorities. The NGGI allocates direct emissions from on-site combustion to each sector and reports emissions from electricity generation separately. So the commercial sector, which uses mostly electricity, shows up as a very small component of Australian emissions—far from the reality, when its electricity-related emissions are also considered. So policy makers who don’t understand the subtleties of electricity focus on sectors and activities with high emissions from burning fossil fuels on-site. They miss the enormous emissions reduction benefits from reducing electricity use in the electricity-intensive commercial and residential sectors. There were other problems, too. This reflects the broader issue that how we present statistics can heavily influence our perception of what is important, and the focus of policy. S

voluntary action could subsidise emitters unless the government cancelled permits to match the level of voluntary abatement. This became an issue of serious concern for me, and led me to help to establish the Voluntary Carbon Markets Association, which campaigned (unsuccessfully) for attention to be paid to this issue during development of the ETS. This remains both important and unresolved in 2016.

Through 2009, the nuts and bolts of the proposed CPRS were negotiated. Affected industries lobbied hard—and often successfully—for generous treatment, while government agencies and levels of government argued about organisational arrangements. By the time I was writing my column for issue 107 (2009), the Greens and other progressive groups had decided the CPRS was too compromised to deserve support. This was not an auspicious situation.

I revisited the development of the CPRS in issue 110 (2010) and found many reasons for concern about its design. A range of design features seemed to mean that the most emissions-intensive industries would be little affected by carbon pricing, and that the carbon price would be well below a level that would significantly influence behaviour. This provided support for the actions taken by the Greens in opposing the CPRS in parliament. At the same time, economic modelling of the cost of climate action seemed to overstate the cost of practical emissions reduction, especially via energy efficiency.

As noted earlier, my column in issue 117 (2011) looked at the Gillard government’s revised proposal for a more balanced and comprehensive package, negotiated with the Greens and other crossbenchers, that included carbon pricing. This ill-fated

package was far superior to the original CPRS. However, the introduction of a carbon price provided an excellent excuse for conservative state governments to dump state-level climate policies (issue 120, 2012). This confirmed the validity of my criticism that a national carbon trading scheme would disempower state and local governments, progressive businesses and individuals if it failed to include mechanisms to formally recognise and ensure the additionality of voluntary action. The state governments justified their cuts by saying climate response was now a national issue and that state action would make no difference to meeting the national target.

In issue 121 (2012), I discussed the assumption that, over time, carbon prices would necessarily increase and their impacts on the economy would grow. These views were based on several misconceptions and a failure to grasp the significance of innovation in reducing carbon costs. In issue 122 (2013), I briefly looked at the challenges of setting targets, and the need for flexible design to allow for unforeseen change and innovation.

China and emissions reduction In recent years, China has consistently surprised commentators with its lower-than-expected emissions. At COP 15 in Copenhagen, I heard a few reasons behind this change (issue 111, 2010). Annual sales of electric bikes had reached 20 million: so most Chinese were not buying cars. They had introduced building energy regulations and actually enforced them! They were also shutting down small, inefficient coal-fired power stations and had shut down 53 million tonnes of inefficient cement production capacity and 20 million tonnes of inefficient steel

Page 26: Pears Report Collection

Pears Report Collection

26

Australian policy on renewables: politics and surprises

deserved them because of their chronic failure to listen to the community!

By 2008, GreenPower was well established so I thought it was time to suggest more sophisticated GreenPower products (issue 102) that encouraged the matching of times of generation and use, to discourage off-peak coal-fired generation. No one was interested.

Decentralised or distributed energy solutions were slow to emerge in Australia (issue 107, 2009). While gas-fired cogeneration had been promoted since the mid-1980s, the powerful electricity sector, with occasional exceptions, worked hard to block it. They didn’t want anyone messing with their electricity infrastructure and business models! Similarly, the electricity industry was slow to support demand-side management, even where it helped to maintain reliability and reduce costs. Reformers of energy markets claimed that overcoming this market distortion was a major driver of energy market reform. Yet, after more than a decade of reform, the power of the big electricity industry had not been broken. This failure became obvious in the summer of 2009, when bushfires led to the shut-down of powerlines and the Basslink power conversion

RENEWABLE energy has been a recurring theme in my columns. In my third column (issue 61, 1997), I mapped out what I considered to be a comprehensive strategy towards mainstream renewable energy, in a context where governments (both Labor and Coalition) saw it as a minor fringe player. It was clear that our renewable energy resources dwarfed our fossil fuel and uranium supply.

Of course, I couldn’t stop myself from pointing out that renewable energy had to grow with complementary energy efficiency improvements—a partnership that still attracts far too little attention in Australia, as I discuss elsewhere.

Importantly, I looked at the roles of renewable energy in provision of transport and heat, as well as electricity. At that time, renewable energy provided 9% of Australia’s energy, with three-quarters of this being heat supplied from wood and bagasse (sugar cane waste). I mapped out a range of options, many of which are now being widely adopted. And I pointed out that we should be investing tens of billions of dollars each year on this transformation.

In issue 64 (1998), my column focused on two important emerging renewable energy innovations: GreenPower and

modular grid-interactive inverters. I saw these as game changers.

As mentioned earlier, NSW’s SEDA drove the creation and implementation of GreenPower. Indeed, in Victoria, it was illegal until 2001 under the transitional energy market rules! GreenPower provided a simple mechanism for electricity consumers to support the growth of renewable electricity by paying a surcharge to ensure their electricity was sourced from new (post-1997) renewable generators. It complemented the ‘2% 2010 Renewable Energy Target’ then under development, as discussed in my column in issue 75 (2001). I supported adoption of GreenPower, although I noted that, if the energy market was working properly, it might not be needed.

I also saw the emergence of small grid-interactive inverters as a way of empowering electricity consumers to take action when governments and energy companies failed. I somewhat optimistically foreshadowed the possibility of “the $500 plug-in PV module as a Christmas present for the person who has everything”. I also noted that widespread adoption of distributed energy systems could cause problems for the electricity industry, but that they

Page 27: Pears Report Collection

Pears Report Collection

27

o Renewables technologies, such as rooftop solar and battery storage, which were just emerging a decade ago are finally firmly on the radar, as demand and awareness have increased and prices decreased. Distributed energy infrastructure is becoming not only more feasible, but also desirable, from the perspective of consumers and energy networks.

Imag

e: S

tude

r Inn

otec

; ww

w.s

tude

r-inn

otec

.com

years after the initial announcement, before the RET legislation was placed before parliament, with actual implementation from April 2001. Later columns (issues 71, 74, 75; 2000–01) described some of the machinations behind the final design and detail of the scheme and its associated regulations. Strong support from progressives, such as the Greens (and the ATA!), was critically important. In particular, the Greens fought hard to exclude native forest ‘waste’ from inclusion in the definition of ‘renewable energy’. This scheme, and its successors, would prove to be the mainstay of Australian renewable energy policy for many years, despite a few ups and downs discussed later.

Indeed, in issue 77 (2001), I pointed out that RECs (Renewable Energy Certificates created by registered renewable energy generators, with one REC created per megawatt-hour of renewable electricity, and each surrendered REC generating a credit) created a potentially useful accounting system for renewable energy. They could be used by state governments and others to drive additional investment in renewable energy in their jurisdictions beyond the RET, simply by buying and surrendering RECs from projects in specified locations. Indeed, the GreenPower scheme adopted this approach.

On the other hand, in issue 79 (2002), I pointed out that when people accepted payment for RECs when buying solar hot water or rooftop electricity systems, they were effectively handing over the ‘greenness’ of their purchase—in terms of 10 to 15 years of emissions reductions and support for growth of the renewable

equipment couldn’t cope with the heat. Angry consumers were not interested in explanations that it was economically inefficient to ensure 100% reliability.

I pointed out that emerging technologies would soon allow consumers to take control of their own situation by using smart demand management, local energy storage and distributed generation. The seeds of our energy revolution had been sown.

Much of the renewable energy policy focus from 2009 to 2012 was on rooftop solar PV and fine-tuning the 2020 RET, as discussed below.

An important report that looked at the bigger picture was published by AEMO in 2013 (issue 124), after intense pressure from the Greens and the renewable energy industry prompted the government to instruct AEMO to develop a comprehensive 100% renewables study. Their report showed that such an outcome was technically achievable and would have similar costs to conventional electricity supply scenarios, even though it used a demand scenario that underplayed the potential of energy efficiency.

Renewable Energy TargetsIn issue 68 (1999), I reviewed progress on development of the 2010 Mandatory Renewable Energy Target. This policy was announced in late-1997 in Prime Minister Howard’s ‘Safeguarding the Future’ pre-Kyoto statement. Over time, it became clear that little thought had been given to the detail of how the scheme would work before it was announced. Intense lobbying and debate was creating uncertainty and confusion. It was December 2000, three

Page 28: Pears Report Collection

Pears Report Collection

28

the detail. That’s certainly how it played out.

By 2010 (issue 111) it was becoming clear that the changes made to the RET in shifting to the ‘20 % by 2020’ goal had not been very well thought through. Rooftop PV systems were being allocated multiple RECs for each unit of grid electricity avoided and undermining investment in large-scale renewables. This led to a revised approach (issue 116, 2011) whereby the RET was changed into two separate schemes—one for rooftop PV, solar hot water and other small renewables based on Small Technology Certificates, and a separate scheme for large renewable generation using Large Generation Certificates with a separate target.

Renewables and the environmentMy columns in issues 70 and 72 (2000) briefly highlighted some of the environmental and social problems facing renewable energy, such as air pollution from wood heating, aesthetics and land-use conflicts. The Greens’ concern about use of ‘waste’ from logging of native forests (issue 74, 2001) for ‘renewable’ electricity generation reflected another big issue. We need to remember that all energy sources have environmental and social impacts. We also need well-designed and carefully implemented engagement and consultation processes, and to ensure high standards are achieved. The alternative is more delays in delivery of a clean energy future. My column in issue 84 (2003) extended this discussion to suggest encouragement of community-driven energy strategy development. In 2016 we are beginning to see this, as communities begin to plan sustainable energy futures for their regions. S

energy industry—to the electricity retailers who bought, then surrendered, the certificates to comply with their legal liability. So accepting this subsidy meant the household did not get credit for the renewable electricity or greenhouse abatement for the credits created, although they did cut their energy bills. This is a tricky area that relates to the ‘additionality’ of voluntary action relative to what would have happened anyway. This issue is discussed in more detail elsewhere in the context of carbon trading.

Over the years, the RET has evolved, both in terms of the level of the targets and the structure of the scheme. For example, in issue 79 (2002), I pointed out that the legislation allowed only energy retailers to surrender RECs, so individuals could not surrender RECs to ensure they counted as additional action beyond the RET. This was eventually fixed.

The vulnerability of target-based schemes like the RET was highlighted (issue 87, 2004) by the recommendation of the RET Review in 2004 to leave the 2010 target at its original level, even though it was clear it would be met by 2007. The 2004 Energy White Paper (issue 89, 2004) locked in this short-sighted approach. This led to a ‘boom and bust’ outcome—just the first of many politically driven problems faced by the RET over time.

A partial response to this problem was that some states, such as Victoria, decided to fill the policy gap by introducing their own state-level renewable energy targets to top-up the inadequate 2010 target.

Then, as explained in my column in issue 108 (2009), RET rebates for rooftop solar became a national election issue in 2007. After Labor was elected, this led to a series of messy changes to the RET that

resulted in extremely generous PV rebates, but also undermined development of large-scale renewables. At the same time, implementation of the new government’s ‘20 % renewables by 2020’ commitment was poorly designed. In issue 116 (2011), I summarised the PV policy saga and made a few suggestions for future policy.

In parallel with the Commonwealth mess, state governments decided to win over voters by offering increasingly generous feed-in tariffs (FiTs), discussed below. We are still trying to sort out the resulting mess.

The lead-up to the change of government in 2013 led to serious uncertainty for the renewable energy industry. After the change, a major review of the RET was carried out. In issue 128 (2014), I discussed the background and issues associated with this process. Investment in large-scale renewable electricity generation projects crashed and, as at mid-2016, has not recovered.

Feed-in tariffsBy 2007 the failure of national targets, as well as technology developments and cost reductions, had led state governments to seek alternative or complementary policies to encourage more renewable energy. Feed-in tariffs, where the energy retailer (possibly funded by government) pays a generator of renewable electricity for each kilowatt-hour of exports to the grid, had worked well in Germany. In Australia, state governments became interested in offering FiTs for small renewable energy generators such as rooftop solar, to complement the RET—and to allow them to gain credit from voters for supporting renewables. In issue 99 (2007) I looked at the pros and cons of FiTs and concluded that the devil was in

Page 29: Pears Report Collection

Pears Report Collection

29

Australian energy policy: papers,politics and technology

despite extensive modelling and analysis. As they say, if you repeat something often enough and loudly enough, people take it seriously.

2011 saw the federal Labor government release its draft Energy White Paper (issue 119, 2012). It largely reflected the same misguided priorities of the Howard government’s 2004 effort. Outdated energy policy based on blind faith in markets is not a party political issue, but is really a deep-seated cultural problem within the energy sector. In issue 120 (2012) I noted that I had made submissions on this draft paper, as well as to the Victorian Competition and Efficiency Commission’s inquiry into feed-in tariffs and a consultation on a possible National Energy Saving Initiative.

A fundamental contradiction that energy policy faces (issue 122, 2013) is that if we are to avoid serious climate change we must leave most of our existing economic fossil-fuel resources in the ground. This makes ongoing exploration simply a waste of money. Subsidies for such activities are clearly money down the drain.

By issue 123 (2013), the Labor government had published its final Energy White Paper. I commented that it was a significant improvement on the draft, but

THE traditional approach to major policy involves preparing a Green Paper for public discussion, followed by a White Paper that presents the government’s policies. This approach has been used in the energy sector since the 1970s. Reviewing the various Green and White Papers and the process (or lack of process) associated with them provides useful insights into mainstream views of energy, and the power of certain industry groups and ideological agendas.

The Howard government’s 2004 White Paper (issue 89, 2004) illustrated how isolated energy policy was from broader social, economic and environmental policy. It essentially adopted the agenda of Australia’s energy-intensive and fossil fuel industries, to the detriment of emerging options such as energy efficiency and renewable energy. Indeed, some years later, Guy Pearse (in High and Dry with John Howard; Penguin, 2007) exposed the process underlying preparation of this document: those industries had actually written parts of the policy!

The Victorian Government’s 2004 Greenhouse Challenge for Energy highlighted the tensions confronting a moderately progressive state government (issue 91, 2005) as it tried to juggle

brown-coal interests and climate action. In the same column, I reported on my submission to a planning inquiry into the future of the inefficient and polluting Hazelwood brown-coal power station: I concluded that energy efficiency could cost-effectively provide more than two Hazelwoods worth of energy equivalent. I failed to influence the decision (issue 92, 2005). In issue 94 (2006) I exposed the astounding agreement between Hazelwood’s owners and the Victorian Government that required the government to advocate on its behalf during development of any future emissions trading schemes. I also documented the Victorian Energy Department’s pro-brown-coal agenda that contrasted strongly with its government’s broader climate policy. As usual, the energy sector treated the rest of society and the economy with disdain. The debate about how to close our most polluting brown-coal power stations continues in 2016, despite ongoing efforts by community groups (issue 112, 2010).

A major topic of debate over many years has been the ‘need’ for base load power. My strong view (issue 102, 2008) was that this was a fallacious argument. But it has been amazingly difficult to overcome,

Page 30: Pears Report Collection

Pears Report Collection

30

o Discovery of oil in the Bass Strait in the ‘60s meant Australia was almost self-sufficient for this fossil fuel by the mid-1980s. Great news for the transport industry, which relies so heavily on the stuff, but it delayed serious exploration of more sustainable alternatives for the next two decades.

Phot

o: w

ww

.Fre

eIm

ages

.com

/Kas

eyH

oust

on

exciting journey.The latest Energy White Paper, released

in 2015 (issue 132, 2015), will not provide much help in adjusting to the rapid changes in energy. My submission to the Green Paper can be accessed via a link in my column; it also applied to the White Paper. The Paper was completely out of touch with reality, although it had one interesting element: a proposal to develop a National Energy Productivity Plan—which was actually released in December 2015 but received virtually no publicity. This offers potential to frame measures that provide more economic output per unit of energy consumed. There will be more on this in future columns.

Oil and transport policyIn many ways, it was the oil crises of the 1970s that triggered modern energy policy. Indeed, the OPEC (Organisation of the Petroleum Exporting Countries) crisis triggered a shift in Australia towards world price parity for oil. Australia’s first national energy efficiency campaign was a response to the 1979 Iranian Revolution. Before the late-1960s, when the enormous Bass Strait oil fields were discovered, Australia was considered to have very limited oil resources and, over the years,

was still a ‘fail’. The failure to frame energy policy within a climate change context meant that most of the document was simply irrelevant.

After a change of government, an Energy Issues Paper was released in mid-December 2013 (issue 127, 2014), as a precursor to a proposed Green Paper and White Paper. Yet again, it missed the target, although it did at least provide a useful list of short-term issues that needed to be addressed.

In 2014 I attended an APEC (Asia-Pacific Economic Cooperation) workshop in China, where I had to explain Australian renewable energy policy to a bemused audience. I then listened as they spoke about the amazing levels of investment in change that are transforming their energy sectors and economies (issue 128, 2014). It really highlighted for me the depths to which Australian energy policy had sunk. But, as I pointed out in issue 131 (2015), at least some state and local governments are taking more interest in energy issues. Global factors are transforming our economic structure, volatile energy prices are complicating business planning and climate change, and other factors are redefining asset values. No one knows where all this will lead, but it will be an

Page 31: Pears Report Collection

Pears Report Collection

31

Gas policyHistorically, the importance of effective policy on gas has fallen under the radar most of the time—it was cheap and had lower climate impacts than coal-fired electricity. It is only recently that conflict over coal seam gas and the potential gas shortages due to construction of large liquefied natural gas export facilities in Queensland have raised its profile with policy makers.

In issue 66 (1999) I suggested that the gas industry might soon face an image crisis if it did not begin to shift to renewable sources of gas. Seventeen years later, it looks as though I was right—eventually.

I pointed out that gas was losing its climate advantage as advanced electric technologies, including heat pumps and microwave ovens, emerged. I also pointed out that much gas use was very inefficient. I made a few practical suggestions, including that the gas industry should introduce more efficient appliances and offer a ‘GreenGas’ product similar to GreenPower. Landfill gas and biogas were obvious sources of GreenGas, while solar reforming of gas (using high-temperature solar heat to gases that, when burnt, release more energy than was in the original gas—solar boosting of gas), wood gasification and hydrogen also offered potential. And these could be complemented by an offsets scheme that promoted tree planting and other climate

actions such as subsidising bio-alcohol and even producing oil from shale had been pursued to limit our dependence on imported oil. Bass Strait changed all that and, by the mid-1980s, we were almost self-sufficient for oil—for a while. After the turn of the century, global discussion about peak oil gained a higher profile. My column in issue 97 (2006) looked at this issue: I concluded that both sides of this debate had some merit. But the key challenge was to reduce our underlying dependence on oil for many reasons, not just peak oil.

In Australia, around three-quarters of our oil consumption is for transport, and we now import most of our oil. So oil policy necessarily links to transport and urban development policy (issue 105, 2008). This in turn begs the question: why do we travel? A sustainable transport future necessarily means minimising the need to travel (and shift ‘stuff’ around) and using efficient transport options. Urban structure and provision of public transport, pedestrian and bicycle infrastructure are fundamental. In this column I discussed some of the issues and suggested paths forward.

By 2011, interest in electric vehicles was reaching fever pitch. In my column in issue 114 I tried to encourage a more realistic perspective on what is definitely an exciting development. I also put forward my ideal EV solution—a car with reasonable range and a very small (15 – 20

kilowatt) booster engine. I’m still waiting for someone to manufacture this.

In issue 119 (2012) I reported that most fuel-guzzling vehicles were purchased by business. I also noted that these vehicles are typically resold, and used by private owners for most of their lives: so new car purchasers leave a legacy of fuel waste and higher costs for future owners. In this issue, I also flagged some ideas for improved funding of sorely needed public transport infrastructure. In issue 120 (2012) I highlighted the role of tradies in increasing congestion, and suggested that a shift to manufactured housing and smarter appliances could reduce tradie travel and bring other benefits.

In issue 127 (2014) I reported on a fascinating survey of Sydney traffic. The survey found that, in 2011, 22 % of weekday car trips were to ‘serve passenger’: that is, the driver was acting as an unpaid taxi driver. The cost and time involved in using cars for such trips to replace better urban design, public transport, walking and bikes must be enormous. Yet I rarely see the need to reduce car dependence by non-drivers addressed in transport studies.

Continuing the theme of traffic, in issue 134 (2016) I published an analysis of car air conditioner energy’s contribution to vehicle fuel use in heavy traffic in tropical climates: the air conditioner used as much fuel as moving the car! This raises some interesting technology and policy issues.

Page 32: Pears Report Collection

Pears Report Collection

32

the industry has encroached upon more populated, productive agricultural land. Further, development of liquefied natural gas export plants in Queensland has driven price increases and concern about reliability of supply.

So, my column in issue 130 (2015) looked closely at coal seam gas and concluded that it’s more trouble than it’s worth.

Nuclear energy Nuclear energy has not been a major theme of my columns. My brief comments in issue 92 (2005) reflected my scepticism about the benefits of nuclear energy. My column in issue 96 (2006) provided further justification for my lack of enthusiasm for this technology whose window of opportunity (if it ever had one) has now closed. In issues 97 (2006) and 99 (2007) I mused over reasons why Australia’s political leaders might be as attracted to uranium and nuclear energy as they seemed to be, and how we could respond to these pressures. In issue 116 (2011) I commented on the significance of the Japanese nuclear crisis and its enormous cost impacts for the Japanese economy. S

response actions. In issue 83 (2003) I added further suggestions on how the gas industry could be part of a sustainable energy future, including ensuring all new gas infrastructure was compatible with future renewable gas options.

In 2006 (issue 95) Origin Energy announced an offsets program called Green Earth Gas. But the gas industry largely ignored these early suggestions. They may come to regret this.

In issue 98 (2007) my questioning of the direction of gas policy strengthened. I asked, “Do we have time for the natural gas bridge?” While I didn’t advocate a complete shift away from gas, I did re-state the views I had expressed in earlier columns and again flagged that switching to high-efficiency electric options using renewable electricity could be more cost effective.

Again, in issue 113 (2010), I returned to this topic, as there were tensions between some community groups about the future role of gas. I tried to plot a middle path between the differing views. In issue 118 (2012), I outlined the results of a climate modelling study that evaluated the impact of shifting from coal to gas. It showed that it was a fairly ineffective strategy, the outcome of which was very sensitive to the levels of methane leakage from the gas extraction and delivery

system. I reiterated points I had made in earlier columns about the actions the gas industry needed to take.

My column in issue 122 (2013) used the gas industry as an example of how attempts by powerful interests to block change can backfire.

Over the past decade, the image of the gas industry has shifted markedly. It was the clean, cheap fossil fuel. And some people, confused by the linking of gas with emissions reduction by some environmental groups, even thought it was a renewable fuel—after all, it was ‘natural’. But the gloss has worn off. Integration of gas into dominant electricity retail businesses has meant a lower public profile. Concerns about indoor air pollution and safety have risen. Innovation in high-efficiency electric technologies has undermined consumer preference for gas. The significance of methane emissions leaking from gas production and supply infrastructure has focused climate policy attention. The failure of our leaders to actively deal with climate change has also meant we have run out of time (and carbon budget) to support partial transition fuels like gas: we need to jump to zero emissions rapidly.

And, most important, instead of sourcing gas from large gas fields under Bass Strait or remote land-based gas fields,

“Over the past decade, the image of the gas industry has shifted markedly. It was the clean, cheap fossil fuel ... But the gloss has worn off.”

Page 33: Pears Report Collection

Pears Report Collection

33

The big picture: policy andsustainable energy

A PricewaterhouseCoopers study in 2003 (issue 87) highlighted the pervasive barriers to clean energy created by our taxation system and the interpretation of it by the Tax Office. Many investments in clean energy compete with maintenance or ‘like for like’ replacement of equipment, which are eligible for an immediate 100 % tax write-off. In contrast, the clean energy investments can only claim depreciation allowances, which are much less attractive to business managers.

Regional developmentBy 2000 (issue 70), rural Australians were using the ballot box to express their resentment about higher energy prices and other economic rationalisation. Government failed to help them limit the impact of energy cost increases through improved efficiency and renewable energy. So, in response to the community backlash, governments again focused on subsidising energy costs of rural consumers (issue 71). I suggested that a more balanced approach would see a strong focus on sustainable energy solutions for rural communities, so they could lead development of emerging clean energy solutions, creating local jobs and rebuilding rural economies. In 2016, such approaches are beginning to gain support—at last.

Macro-policy and micro-policyIn issue 84 (2003) I confronted a major tension within policy circles. Many believe that high-level macro-policy settings can create a context in which ‘the market’ can deliver desired outcomes. This is the ‘small government’, generic policy maker model. There’s no doubt that macro-policy is important. But it is politically difficult to generate sufficient momentum to implement effective policy at this level in an area that is really not a top priority most of the time. Further, change in areas like energy is very complex, so micro-policy is needed to develop capacity, skills, innovation and motivation. And the existence of very powerful vested interest groups means macro-level policy is very vulnerable to manipulation. This area deserves much more discussion.

Policy stability and consistencyThe energy and climate policy areas are hotly contested by groups with fundamentally conflicting views. These groups vary widely in their level and nature of political influence. These policy areas also get dragged into broader ideological battles relating to roles of government and economy versus environment, to name a few. So policies and organisations come and go, often lessons are not learned, poorly thought-out strategies are rushed in, then fail, and

there is a lack of learning from experience. My column in issue 85 provided a snapshot of this dysfunctional context in 2003.

This ongoing battle undermines progress on clean energy and climate response. Yet it also drives innovation and encourages innovators to seek out niche opportunities on which solid progress can be built. Overall, though, we need supportive policy and institutional infrastructure to drive the mainstreaming of emerging energy solutions and, as at 2016, Australia is a long way from achieving that.

Taxation: the GST and other issuesThe introduction of the Goods and Services Tax (GST) in 1999 was very controversial. Few remember that sustainable energy was a key element of the negotiations that led the Democrats to vote with the government to introduce the GST—a move that many believe was a factor in the decline of the Democrats as a political force. My column in issue 69 (1999) outlined the process. The replacement of wholesale sales tax by the GST disadvantaged clean energy investments, which typically had higher capital cost and were, in many cases, exempt from sales tax. The Democrats, to their credit, negotiated a large funding package for renewable energy and emissions reduction measures.

Page 34: Pears Report Collection

Pears Report Collection

34

o Despite growing peak demand for electricity during longer, hotter summers, investment in brown-coal infrastructure was still seen as the solution a decade ago.

Phot

o: w

ww

.isto

ckph

oto.

com

/Mak

sym

Krav

tsovimported energy: efficient renewable

energy solutions would potentially reduce some tensions. At a local level, Victorians were facing higher electricity prices due to growing summer peak demand, but neither the electricity industry nor the government took action to mobilise effective demand management. Another market failure! And, yet again, the Victorian Government sought expressions of interest to exploit its brown-coal resources.

Sustainable energy futuresIn my column in issue 105 (2008), I celebrated the 30th anniversary of the publication of Seeds for Change: Creatively Confronting the Energy Crisis (Patchwork Press, 1978). Working on this book was my apprenticeship in energy, and the framework we built across all sectors of the economy has been a great basis for my lifetime of work in this area. As an aside, an electronic version of this book is now accessible in the RMIT library.

International energy developmentsAfter my international travels of 2014, in issue 129 (2015) I began reflecting on what the future global energy picture might look like. The outlook is good for many countries that, at present, are energy importers: there is unprecedented potential for them to supply more of their own energy service needs and improve their balance of payments. Fossil fuel exporters like Australia face major change, yet Australian policy is still stuck in the past. We will live in interesting times! S

Learning from policy successes in other sectorsThe energy sector is often a slow learner. For example, our response to the long drought led to development of many excellent policies and programs for water. But, in issue 86 (2004) I commented that little of this experience had flowed across to the energy sector.

Resource industry policyAustralia’s resource industries have been very effective opponents of climate response. In my column in issue 93 (2005), I explored the circumstances of Australia’s aluminium smelting industry. I concluded that our industry is actually a problem for the global aluminium industry, because its high greenhouse intensity undermines the narrative promoted by low-emission aluminium producers!

Information on resourcesIn issue 87 (2004) I reflected on the reality that Australian governments spent tens of millions of dollars each year collecting and providing detailed information on mineral and fossil fuel resources, to assist the resources sector. Yet little information on resources was provided for the renewable energy industry or the energy efficiency and demand management industry. While the situation is improving, we have a long way to go, especially on the demand side. When will we see AEMO publish an annual ‘Statement of Demand Side Opportunities’?

The impacts of global and local fossil fuel addictionIssue 78 (2002) appeared after the ‘9/11’ terrorism air crashes in New York. This led me to muse on the costs and political impacts of countries’ dependence on

o This book marked the beginning of, and has served as a blueprint for, Alan Pears’s career as an energy policy advisor and sustainability advocate.

Page 35: Pears Report Collection

The Pears Report75 articles as featured in ReNew magazine From 1997 to 2016

ReNew

Page 36: Pears Report Collection

Pears Report Collection

36

Featured in: ReNew 59, April – June 1997

How the fine print can help

PVs, cogeneration, coal-bed methane and landfill gas generators.

In contrast, Tasmania’s Hydro Electric Comission (HEC) has tried (and, to a fair extent, succeeded) to establish a number of structural barriers to competition from other energy options. While the HEC is, strictly speaking, a supplier of renewable electricity, it is an example of a large player in the new energy market: we can expect other major players to try similar marketing games.

HEC’s major strategies have been:• increase fixed supply charges (that

is, the quarterly fee a consumer pays to be connected, regardless of how much electricity they consume) and reduce marginal unit costs (that is, the cost of an extra unit of electricity beyond what a consumer normally uses). These make electricity savings less attractive (because you don’t save much by using less electricity), while raising the barrier to alternatives (because a large part of your bill is fixed, regardless of how much you use). In Tasmania, the fixed supply charge for households rose to $87.36 per quarter in 1996 (compared with $20.57 in WA and $14.80 in SA), while the unit charge fell to 6.4 cents/kWh (compared with 12.3c in WA and 11.9c in SA)

• minimise the extent to which variations in location and load profile influence prices: that is, ignore the fact that it is expensive to supply a

Energy expert Alan Pears looks at the road ahead for renewables in the new Australian energy markets.

FOR the past five years, energy policy at state and national levels has been dominated by the creation of a ‘competitive’ market. We’ve been assured repeatedly that this new framework will open up the market to a wide range of energy options, including renewables—where they are cost-effective.

We already know that the lengthy development process has allowed governments to delay serious commitment to renewables and energy efficiency. They have repeatedly assured the community and the renewable energy industries that they’re really working in our interests—within the bigger picture. The lack of short-term encouragement for emerging energy options, we have been told, will be a small price to pay for the benefits we will gain in the future from the competitive market. Tough luck that the growth of these industries has been stifled at a critical time!

We are now in the final stages of the introduction of this magical energy market. Already, we can see that we will have to look beyond the rhetoric and the broad principles to the fine print, to work out what impact ‘competitive’ energy markets will have on renewables.

State differencesAt the national level, only the broad parameters of the market will be set. Each state will control many aspects of the market through its own legislation and regulations, although differences will be reduced over time. And many issues will be left to the market to sort out, with minimal oversight from ‘light-handed’ regulators with limited resources.

Already, New South Wales has shown how positive legislative strategies can help renewables (and energy efficiency). Changes to the Electricity Act require electricity distributors and retailers to play their part in limiting greenhouse gas emissions, and to put in place effective demand management programs.

Establishment of the Sustainable Energy Development Authority (SEDA), with around $10 million per annum to spend on implementation of renewable energy and energy efficiency programs, provides a useful form of support for emerging energy technologies.

SEDA’s budget is a mere 0.2 % of total revenue from NSW gas and electricity sales, but it is four times that of Energy Victoria, the only other Australian Government sustainable energy agency. Electricity suppliers in NSW have responded to this framework by setting up subsidiaries to market renewables and energy efficiency; some have offered GreenPower options; others are contracting to buy power from wind,

or hurt renewables

Page 37: Pears Report Collection

Pears Report Collection

37

o Tasmania’s Hydro-Electric Commission uses barriers for its dams, and to prevent new energy options from entering the marketplace.

single consumer a long way from the high-voltage grid, and ignore the fact that someone who uses a lot of electricity at the time of peak demand forces suppliers to invest more money in expanding supply capacity. This minimises the number of niche markets into which competitors can slip

• subsidise costs: in the case of the HEC by requiring a lower rate of return on investment than would be used in the private sector (4 % a year compared with 10 – 15 %). For new electricity companies, high profits gained in monopoly areas such as electricity distribution networks mean activity in ‘competitive’ parts of the market can be cross-subsidised, to hold down prices in those activities and keep out competitors.

A recent review by the Tasmanian Government Prices Oversight Commission has forced the HEC to reduce the supply charge to around $45 per quarter (still high), but has done little to correct the other distortions. A proposal from the Sustainable Energy Industry Council of Australia (SEICA) that compensating programs be introduced for competing technologies disadvantaged by subsidies fell on deaf ears.

The Victorian Government adopted similar strategies when it doubled the quarterly fixed supply charge from $16 to $33 before it sold off its electricity supply companies. It also wrote down the value of rural SEC assets by $440 million so it would be easier for the new electricity companies to make profits in the country without raising prices. Lastly, it put in place controls on electricity prices, supposedly to ‘protect rural consumers’ until at least the year 2000. The end result of all this was to deny renewables and energy efficiency

access to market niches where they could compete and win.

We must face a few realities as we enter the era of competitive energy markets:

• the existing players have developed most of the rules

• the existing players have a lot to lose: they have enormous capital investments at risk

• most governments are keen to avoid responsibilities and want to step back to allow the markets to work. They (in most cases) see no justification for supporting—or even ensuring a fair go for—environmentally-preferred energy options, even though the community is increasingly showing a preference for such options

• in the early phase of a new market, gaining market share is likely to be the main objective of all players. Those with the deepest pockets and the most liberal interpretations of the rules will try to run their competitors into the ground through price cutting and incentive packages, while trying to lock-in customers to their services for as long as possible: we’ll see the equivalent of ‘frequent flyer’ schemes, discounts for long-term contracts, and so on.

• the role of marketing staff and advertising agencies employed by energy companies is to distort rational markets by creating appealing packages that are often not what they seem to be: it is questionable whether under-resourced regulators applying ‘light-handed’ regulations will be able to ensure that the market is not manipulated by marketers. The few weeks (or months) it takes a regulator to evaluate and stop a potentially anti-competitive marketing strategy can be long enough for a company to

gain benefits that far exceed any likely penalties

• if there is a glut of electricity supply capacity for some time (as environmentalists hope there will be, due to lack of growth in consumption), large electricity suppliers may become increasingly aggressive as reality fails to live up to their expectations.

It will be critically important for the renewable energy and energy efficiency industries to work together to mobilise community support for sustainable energy technologies, and to demonstrate to governments why emerging energy options need—and deserve—support. It will also be crucial to lobby state governments, to encourage them to follow the lead of NSW, so that environmental and social costs are factored into the fineprint of market frameworks. Hold on for a bumpy ride! S

Phot

o: D

avid

John

s

Page 38: Pears Report Collection

Pears Report Collection

38

Featured in: ReNew 60, July – September 1997

Renewables and Greenhouse policies

while the opportunities to improve Australia’s lot have been ignored. Some environmentalists have actually encouraged this sense of fear, by going along with the line that greenhouse response will hurt the economy.

But this phase is coming to a close. Under increasing international pressure, Australia must act. And many people—especially economists who believe the results of their crude models—will be shocked to discover that enlightened response to global warming will turn out to be good for Australia’s economy and quality of life.

Already, cracks are appearing in the foundations of the ‘economy versus environment’ paradigm as it applies to global warming. In the US, 2000 economists (including several Nobel Prize winners) recently signed a public statement acknowledging that properly managed greenhouse response would improve the economy.

In Australia, companies participating in the Commonwealth Government’s Greenhouse Challenge are finding that they can reduce greenhouse gas emissions while making more money—despite ‘expert’ advice that these cost-effective savings did not exist. (Influential economists have argued that export-oriented business operations were already economically efficient because of their exposure to competition or, where inefficiencies existed, the cost of

Can renewable energy play a meaningful part in Australia’s Greenhouse response? Alan Pears looks at the economic and political realities underlying the issue.

WELL, the debate is pretty much over. The scientists, who nervously raised the greenhouse issue after extensive research, seem to be right—the earth is warming up and we’re causing it. Even the fossil fuel industries seem to have lost enthusiasm for debating the issue. Indeed, it seems that the last man left standing to argue against greenhouse science is Australia’s Energy Minister, Senator Parer (see box below).

The big question now is which way Australia will move as it shifts from ‘paralysis by economic analysis’ into belated action.

The nature of changeIt’s widely recognised that change involves a series of steps, starting with denial that the problem exists, and attacks on those who say it’s a problem. Even when it is accepted that there is a problem, and change is needed, there is often a sense of disempowerment and fear, as the possible, often grossly and negatively overestimated, implications of change sink in. Initially, action is often half-hearted, as people struggle to juggle their mixed feelings, coping with fear of the unknown.

Effective management of change involves clarifying what the change involves, and building on the positive aspects, while dealing with the negatives in a constructive manner. It is important to break away from disempowerment and a sense of threat to existence.

Australian governments and business have shown all the symptoms of playing the victim role with regard to global warming. With the help of economic models which analyse global warming issues as precisely as a sledgehammer analyses the internal structure of a peanut, the fears of business and the community about possible adverse impacts have been amplified massively,

Sydney Morning Herald, 14 March 1997

“We are now going through all this greenhouse stuff,” Senator Parer told a mining conference in Ballarat, Victoria. “I don’t have any figures to back this up, but I think people will say in 10 years that it [greenhouse] was the Club of Rome.”

The so-called Club of Rome was a conference held in that city which concluded that much of the world’s resources would run out by the late-1980s due to over-exploitation and population growth.

Page 39: Pears Report Collection

o Big business is moving in: a rooftop array of Canon solar panels, installed in partnership with the Japanese roofing company, Sanko.

Pears Report Collection

39

Government inaction will suit the interests of the larger players: they don’t need help, and the less money going to small businesses and independent researchers, the more room there will be for them to take control of the marketplace.

If you want to have a say on the direction of Australia’s greenhouse response, you should be writing to Ministers, making submissions to the review of Australia’s greenhouse response strategy, and working within your industry associations. S

intervention to overcome them would be greater than the benefits.)

Business leaders who recently received awards from Energy Victoria for their performance as Energy Smart companies certainly seemed to be happy as they received recognition for reducing greenhouse gas emissions while banking the millions of dollars they had saved in their operations.

Also, it would not surprise me if a few of the loudest opponents of greenhouse response are actually working hard to position themselves to profit from greenhouse response. This is a common business tactic, used to trick competitors and gain strategic advantage (witness a few years ago Shell’s stressing the difficulty of reducing lead in petrol prior to introducing its half-lead product). So watch out for surprises.

Renewable energy and global warming Those who think greenhouse response means long-awaited recognition for renewables, and success for businesses already operating in the industry, need to think again. There are no guarantees, and many are already jockeying for position.

For example, the ailing nuclear industry sees global warming as its big opportunity for recovery. Nuclear power stations fit the old-fashioned model beloved of politicians—big plants they can open in a blaze of publicity, with big business driving the industry so politicians don’t have to worry about the detail. Even the ongoing conflict over uranium mining and nuclear power fits the outdated model

that ‘progress’ involves overcoming the ignorant opposition of the masses by applying sophisticated technology and political power.

Even within the renewable energy industry, there will be dramatic change. As renewables move into the mainstream, the small, innovative businesses that have been the backbone of the industry will face new challenges. Big business is already moving in, as exemplified by Canon’s move into PV cells. Access to capital and market power will be increasingly important. Small businesses will have to grow rapidly, form strategic alliances, and find market niches if they are to ride this next wave of development.

Page 40: Pears Report Collection

Pears Report Collection

40

Mainstreaming renewable energy: what’s involved?

reliability of renewable energy sources would make renewables unworkable and, in many cases, potentially unsustainable. For example, widespread use of wood in open fires to heat homes would rapidly deplete fuelwood resources—and cause major urban air pollution problems. An inefficient solar car would take a lot longer than the four days taken by Honda’s ‘Dream’ to travel from Darwin to Adelaide.

Serious application of energy and resource-efficient technologies would cut Australia’s energy requirements to less than a third of today’s level over the next few decades. This sounds surprising to many people and impossible to some, but consider some examples. Amory Lovins’ hypercars will carry families while consuming less that two litres per 100 kilometres—while a Commodore uses 12 L/100 km. An average Australian fridge consumes more than 800 kilowatt-hours of electricity each year, while best existing technology can provide the same service using less than 200 kWh and optimum technology could use less than 50 kWh. Ford recently replaced five boilers and 22 kilometres of steam pipes at its Broadmeadows factory with point-of-use heat sources—and cut that component of its gas consumption by 75 %.

If our target is to supply around a third of today’s energy consumption—all that an energy-efficient Australian society would need, the good news is that renewables are already more than a quarter of the way there!

Alan Pears reveals some astonishing figures on Australia’s energy consumption, and some ways forward for renewables and energy efficiency.

READERS of ReNew see renewable energy as a key element in a sustainable energy future. The Australian Government, in its December 1996 Green Paper on (un)Sustainable Energy, took the position that renewables would continue to play a minor role in Australian energy supply for decades to come.

Who is right? And what would be involved in placing renewables in the energy mainstream? This article takes a brief look at how renewables—with complementary energy efficient technologies—could deliver most of Australia’s energy. It highlights possibilities, rather than trying to predict the future. And, in such a brief article, it cannot claim to be comprehensive.

Some backgroundAustralians spend around $35 billion on energy each year, more than half of this being for transport fuel. They also spend more than $20 billion constructing buildings. Households spend more than $1.5 billion each year on major appliances. Around $15 billion is spent buying new cars. The renewable energy industry has recently been valued at around $800 million each year.

Superficially, renewables look quite small. But:

• wood and bagasse (sugarcane waste) used in Australia displaces the equivalent of around $1.5 billion worth of natural gas each year

• hydroelectricity replaces coal-fired electricity worth around $500 million each year

• Australia’s annual solar energy resource is 16,000 times its annual primary energy use

• Australia’s total fossil fuel and uranium resources are equivalent to less than 13 days’ sun falling on our land mass. Clearly the long-term financial value of Australia’s renewable energy resources far exceeds the value of its non-renewable energy resources.

Less than a fifth of Australian energy is supplied by electricity. Transport, provided mainly by oil, consumes 37 %; heat used by households consumes 7 %; and industrial and commercial heat consumes 38 %. Yet much of the focus of the Australian renewable energy industry is on electricity supply.

Renewable energy supplies 9 % of Australia’s energy requirements (as recorded by ABARE, the government energy forecaster). Almost a quarter of this is in the form of hydroelectricity, a third from bagasse and over 40 % from wood.

Renewables in a sustainable futureIncreasing the use of renewables depends on application of very-high-efficiency technologies and sophisticated electronics. Without these complementary technologies, the cost and

Featured in: ReNew 61, October – December 1997

Page 41: Pears Report Collection

Pears Report Collection

41

“Australia’s total fossil fuel and uranium resources are equivalent to less than 13 days’ sun falling on our land mass.”

able to buy super-efficient products and reliable, effective renewable energy technologies backed-up by competent, professional businesses

• appropriate methods of comparing the costs of options on a fair basis

• clear and fair rules (not yet achieved under the National Electricity Market) which make the real cost of supply visible, and allow fair access to markets

• where it can be shown that subsidies for fossil fuel use continue, compensating assistance to promote commercialisation and application of renewable, efficient systems with a view to reducing total community cost

• investment in technologies which make sense for existing energy suppliers and users, but which help smooth the path for renewables. Energy-efficient equipment obviously fits this criterion, but other possibilities include dispersed storage (with ultra-capacitors, flywheels or advanced batteries such as the zinc-bromine and vanadium redox systems being developed in Australia), cheaper grid-interactive inverters, wood gasifiers, multi-fuel-fired boilers and cogeneration systems.

Let’s stretch our minds to develop a picture of a renewable, efficient energy system which initially supplements, then replaces, our present one. And we should be thinking in terms of spending tens of billions of dollars—because that’s what is now spent each year supporting environmentally-unsustainable energy infrastructure! S

TransportMore than a third of our energy requirements are for transport. How can renewables deliver these services? They must build on a base of strategies that reduce the need for travel, such as sensible urban planning and increased use of telecommunications. Options include:

• ethanol: new processes that utilise crop and plantation wastes mean that the traditional concerns regarding potential conflict between food and fuel production are much reduced, while ethanol production improves the economics of plantations. Recent studies indicate that renewable ethanol could be cost-competitive with fossil fuels within a decade

• other fuels from crops, such as vegetable oils and their derivatives: rapid development in biotechnologies and techniques such as emulsification underpins development of these options

• renewable electricity, which can drive conventional trains and trams, as well as a wide variety of vehicles from electrically-assisted bicycles to cars and trucks

• hydrogen from renewable sources: improving storage technologies, better fuel cells and very-fuel-efficient vehicles are all making this option increasingly feasible.

HeatAround 45 % of Australian energy supplies heat at temperatures varying from a few degrees above ambient to very high temperatures. Energy-efficient technologies and improved processes are both reducing the amount of heat needed and delivering heat more efficiently.

Solar building design, solar water heaters, wood and bagasse already provide large amounts of heat. Solar thermal technologies are becoming cost-effective for a wide range of applications, while biomass gasification, energy from waste and other options are beginning to look attractive.

Where biomass is used for large-scale energy supply, it is important to ensure that it is used sustainably—Australia’s existing fuelwood use may not yet achieve this.

ElectricityThe range of renewable energy technologies that can supply electricity seems to expand daily, and their economics continues to improve. When these technologies are combined with energy-efficient appliances and equipment, and the benefits of dispersed locations (including higher reliability, lower transmission and distribution costs and losses) are considered, they will be able to satisfy our needs for energy services cost-effectively.

How do we mainstream renewables?All this shows that it is feasible to satisfy our energy needs through energy efficiency and renewables. But how do we make it happen? Clearly, we have to divert some of the billions of dollars spent each year on buildings, appliances and infrastructure to investment in systems that either complement or use renewables.

We need a comprehensive framework that takes us down the sustainable energy path, including:

• the right products, technologies and services: consumers must be

Page 42: Pears Report Collection

Pears Report Collection

42

Will we have a fair and competitive electricity market?

cogenerators or renewable energy suppliers, to pass through savings on transmission charges

• review the complexity of technical standards and produce guidelines on the level of compliance appropriate to different participants

• require existing equipment to be upgraded to meet the standards new equipment must meet

• ensure the network management company’s determinations on network augmentation specifically consider the merits of alternatives to network augmentation (for example, generation and demand-side options).

These are all important steps towards a fair market. However, they do not provide any incentives for environmentally preferable energy options. Further, many aspects of the electricity industry will still be covered by state regulators, or will be in the hands of ‘the market’.

Why has it taken so long to get a fair deal? The guidelines given to the developers of the electricity market in 1992 explicitly required consideration of environmental issues and sustainable energy solutions. In particular, the objectives and government commitments made in the National Greenhouse Response Strategy (1992) and the National Strategy for Ecologically Sustainable Development (1992) were meant to be applied. The

Alan Pears looks at the ACCC’s response to the National Electricity Code, and the factors limiting energy sustainability.

SUPPORTERS of sustainable energy solutions can breathe a tentative sigh of relief now that the Australian Competition and Consumer Commission (ACCC) has issued its draft determination on the National Electricity Code and associated issues. Its findings are on the internet at www.accc.gov.au.

Without the ACCC, new entrants to the electricity market—especially small generators and those marketing energy efficiency—would have been heavily disadvantaged by distortions built in to the new arrangements. Of course, the ACCC has, in large part, been responding to excellent submissions and lobbying from individuals such as the Alternative Technology Association’s Michael Gunter, the Australian Cogeneration Association and the Sustainable Energy Industries Council of Australia.

What is the ACCC doing? The ACCC has an oversight role, to ensure that the frameworks and operation of electricity markets comply with the Australian Government’s competition policy and adequately protect consumers’ rights.

With regard to the electricity market, the ACCC has found many failings, and has published a long list of issues to be addressed before it will approve the market mechanisms. These include:

• review of allocation of transmission costs. In the draft Code, much of the cost was allocated without consideration of distance between generator and user. So small-scale distributed generation would not gain full recognition for its contribution to reducing transmission and distribution costs

• provide greater independence and more powers for regulators, including requirements for greater disclosure of information, ability to require separation of transmission, distribution and retailing (for example, so distributors cannot subsidise retailing activities to discourage new market entrants)

• provide a clear right for independent generators to bypass the grid, so existing powerline owners cannot exploit small generators and their nearby customers

• limit the timeframe over which States can apply special conditions that lock-out competition

• include provisions allowing distributors to negotiate with small generators distributed around the grid, such as

Featured in: ReNew 62, January – March 1998

Page 43: Pears Report Collection

Pears Report Collection

43

“A consumer who saves energy, or who replaces grid power with renewable energy, now saves around half as much per unit of electricity as under previous tariffs.”

the first year. How’s that for a strategy to discourage energy efficiency and competing energy sources!

It would be simple to require that all network charges be based on the previous month or quarter’s peak demand—as occurs in New South Wales: then consumers who reduce their peak demand would benefit in the next bill period. But who will make sure this happens?

As the market develops, we can also expect to see other strategies, such as:

• loyalty schemes—bonus ‘frequent plug-in points’ for high usage!

• integrated marketing packages that cover electricity, gas, water, home insurance and home loans in ‘one convenient monthly payment’ (so you can’t really tell how much each bit costs)

• more electricity costs less per unit• discounts for consumers who use lots

of power, but not at peak times• special deals—Eastern Energy in

Victoria has already been offering $300 worth of free electricity to buyers of electric reverse-cycle air conditioners.

The scope for powerful vested interests to use electricity markets to discourage sustainable energy solutions is enormous. The question is, who will make sure sustainable energy is protected and encouraged? Only the New South Wales Government seems to have given any consideration to this critical question. S

National Grid Management Council and other key players largely ignored these requirements. And governments (with the conspicuous exception of New South Wales) failed to hold them to account.

Consultation with the vast majority of electricity consumers has been all but non-existent: only technical and financial experts funded by large organisations have been able to understand the complex debate. The aura of complexity has also discouraged the media from reporting on the processes. So the community has not been in a position to demand accountability.

One cost of the lack of consideration of energy efficiency and renewables has been that, during industry restructuring, much of Australia’s infrastructure supporting these technologies has been dismantled or cut back. For example, in Victoria the $10 million per annum SEC demand management program was stopped in 1994, Energy Victoria’s meagre $4 million budget was cut by 40 %, and the proposed Toora windfarm was cancelled—meanwhile, consultants advising the Victorian Government on electricity industry restructuring were paid $113 million. Nationally, we have seen the Energy Research and Development Corporation shut down and energy-efficiency programs slashed. So, even if the ACCC can sort out the problems, development of sustainable energy industries has been set back many years.

Given this history, I suppose we should

be grateful that the ACCC has taken a stand, even if it is five years down the track...

Will the ACCC’s efforts be enough? As many bureaucrats and business people know, ‘the devil is in the detail’. That’s a real worry for sustainable energy industries.

Since many sustainable energy options will be smaller than the minimum 30 MW capacity required for full market participation, they will often deal with distributors and/or retailers outside the boundaries of the main electricity market. These arrangements may vary from state to state.

The structures of energy tariffs will also influence the market potential for energy efficiency and renewables. For example, in Victoria, customers already participating in the electricity market have discovered that more than half of their total electricity bill now consists of ‘network charges’ and less than half is charged as a cost per kilowatt-hour.

These network charges are based on previous annual peak demand, not ongoing monthly peak demand. As such, they do not vary with usage. So a consumer who saves energy, or who replaces grid power with renewable energy (or natural gas), now saves around half as much per unit of electricity as under previous tariffs until the electricity contract is renegotiated. This halves the consumer’s financial return from sustainable energy options for at least

Page 44: Pears Report Collection

Pears Report Collection

44

Australia’s first real steps towards greenhouse response?

builders and developers now use such tools to enhance profits. Development of improved window systems (and window energy rating systems), improved insulation systems and new materials means builders have much more flexibility to achieve energy efficiency.

Passing the buckThe appliance and equipment industries have realised that large trading blocs, particularly Europe, are introducing energy performance standards: if Australia does not match them, our markets will be swamped by cheap, sub-standard product—and local industry will suffer. So the buzz word is ‘harmonisation’. And energy labelling has proved itself as an effective marketing tool: environmental performance is becoming a key requirement for sales success.

Lastly, the community—and many within business—have signalled that they want action on global warming. There is widespread embarrassment at Australia’s international position, and recognition that there is a fundamental contradiction between this position, Australia’s abundant renewable resource endowment and a vision of Australia as a ‘smart country’.

The outcome of these shifts is that governments and the bureaucrats that advise them are reassessing the state of the game. Governments and bureaucrats are very risk-averse. When they see a conflict between green groups and business, or even between the broad community and big business, they are

IT IS tempting to use this column to review the processes leading up to, and outcomes of, the Kyoto conference on global warming. But it’s too early in the New Year to get depressed. Instead, this column looks at some underlying changes in attitudes to greenhouse response within business and government.

In the lead-up to Kyoto, the Australian Government has been forced to make substantial public commitments to greenhouse emissions reduction strategies (summarised in the Department of Primary Industries and Energy’s Australian Energy News, Dec 1997), while the Labor Opposition (which increasingly looks like being the post-1999 government) has committed itself to stabilisation of emissions at 1990 levels or better. Other parties to the Convention—who are acutely aware that Australia was let off very lightly at Kyoto in the interests of achieving global consensus—will carefully monitor Australia’s performance, and apply pressure if we don’t deliver.

Of course, cynics might note that many of the government’s commitments simply replace programs it cut in previous budgets. We have seen many times how effectively entrenched interests can delay and block implementation of programs they perceive to be threatening to them, regardless of the benefits to the Australian community and the environment.

But there are some important shifts in the balance of the game, which may provide grounds for a reduction in the level of pessimism.

The resource industries, which are

international businesses, recognise that Australia must be seen to play its part in greenhouse response if their businesses are to minimise the risk of trade sanctions and maintain investment. Yet they do not want to carry the burden of response. So they are actively supporting introduction of interventionist strategies such as best-practice performance standards for buildings, appliances, equipment and vehicles: they want households and small business to do their bit.

There are also some splits in traditional political alliances. The cogeneration industry and the gas industry see themselves as potential winners from greenhouse response, so they are distancing themselves from the coal industry. Within the electricity industry, the increasing political strength of distributors and retailers relative to power generators (mostly coal-fired) is opening a gap: distributors and retailers are happy to sell ‘greener’ power—as long as it is profitable. The expected emergence of ‘multi-utilities’ which will sell electricity, gas and anything else that customers want, will further open up scope for greenhouse emissions reduction—if the market rules are set appropriately.

Entrenched interest groups in the building industry, who have successfully blocked most past efforts to improve building energy efficiency, now have experience of using tools such as House Energy Rating systems. They have found the reality of energy-efficient building design to be much less traumatic than they expected: indeed, the smart

Featured in: ReNew 63, April – June 1998

Page 45: Pears Report Collection

Pears Report Collection

45

“...cynics might note that many of the government’s commitments simply replace programs it cut in previous budgets.”

less than enthusiastic in progressing new policies and programs: they would rather be seen to support ‘the economy’ than community benefit. And they know how effectively big business can use the media.

When powerful business groups begin to split, it is safer for government to respond to community concerns. For example, now the support of the resource industries for building performance standards can be used to balance resistance from the building industry. Cautious bureaucrats and politicians will now try to position themselves in a new ‘safe’ area—this means support for programs and policies that were previously see as ‘risky’. Of course, a ‘safe’ strategy still involves trying to find compromises that will offer something to each of the powerful groups, so it doesn’t mean we’ll see aggressive pursuit of radical policies. But it does mean that we can expect the debate within government to shift from whether we pursue emissions reduction strategies to how, when and how far we drive them.

Supporting renewables and energy efficiencyA really big challenge is to focus governments on supporting development of industries that will underpin our future success, such as renewable energy and energy efficiency. Part of the problem here is the belief that support for these industries will somehow hurt existing resource-based industries—and anything that hurts the powerful resource industries cannot be actively supported by government. This seems to be based on the assumption that we have a pie of fixed size, so giving a larger piece of the pie to sustainable energy industries

will leave a smaller slice for the resource industries. To overcome this blockage, we need to identify areas where development of sustainable energy options helps these powerful industries, does not adversely affect them, or helps them reposition

The Kyoto Protocol

The Protocol prepared at Kyoto commits developed countries to achieve an overall 5 % reduction in greenhouse gas emissions relative to 1990 levels by 2010 (actually the average for 2008 to 2012). Gases included in the agreement are the major gases, carbon dioxide, methane and nitrous oxide; and the less-significant gases hydrofluorocarbons (replacements for CFCs), perfluorocarbons (mainly from aluminium production) and sulphur hexafluoride. A key clause for Australia is that countries for whom land-use change and forestry emissions were a net source of emissions in 1990 can include these emissions in their baseline year amount, and reductions in these net emissions can be included in calculations of future emissions levels.

Each developed country has its own emissions limitation commitment, with European Union countries being required to achieve an 8 % cut, the US 7 % and the Russian Federation 0 %. Australia, which is allowed an 8 % increase (plus a bonus allowance because of the land-use change clause) is one of three countries allowed to increase emissions: the others are Iceland (10 %) and New Zealand (1 %).

The Protocol includes scope for trading of emissions between countries, and joint achievement of requirements where agreements exist (for example, the European Union ‘bubble’). A limited framework for developed countries to assist developing countries to reduce emissions—with credits going to the developed country—is also included.

Many of the details and operational arrangements remain to be specified in detail in future negotiations. Australia’s 1990 greenhouse gas emissions (including forestry and land-use change) were just under 500 million tonnes of carbon dioxide equivalent, of which almost a fifth (93 Mt) was the net effect of forestry and land-use change. By 1995, forestry and land-use change net emissions had already declined by 36 Mt. If Australia managed to achieve net zero emissions from forestry and land-use change, while achieving its Kyoto requirement of an overall 10 % increase from 1990 emissions levels, emissions from sources other than forestry and land-use change could rise by around 28 %, while almost every other developed country will have to achieve reductions. It is difficult to understand how the Australian Government can portray this outcome as a victory for the environment!

themselves for future success. Shell, BP, BHP and others are beginning to identify such opportunities, so we are already progressing on this front. S

Page 46: Pears Report Collection

Pears Report Collection

46

A sustainable energy future

development program for ‘efficient’ brown coal-fired electricity. Later, that government ‘wrote down’ the value of rural electricity supply infrastructure by $400 million, so the new electricity companies could keep rural electricity prices lower. These and other actions have created enormous barriers to the development of sustainable energy in Victoria. The buyers of fossil fuel power stations have been prepared to borrow billions of dollars to invest in them, yet most refuse to invest even a few million dollars in sustainable energy: they claim it’s too risky!

Some people are already suggesting the government’s pre-Kyoto commitment to generation of just 2 % of electricity from new renewables by 2010 is too costly and difficult. In reality, just expanded cogeneration in the sugar industry (using bagasse, the waste fibre) could come close to this target at competitive costs. If fair credits were given for savings on transmission and distribution costs for electricity generation close to the source, wind, biomass and solar thermal could deliver enough electricity to easily exceed this modest target at competitive prices, while rebuilding rural economies. But most industry players and governments are too concerned with generating profits from existing coal-fired plant to think much about the future.

What is missing is commitment, will and positive vision. And, tragically, I can’t see that appearing, despite the pressures created by the Kyoto outcomes—the aim will be to do the minimum that is necessary. So I reluctantly support

RECENTLY, we have seen two very important innovations in renewable energy; GreenPower and a new generation of small, modular grid-interactive inverters. These innovations could play key roles in re-shaping our energy future. But their significance goes far beyond the obvious.

GreenPower schemes involve an electricity consumer paying a slightly higher price per unit of power in exchange for a commitment by the electricity supplier to produce a specified proportion of the power used by that consumer from renewable energy sources. The New South Wales Government’s Sustainable Energy Development Authority has introduced an accreditation scheme, and all NSW electricity suppliers now offer some kind of GreenPower scheme: within a few months of the program’s launch, more than 15,000 customers have joined. In contrast, in Jeff’s Victoria, the NSW GreenPower schemes are illegal until 2001 (green groups are challenging this and it looks as though the rules will be amended).

GreenPower schemes provide opportunities for individual electricity consumers to make a practical commitment to renewable electricity in a very convenient and cost-effective way. Their success should improve the economics of renewables by expanding markets, and help overcome the reluctance of the electricity industry to develop sustainable energy.

Electricity consumers in most developed countries, including Australia, have strongly supported moves towards

an energy-efficient, renewable energy system for decades. Yet governments and electricity suppliers have, in most cases, done little to implement the wishes of the people who pay for the electricity and vote for governments. Australian politicians have built more fossil-fuelled power stations to win votes in marginal electorates and, especially since the emergence of pseudo-competitive electricity markets, most electricity suppliers have paid lip service to sustainable energy while cranking as much power from polluting coal-fired plant as they can.

In this context, we might ask why our leaders and electricity industry have to be bribed with GreenPower revenue to do what the community wants. The reality is that both government processes and competitive markets have failed to deliver (with a small number of exceptions) on sustainable energy. Australians spend around $12 billion each year on electricity, so investment in a strong strategy supporting progressive introduction of sustainable energy options would be trivial in cost relative to this amount—and its cost would be recovered over time. In fact, it would really just be recovering some of the existing subsidies for fossil fuel power, estimated by a NIEIR (National Institute of Economic and Industry Research) report for the Environment Department at well over $2 billion each year.

The bias is blatant. In Victoria, the Kennett government withdrew support for the Toora windfarm while continuing to support a $100 million research and

is in our hands

Featured in: ReNew 64, July – September 1998

Page 47: Pears Report Collection

Pears Report Collection

47

electricity suppliers. GreenPower and micro-inverters are two important tools in the struggle between the past and the future. The eventual outcome is almost inevitable. The uncertainties are how much time, money and emotional energy will be wasted as we move towards a sustainable energy future, and whether we will be too late.

Post script For those who think the emerging competitive markets will create opportunities for sustainable energy, stormclouds are gathering. Recently, one electricity supplier admitted it is evaluating 30 services that could be bundled with electricity supply for households and small business, who use over half of Australian electricity. So the price of electricity could be lost in ‘one easy monthly direct debit’ that covers electricity, gas, home and car insurance, water and phone services—and offers loyalty points, too. So much for markets providing clear price signals! S

the view that we should get out there and support GreenPower, and deny the electricity industry an excuse to further delay introduction of renewables. Maybe one day our leaders and electricity suppliers will hear us.

This brings us to modular grid-interactive inverters, which are beginning to appear on the market. An Australian company, Pacific Solar, is developing a product, while an imported ‘micro-inverter’ with a capacity of 100 watts is being marketed by Integral Environmental Energy: these are two of the few new players in the electricity industry that seem genuinely interested in renewables. These products allow individual PV panels or other small-scale renewable technologies to be connected to the grid via a standard power socket. This is a tremendous achievement. This innovation highlights the failure of the mainstream electricity industry to deliver on sustainable energy, while it provides electricity consumers with a useful tool to teach electricity suppliers a lesson.

The most cost-effective way to introduce renewables into an electricity grid is usually via reasonably large installations, such as 5 MW biomass cogeneration systems, farms of 500 kW wind generators or 100 kW PV arrays. This takes advantage of economies of scale in both construction and operation. But to do this requires commitment from major energy suppliers, financiers and/or governments, which we clearly do not have (again, with a few exceptions).

However, the emergence of micro-inverters opens up new opportunities. It will now be possible to gain some economies of scale from mass production, so this technology can be applied to large PV installations designed in modular form. And the prospect of the $500 plug-in PV module as a Christmas present for the person who has everything is very

close. Similarly, it is now possible to look at every lamp post as a potential tower for a small wind generator or PV panel.

Widespread adoption of dispersed micro-generation technologies could cause problems for the electricity industry, as tiny renewable generation systems pop up in all sorts of unexpected places, making orderly planning and management difficult. If so, this is unfortunate, but it is the inevitable outcome of decades of failure by governments and electricity suppliers to listen to the community. The pity is that, if they had been more responsive to the community in the past, the total cost and complexity of the shift to sustainable energy could have been much lower, and it could have happened much faster.

The message in all this is a sad one. The Australian community has been disappointed by the failure of its leaders and its electricity industry to confront the future and deliver on sustainable energy. This means we have to do it ourselves—although we should still maintain pressure on government and

o Electricity retailer EnergyAustralia’s 200 kW photovoltaic solar array at Singleton in NSW would probably not have happened without the right legislation in place and the incentive of the Sustainable Energy Development Authority‘s GreenPower.

Page 48: Pears Report Collection

Pears Report Collection

48

Harsh realities confront the electricity market and its administrators

books reached over 20 years ago. But can Australia and the Earth afford to wait for them to learn?

Pauline Hanson’s popularity in country areas will add to the difficulty of energy market reform. What politician would now have the courage to approve market frameworks that double the price of energy in country areas? Yet that would be a direct outcome of the removal of cross-subsidies and pork-barrelling electricity supply schemes, which is necessary for an efficient market. And it is critical if sustainable energy is to gain fair access to its most cost-effective market opportunities under a market framework.

Maybe a pragmatic and principled path forward will involve both ongoing evolution of market frameworks and commitment of short-term financial and political support of energy options being adversely affected by the ongoing identified market distortions. For example, cross-subsidies to rural energy consumers cost hundreds of millions of dollars each year. A fund of comparable size could be established, and sustainable energy providers could bid for funds to implement projects that would reduce the scale of ongoing rural subsidies. This could lead to a resurgence in rural economies, as many jobs would be created both by sustainable energy projects themselves and the industries they would underpin. As the scale of cross-subsidies declines, the compensating support can be reduced. Isn’t that just the kind of win–win outcome the politicians need?

PEOPLE involved in the sustainable energy industries have known all along that the new ‘competitive’ electricity market was stacked against us. We can all feel a warm glow in our hearts as we find that the bureaucrats and lawyers are beginning to shift ground. It’s a pity we need to repair the damage done to our industries over the years it has taken them to learn from their own experience what we have long tried to explain to them.

In a recent submission to the National Electricity Code Administrator’s (NECA) review of transmission and distribution pricing, Commonwealth Government departments sounded some notes of concern:

“Without attention to these issues [such as cost-reflective transmission charges, non-discriminatory access arrangements and treatment of cross-subsidies] it is unlikely that the environmental benefits which can flow from market reform—including greater penetration of gas, cessation of creation of new excess generating capacity, growth in cogeneration and renewables, greater attention to demand management—will be realised. Indeed, an incomplete market reform process can easily lead to worsened environmental outcomes.”

The submission goes on to lay out what the government expects to emerge from NECA’s review, including more cost-reflective network pricing and fair access to the grid for independent generators. It also admits that existing arrangements include ‘significant distortions’, and urges that these market distortions should be removed as quickly as possible. This

is an admission that almost a decade of economically rationalist effort has failed to deliver a fair, competitive market. The question is whether such a goal is attainable by these means. The bureaucrats’ response is that we just haven’t gone far enough—we have to charge further and faster down the road that they have mislaid so far.

The government itself is being forced to confront the fact that energy markets are not delivering the expected outcomes. Its 2 % renewables target and generation efficiency standards, announced by the Prime Minister before Kyoto, show that it is no longer relying entirely on markets. It can’t afford to: it knows Australia must deliver on its modest Kyoto commitments or face serious international consequences.

Apparently the lawyers (who have profited enormously from the energy industry restructuring) are also learning a few things. According to the latest Cogeneration Association newsletter, a leading lawyer noted at a recent conference that the legal profession was realising electricity and gas had some similar characteristics, and that gas and electricity were interchangeable for many purposes. Soon they may even realise that electricity, gas, renewables and energy efficiency all share common features: they are all means of delivering energy services (cold beers, warm homes, etc). When they come to terms with the principles of energy services, they will have reached the point that readers of US energy efficiency advocate Amory Lovins’

Featured in: ReNew 65, October – December 1998

Page 49: Pears Report Collection

Pears Report Collection

49

(that’s a 50 % tax-free annual rate of return on investment for the life of the saving measure), yet may consider paying for carbon credits to avoid what they believe is the high cost of investing in energy efficiency. It’s a strange world...

For suppliers of renewable energy, gaining access to carbon credits could contribute around 1.1 cents per kWh (assuming US$25/tonne of carbon) of coal-fired electricity replaced. This could tip the balance in favour of development of many renewable energy facilities that are now close to commercial viability. And solar water heaters could be allocated life cycle emissions credits based on the amount of fossil fuel they will displace over their lives, just like the energy-efficient fridge in the above example.

We need to make sure sustainable energy options will be fairly treated in emissions trading schemes, and that business, bureaucrats and politicians understand what a great opportunity sustainable energy options provide to save or make money, develop the economy and reduce greenhouse gas emissions. Given the level of prejudice and ignorance that exists, this won’t be easy. S

Carbon trading—the new cargo cult

Since the Kyoto Climate Change negotiations, there has been a dramatic increase in interest in greenhouse emissions trading schemes, including trading of carbon stored in sinks, such as forests. In principle, carbon trading makes good sense, as it allows the cheapest, easiest options for emissions reduction to be pursued.

But emissions trading threatens to be more like a cargo cult than a rational market. There is a rush to establish rights to emissions stored in forests and plantations, in the hope of large profits from sale of carbon credits. Energy consumers are being mesmerised by the potential of buying cheap carbon credits from forests or countries such as Russia, whose emissions have declined since 1990 due to economic restructuring. This focus on the possible opportunities offered by emissions trading has led many energy users to ignore much more attractive investments in energy efficiency and renewables. Carbon credits will cost money, while sustainable energy options can save money. Yet ignorance and prejudice mean many will miss out on financially attractive opportunities.

What potential benefits do we risk losing? Various sources suggest that emissions credits will be traded at prices ranging from US$5 to $200 per tonne of carbon, with the range more likely to be US$5 to $25. To make comparisons with energy, we need to convert this to carbon dioxide (3.67 tonnes of CO2 contain a tonne of carbon) and to Australian dollars (at US$0.60). At US$5/tonne of carbon, the equivalent is A$2.27 per tonne of CO2, and at US$25 it’s A$11.35 per tonne of CO2. But what does this mean?

Let’s look at an example of an Australian manufacturer of a super-efficient refrigerator that uses, say 300 kWhs per year instead of the average for similarly-sized new models of 900 kWh—saving 600 kWh each year. Over a 15-year life, one fridge would save 9000 kWh. Assuming

an average greenhouse intensity of Australian electricity of 0.9 kg CO2/kWh over that period (10 % lower than the present 1.0 kg CO2/kWh), the efficient fridge will save 8.1 tonnes of CO2.

If carbon credits are worth US$25/tonne of C (A$11.35/tonne of CO2), this energy and emissions saving is worth $92. But who should receive this money, and who can claim ‘ownership’ of the credits so they can be traded—the manufacturer, the appliance buyer, the electricity industry or a broker? If the appliance manufacturer receives the money, it can offset extra production cost involved in making the more efficient product, and improve its profitability.

Also, the householder who saves 9000 kWh will save around $1000 on energy bills over the life of the appliance, and the electricity industry benefits by limiting summer peak demand and will therefore avoid some infrastructure costs (although it will also lose some revenue). This investment in energy savings offers large financial benefits, while paying for carbon credits simply costs money.

Many businesses reject energy savings that repay their cost within two years

Dra

win

g by

Sha

nnon

Spr

oule

Page 50: Pears Report Collection

Pears Report Collection

50

Time for GreenGas?

benefits of using biogas that its major competitor, the electricity industry, is using landfill gas to generate electricity for GreenPower schemes without any competition from gas suppliers! While it’s a good idea to collect and use landfill gas from existing landfills, it is difficult to capture all the gas generated. So some methane (a very greenhouse-active gas) escapes into the atmosphere. It is preferable to process organic material in properly designed biogas digesters.

Wood gasification, which involves heating wood in an oxygen-starved environment, produces a mixture of combustible gases, including carbon monoxide, methane and hydrogen, that can replace natural gas. This process is similar to the gasification of coal, which was the main source of gas before natural gas became widely available.

New developments, mainly aimed at developing countries, have led to design of more efficient modular gasification systems. It would be cheapest to use this technology at specific sites where equipment could be modified to use this gas, or even in mini-grids in rural towns, near sources of wood. This could help reduce air pollution problems caused by wood-burning in some rural towns where natural gas is not available: farm forestry and agricultural wastes could provide the feedstock. Even in urban areas, surprisingly large amounts of wood (for example, demolished houses, old fences and trees) are dumped in landfills: this could fuel wood gasifiers.

Solar reforming of natural gas is an interesting future option for integrating renewables and natural gas. ANU researcher Professor Stephen Kaneff

On the heels of Melbourne’s gas crisis, the natural gas industry could soon face another image crisis if it doesn’t begin the shift to renewables, argues Alan Pears.

IN LINE with this columnist’s view that one path to mainstreaming renewables involves linking them to existing fossil fuel-based systems, in this issue I look at options for the gas industry to take up renewable energy.

The gas industry heavily promotes the fact that it supplies a low-greenhouse-impact alternative to electricity produced mostly from coal. But with the introduction of GreenPower schemes, as well as high-efficiency electrical technologies such as microwave ovens and heat pumps, the greenhouse advantage of gas is being undermined.

The gas industry also has something of an environmental credibility problem when it encourages widespread use of inefficient central heating systems (which are often as little as 30 % efficient—70 % of the gas is wasted) and poorly insulated storage water heaters with pilot lights (which, for small households, can have efficiencies of as low as 35 %).

Also, many people see gas as just a short-term energy solution: Australia’s gas resources are much smaller than our coal resources. However, the gas industry argues that existing reserves are sufficient for several decades, and that much more gas will be found. Even so, natural gas, like all fossil fuels, is a finite resource. And burning it generates greenhouse gas, even though it is not as bad as other fossil fuels.

Windpower, electricity from solar cells,

and electrically-boosted solar water heaters are usually among the first options that come to mind when thinking about renewable energy. Gas from renewable sources is rarely recognised as a possibility.

So, if the gas industry expects people to view gas as a long-term, environmentally-sustainable energy source, it has some work to do. First, it must manufacture and market much more efficient gas appliances, which should be better suited to solar boosting.

Second, it needs a renewable energy icon to match GreenPower— GreenGas. Like GreenPower, GreenGas would involve a gas consumer paying a higher price for gas in return for a commitment from the gas supplier that it would produce an equivalent amount of gas from renewable sources. A number of renewable sources of gas exist.

The most obvious option is biogas from organic wastes (from food processing factories, agriculture, sewage or municipal waste), which produces methane-rich gas. This could be processed to mains quality or used as an alternative to natural gas at sites where equipment has been modified to run on biogas. It may also be possible to mix a small proportion of partly processed biogas with mains gas while still keeping gas quality within acceptable limits. Biogas production is a well-proven technology, widely used around the world.

Landfill gas is biogas generated by breakdown of organic matter in landfills: it is now being collected at many landfills around Australia, then flared, burned as fuel, or used to generate electricity. It is indicative of the gas industry’s lack of awareness of the potential public relations

Featured in: ReNew 66, January – March 1999

Page 51: Pears Report Collection

Pears Report Collection

51

“One study has estimated that if all urban green waste and organic waste was used to generate biogas, its energy content would equal the present gas consumption of all Australian households.”

and organic waste was used to generate biogas, its energy content would equal the present gas consumption of all Australian households, so this is a substantial resource.

In country towns not on the main gas grid, mini-grids delivering biogas or wood gas to high-efficiency gas appliances could help solve air pollution problems caused by wood-burning heaters. These systems could create local employment and reduce the environmental impacts of fuelwood harvesting, which can include damage to animal and plant habitat and over-harvesting of rare tree species.

Let’s hope the gas industry wakes up from its complacency on greenhouse issues soon, and starts to pursue GreenGas and other strategies like those outlined here. It would be good for both the gas industry and the environment. S

has pointed out that concentrating solar collectors could convert a mixture of natural gas and carbon dioxide (as produced by many gasfields) into a mixture of carbon monoxide and hydrogen. This gas, when burned, produces more energy than the original natural gas, reflecting the extra solar energy input. Such plants could be located at gasfields in sunny regions, such as the Cooper Basin and the North West Shelf.

Hydrogen gas can also be produced from renewable energy sources, and many books have been written on the potential of the ‘hydrogen economy’. Australia’s sunny outback areas are prime candidates for production of solar hydrogen.

To complement these renewable sources of gas, the gas industry could establish a system of greenhouse offsets, like the Victorian Greenfleet scheme. The Greenfleet scheme involves payment of an annual tax deductible fee of $25 which funds planting of sufficient trees to absorb the carbon dioxide generated by average car usage over a year—around 4.5 tonnes of carbon dioxide. At this price, the annual cost of offsetting greenhouse gas emissions from a family gas hot water service would be around $8 (tax deductible), cooking $2, space heating $10 and central heating $20. And contributions would be supporting re-afforestation as well as storing greenhouse gas.

Creative people in the gas industry could make sure that GreenGas schemes meshed in with other positive environmental programs, to maximise PR benefits and minimise costs. There are lots of possibilities.

There is scope for the gas industry and local government to work together

to generate GreenGas. Landfill costs are rising, so councils are spending increasing amounts of money collecting and composting green waste as an alternative to landfilling it: composting this material wastes a potentially valuable energy resource which could fuel biogas digesters.

Organic waste is now a significant contributor to landfill, and food wastes from restaurants are costly and difficult to dispose of safely. Many local governments also run sewage plants. Since many councils already collect this organic material, they could simply divert it to biogas plants provided by the gas industry. And the councils could then use the soil conditioner produced as a by-product of gas production, and could even use some of the biogas to fuel council vehicles and operate community facilities. One study has estimated that if all urban green waste

o Tapping methane from an old landfill tip at Lucas Heights in Sydney. The plant uses the methane to generate electricity.

Page 52: Pears Report Collection

Pears Report Collection

52

1998: a year of shifting sands

might not deliver good environmental outcomes, and that intervention might be necessary. What a surprise! In fact, the new electricity markets have been a major force against good environmental outcomes: since 1995, growth in consumption of electricity from brown coal (our most greenhouse-intensive energy source) has rocketed to 7.7 % per year, while growth in gas consumption has fallen to 1.5 %!

It seems that unsustainably low electricity prices finally bottomed-out in 1998, and most industry observers are predicting significant increases, which will help the competitiveness of sustainable energy options. However, we also saw the emergence of anti-competitive energy tariffs, such as ACTEW’s SuperSaver, which have high fixed quarterly charges and low unit prices, and undermine the financial benefits of reducing conventional electricity consumption.

1998 also saw an unprecedented gas crisis in Victoria, as supplies were cut off for up to two weeks. But the electricity industry could take little joy from this situation, because blackouts occurred when people began switching on their electric heaters as the weather turned chilly. The lesson for many people was that you couldn’t really rely on any centralised energy system any more! Another plus for sustainable energy, reflected in strong growth of solar water heater sales after the crisis.

In New South Wales, the Sustainable Energy Development Authority continued to deliver aggressive programs across the spectrum of sustainable energy. After years of budget cuts, Energy Efficiency Victoria (formerly Energy Victoria) finally

Alan Pears reviews the past year of sustainable energy developments in Australia, and asks: what will 1999 bring?

AS WE move into the New Year, it’s useful to look back to see the changes of the past year, and to apply this knowledge to the coming year.

The outcome of the Kyoto climate change convention was a catalyst for change. While many people (with good reason) criticised the Australian Government for negotiating an easy emissions target, the outcome was actually reasonably good for sustainable energy. Government spokespeople pointed out to the anti-greenhouse lobby that Australia had negotiated the best deal it could. The consequence of the outraged reactions this provoked from some other countries was that Australia had to deliver on that target or risk being first to suffer as an example to others who might fall short of their commitments. Since many within government and industry really believe we have a difficult target, they have committed to undertake some fairly aggressive action—at least by past Australian standards. This has been reflected in a number of renewable energy programs, including a mandatory 2 % additional renewable electricity generation target by 2010 and pressure on the building industry to introduce energy performance standards.

Of course, many vested-interest groups are working to slow greenhouse response, and some have joined the emissions trading cargo cult. But the warmest year on record, and a remarkable string of

weather-related disasters have kept most people focused, and few now believe that the global warming issue will go away. The key change is that most people have now moved out of denial into reluctant acceptance that we must do something. The smart people are busy positioning themselves to profit from greenhouse response, which must involve a sustained shift from fossil fuels. The main concern regarding the Kyoto protocol is what will happen if a large proportion of the signatory countries look likely to miss their targets: certainly the anti-greenhouse groups within Australia are hoping this will happen, so the pressure on Australia will be eased. Unfortunately, it will probably take ongoing unusual weather events and rising temperatures to maintain sufficient pressure on reluctant politicians and industry for serious action.

1998 saw the remarkable growth of GreenPower schemes, with almost 30,000 electricity consumers joining up. As an employee of one electricity retailer put it recently, having a GreenPower scheme is no longer a competitive advantage: not having one is a competitive disadvantage. And even in darkest Victoria, GreenPower schemes were finally declared legal in May, when the government overruled the Regulator General, who had ruled that they contravened the legislation governing operation of the electricity market.

The restructuring of the energy sector continued through 1998. But the blind belief that markets would solve everything began to wear thin. Commonwealth Government bureaucrats, as well as market participants, finally admitted that the new market framework

Featured in: ReNew 67, April – June 1999

Page 53: Pears Report Collection

Pears Report Collection

53

PV program. Several retailers seem to be genuinely enthusiastic promoters of GreenPower schemes.

The sustainable energy industry also faces some challenges in 1999. We need to be putting in place the infrastructure to support rapid expansion, such as training programs, streamlined institutional arrangements (such as planning guidelines for installation of wind generators), improved quality control systems, and so on. We have to actively identify the niches where sustainable energy is cost-effective and make sure these opportunities are taken up—and complain loudly if they’re not. We also have to educate the community to recognise that the age of sustainable energy has finally arrived, and that they have the right to be part of it. S

* An embedded generator is any technology that generates electricity which is fed into a distribution network, as opposed to a transmission network. Generally under 30 MW, embedded generators are synonymous with ‘distributed generation’. Examples include the Breamlea wind generator in Victoria, and the gas cogeneration plant at the Australian Institute of Sport’s swim centre.

received some extra money as part of the Victorian Government’s $15 million-per-year greenhouse strategy. The Queensland Labor government has moved to reintroduce renewable energy incentives removed by the previous government. And the Commonwealth is actively implementing its $180 million package announced in November 1997. Funding still falls far short of what is justified—even SEDA’s funding is very small, at only about a quarter-of-a-percent of the money spent by NSW on electricity and gas—but at least the tide seems to be turning.

Lastly, 1998 saw many tremendous developments in sustainable energy products. In almost every area, we saw a wider range of better-quality, better-performing and often cheaper products being delivered by an increasingly professional industry. The creation of a new industry organisation, the Sustainable Energy Industries Association of Australia (jointly formed by the Sustainable Energy Industries Council of Australia, Solar Energy Industries Association, Renewable Energy Industries Association, Australian and New Zealand Solar Energy Society, Australian Centre for Renewable Energy and the Centre for Applications of Solar Energy) reflects this emerging maturity.

So what can we look forward to in 1999? The scales are finely balanced, so it’s difficult to say. But '99 will bring a number of litmus tests which will show us how serious governments and industry really are.

On the greenhouse front, 1999 should see Commonwealth and state governments acting on their commitments to greenhouse response included in the National Greenhouse Strategy released in November '98. Will we see measures such as the 2 % renewables target, mandatory building performance standards, vehicle fuel consumption labelling and other programs locked in?—or will there be further delays?

In the electricity market, will we finally see fair treatment for small embedded generators*, and new frameworks to encourage bidding of energy efficiency and demand management measures into the market?

With the approach of contestable markets for households and small business consumers, how will electricity retailers act? A ‘worst case’ scenario would see them offering packages of services (such as home insurance, loan repayments, payment of water bills, etc) that obscure the real cost of electricity, or anti-competitive tariffs with high fixed supply charges and low unit charges: these would remove or reduce the incentive to pursue energy efficiency and renewables.

On the other hand, we might see attractive incentives for sustainable energy. For example, Victorian electricity retailer, PowerCor, has recently introduced a solar tariff which offers boosting power at 3 cents/kWh instead of the usual off peak rate of 3.7 cents, and is offering incentives for buyers of approved solar HWS units, while Melbourne retailer, CitiPower, has announced its ‘100 roofs’

o New export products like the Poweron wind turbine, designed and built in Australia, are a sign of a maturing local renewable energy industry.

Page 54: Pears Report Collection

Pears Report Collection

54

Two percent renewables target–fact or fabrication?

More importantly, the government has made a great deal of its commitment to the 2 % renewables target in many publications, such as the 1998 National Greenhouse Strategy and numerous promotional articles. The government has failed to make it clear in this publicity that it believed part of this target could be satisfied by a fossil fuel. It can also be argued that the wording of the PM’s statement clearly specifies a renewable requirement first, then specifies waste fuels: in this context, the objective reader could interpret ‘waste’ as meaning renewable fuels such as organic wastes, as there is no reference to ‘wastes from fossil fuel production’.

It seems that the government is trying to manipulate the 2 % renewables target to benefit the coal industry. Regardless of what we in Australia think of this, the big question is how will the rest of the world react when they find out that the Australian Government is trying to pull a swifty. Our government already has a serious international credibility problem after its performance at Kyoto. Do they want to make sure our name is mud, and undermine our capacity to credibly negotiate on major issues such as emissions trading, joint implementation and the clean development mechanism? Or maybe their PR advisors are so keen to please the coal industry that they haven’t

Alan Pears raises some doubts about the Federal Government’s renewable energy commitment.

IT’S ALMOST 18 months since Prime Minister Howard announced what has become widely known as the ‘2 % renewables target’.

Community consultations were held last May. A working group was set up to sort out the details: it released an interim report last August. A series of workshops were held last November to resolve more issues. Now the rumour is that there will be an options paper released in May, before a decision is made later this year. So the renewable energy industry has to live through almost two years of uncertainty on what seemed like a straightforward commitment.

Even though the government has consistently described this measure as the ‘2 % renewables target’, one option expected to be floated in the options paper is inclusion of coal seam methane (a fossil fuel released as a by-product of black-coal mining). It is even rumoured that there will be a proposal to make the scheme voluntary.

What’s going on here?The Prime Minister’s statement was: “Targets will be set for the inclusion of

renewable energy in electricity generation by the year 2010. Electricity retailers and other large electricity buyers will be legally required to source an additional 2 % of their electricity from renewable or specified waste product energy sources by 2010...”

The Prime Minister clearly said the electricity industry would be legally required to comply. So any move to make the scheme voluntary is a breach of a commitment made in an international arena. A backdown invites the international community to question Australia’s commitment to its Kyoto obligations.

Advocates of inclusion of coal seam methane argue that it complies under the ‘specified waste product’ criterion. They add that collection and use of coal seam methane is a worthy greenhouse measure, which can provide useful energy and avoid leakage of the very active greenhouse gas methane into the atmosphere.

Renewable energy advocates certainly have no problem with a government program that encourages capture and use of coal seam methane: but it should be separate from the 2 % renewables commitment. If coal seam methane is included, it could take up a substantial share of a market niche that was intended for renewables.

Featured in: ReNew 68, July – September 1999

Page 55: Pears Report Collection

Pears Report Collection

55

Victorians will continue to waste natural gas and emit unnecessary greenhouse gases. Indeed, all the new gas supply capacity may well provoke competition to get Victorians to waste even more gas—after all, the owners of these new pipelines and processing plants will have to get a return on their investments.

It’s difficult to create a shared commitment within the energy efficiency industry when it is so diverse—including insulation companies, energy advisors, equipment manufacturers, and so on. Worse still, many of the manufacturers of energy efficient appliances and equipment also make clunkers: they just see themselves as satisfying the various market niches... Oh, for the simplicity of the renewable energy industry!

A serious problem seems to be that most people just can’t imagine that it’s possible to do more with less. Despite the many examples all around them, and exciting visions painted by people like Amory Lovins over the past 20 years, the reality is that most people respond to an energy problem by wheeling in more ‘grunt’. If the house is cold, it’s much more obvious to install a bigger central heater than it is to cut the heating requirements by insulating, draughtproofing and double glazing. I wish we could work out how to change this. Any suggestions? S

Alan Pears recently compiled an issues paper on the potential for addressing the gas crisis through energy efficiency improvement. For copies contact Environment Victoria, Ph (03) 9348 9044.

realised what impact this could have on our future negotiating position.

Dust off your computer keyboard and start lobbying now: you can be sure the fossil fuel industry is working very hard on this one! And if you know anyone involved in international global warming negotiations, you might just explain what’s going on, and suggest that they inform the Australian Government of their folly.

Energy efficiency: the invisible industryMost people have little difficulty identifying the renewable energy industry. They’re the people who make and install solar water heaters, wind generators and wood heaters. The energy efficiency industry is much more difficult to relate to, and that’s a real problem—it’s hard to generate lots of community support for an invisible industry. In addition, most economists and government policy makers are very sceptical about the role it plays. Even participants in the energy efficiency industry itself often can’t see that they’re part of it!

How important is the energy efficiency industry? According to the Australian Bureau of Agricultural and Resource Economics (who can hardly be described as advocates for energy efficiency, if their economic modelling of greenhouse response is any indication), energy efficiency improvement saves Australia billions of dollars every year. An ABARE study of the energy efficiency trends within the Australian economy found that ‘technical efficiency’ improvement reduced Australia’s energy intensity by

6.7 % between 1974 and 1995. That means Australia uses at least $2 billion less energy each year than it would have if this improvement had not occurred. This improvement has also meant we have avoided the need to invest several billion dollars in energy supply infrastructure such as power stations and transmission lines. Just think how much we could have saved if we’d actually tried to achieve efficiency improvements, and governments had promoted energy efficiency instead of energy waste!

But there are no signs that governments around Australia are serious about reinvesting those savings to gain even greater savings. Even New South Wales Government’s SEDA has a budget of only $15 million. When SEDA gets an annual budget of $150 million we’ll know the NSW Government is serious. And NSW stands out as the one government with a commitment to energy efficiency! Too bad for the rest of us.

For example, the Victorian Government, after shutting down the State Electricity Commission’s very cost-effective demand management program in 1994 and halving Energy Efficiency Victoria’s budget, then set up energy markets that encouraged increased electricity sales. Their response to the gas supply crisis has carefully avoided any mention of improving the efficiency of gas use: all the ‘solutions’ involve increased gas supply. Surely this could have nothing to do with the fact that the government was in the act of selling its gas industry—any indication that it might support action to reduce future gas sales would have reduced the sale price! So

Page 56: Pears Report Collection

Pears Report Collection

56

The GST and sustainable energy

of the impacts of the GST, see my submission to the Senate GST Inquiry on behalf of the Sustainable Energy Industry Association, at www.seia.com.au).

These effects mean the revised GST package will increase Australia’s greenhouse gas emissions overall. The impact of the additional renewable energy programs on emissions will be quite small in the medium term—one estimate puts the saving at 5.5 million tonnes per annum by 2010 (1 % of total emissions), because they are building from a very small base. Senator Hill has admitted (Four Corners, 28 June) that the GST package will increase transport greenhouse gas emissions by an extra 2.2 % by 2010. And the impact of proposed coal-fired power stations (see below) will swamp the effect of expanded renewables.

At a time when the government is becoming increasingly nervous about the difficulty of meeting our Kyoto target, it is bizarre that it should make the task even more difficult. But that’s politics, I guess.

The ‘market solution’—creating a Kyoto crisisThe latest consultancy study for the government on the greenhouse impact of creation of electricity markets shows that, in 1998, the effect of markets was to increase Australia’s greenhouse gas emissions by around eight million tonnes of CO2 per year above previous expectations. Not a very impressive performance-based outcome from the centrepiece of our 1992 National Greenhouse Response Strategy. Of course, the consultants (the Allen Group and McLennan Magasanik) are true believers in the market: they predict that eventually

How badly have Meg Lees and the Democrats let down Australia’s sustainable energy industry?

THE Democrats’ efforts to renegotiate the GST package have failed to redress the fundamental anti-sustainability bias of the GST. But the revised package does bring good news to some sections of the renewable energy industry. Specific packages for remote area power, rooftop PV systems and GreenPower total around $75 million per year for four years—the biggest commitment to renewables, outside large scale hydro, we have seen. (There is also an extra $100 million per annum for greenhouse measures, but it is not clear what these involve.) When this is added to the 2 % renewables target and GreenPower schemes, it really does look as though we are making genuine progress on renewables.

But a public commitment to apply incentive packages to renewable systems installed from July 1999 is needed urgently. Otherwise cash flows of renewable energy businesses could be slashed by customers delaying purchases to benefit from the package.

The impact of the GST on energy efficiency is a very serious issue. As I pointed out in my previous column, the so-called competitive energy markets have introduced seemingly overwhelming barriers to energy efficiency improvement. The GST package has raised the barriers even further. The Democrats seem to have failed to grasp the pervasive negative impact of the GST on energy efficiency, as their compensating programs focus on renewables, not energy efficiency. So,

what are the adverse impacts? First, the GST will disproportionately

increase the upfront cost of energy efficiency measures. Pre-GST, products with small sales volume and a large value-added component have a high proportion of their cost in marketing, installation and business overheads, which are not subject to existing wholesale sales tax (WST). Most energy-efficient products fall into this category. When a 10 % GST replaces WST on these products, the cost increase is up to 9 %. In contrast, competing energy-inefficient products are often produced on a much larger scale, and have a much smaller installation, marketing and overhead component per unit, so a much higher proportion of their existing cost is subject to WST. Therefore removal of WST and application of GST has less net impact on their price. Further, when a sustainable energy option is higher priced, even if it experienced the same percentage impact from a GST, the actual dollar increase would be bigger, so the price gap would widen: for example, a $1200 high-efficiency hot water service would pay $120 GST while a $700 standard HWS would pay $70 GST—$50 less. In practice, when both the effects above are included, the high-efficiency hot water service could increase its price by around $100 with GST, while the standard product could increase by around $35.

Also, tax cuts are much more likely to be spent on ‘instant gratification’ products and services than on long-term investments in energy efficiency: a home buyer with extra money is more likely to spend it on a walk-in wardrobe or granite benchtop than invisible features like insulation. (For a more detailed discussion

Featured in: ReNew 69, October – December 1999

Page 57: Pears Report Collection

Pears Report Collection

57

just created. Australia is moving perilously close to a ‘lose–lose’ greenhouse strategy.

It will take a dramatic policy switch to salvage the situation. The kinds of actions needed include:

• a moratorium on any new fossil fuel power stations (other than cogeneration)

• a broad-based financial incentive system for householders and business to invest in energy efficient appliances, equipment, buildings and cars

• strong regulatory action to block energy waste

• a major capital investment program to build public transport infrastructure and support development of the sustainable energy industry

• a process whereby for every emissions-increasing project, specific actions for equivalent offsetting reductions must be identified and implemented. For example, closure of BHP’s Newcastle steelworks balances increased emissions from its new Pilbara hot briquetted iron plant.

I’m not holding my breath. S

it will reduce emissions—but not soon enough to help us meet our Kyoto target. It’s not clear what logic has led them to conclude that a market focused on short-term issues, and which places zero value on environmental impacts, will deliver environmental benefits.

In response to officially predicted electricity growth trends, we have seen some depressing proposals. Queensland plans to build four or five new coal-fired power stations, which will generate an additional 20 million tonnes of CO2 each year. And the Victorian Government has called for expressions of interest from companies interested in building another brown-coal-fired power station in the Latrobe Valley.

These proposed power stations will absorb over $5 billion of investment, and generate at least 500 million tonnes of additional greenhouse gas over their lives. What would a $5 billion investment in energy efficiency deliver? It would avoid the need for investment in more power stations, cut business and household overheads, create more employment and reduce greenhouse gas emissions.

But our leaders (in both politics and business) simply cannot grasp the principle of doing more with less energy—even though Canberra politicians work in a building which has halved its energy consumption and saves $2.5 million each year on energy bills. It’s strange, really, because politicians are great supporters of labour productivity improvement—doing more with fewer workers, but they just can’t apply this to energy.

Greenhouse emissions trading, which is supposed to solve all our problems by allowing us to balance energy growth by planting lots of trees and buying emissions permits from other countries, is also showing a few holes.

Some energy-intensive industries have suddenly realised that emissions trading could be very expensive for them, so they

are losing enthusiasm or trying to distort the trading rules in their favour. There is a touch of irony in this. A few years ago, energy-intensive industries strongly supported economists’ arguments against carbon taxes and in favour of emissions trading, without really understanding the issues. At the time, their main aim was to block carbon taxes. Now they are in a bind: their support for emissions trading is on the public record, yet it could be worse for them than a carbon tax (which would most likely have been levied at a lower rate, with exemptions for price-sensitive export industries).

Maybe there is justice in the world. Another not-so-minor problem with

proposed emissions trading schemes is that they focus on large emitters. Over half of Australia’s energy-related greenhouse emissions are generated by small emitters, including households, small business, cars and trucks. The theory seems to be that large emitters such as power stations pressure users of their fuels to become more efficient or switch to less greenhouse-intensive energy sources. I will be pleasantly surprised to see the owners of a power station provide financial incentives for consumers to use less electricity.

To sum up, Australia’s chances of achieving our Kyoto greenhouse commitment are rapidly slipping away. We are investing enormous amounts of money in polluting infrastructure that will lock-in increased greenhouse gas emissions, while market-based mechanisms and the GST are undermining the market positions of technologies that would reduce emissions. Emissions trading will have limited impacts, and will take some years to introduce.

And, if governments aggressively pursue energy efficiency improvement, they will provoke a financial crisis for the fragile ‘competitive’ energy industry they have

o The GST is likely to discriminate against energy efficient products and result in increased energy demand.

Page 58: Pears Report Collection

Pears Report Collection

58

The new barrier tosustainable energy

would involve recognising the scale of subsidies on energy prices to rural consumers, and providing compensating support to sustainable energy solutions so they can compete in those subsidised markets. In general, the level of subsidy required to encourage adoption of sustainable energy solutions will be lower than subsidising conventional energy: and in most cases, it will be a once-off cost, not an ongoing drain on the economy.

Rural areas could become the proving grounds for development of leading edge sustainable energy technologies. They would provide the base market from which production volumes could be expanded, so sustainable energy could compete in ever-larger markets. A bonus benefit would be that rural employment would grow, so the cost of welfare in rural areas would also decline. Many country people might also enjoy being able to break free of dependence on city-based energy suppliers. In a context where world diesel fuel supplies could become tight within a decade, and oil imports are forecast by ABARE to double over the next 15 years, developing renewable diesel fuel replacements also makes good strategic sense.

Let’s hope Australian politicians show more sophistication in this area than they have in the past.

Alan Pears calls for the development of sustainable energy regions as bribes for rural voters replace economic fundamentalism.

THE high vote for One Nation candidates in the last Federal election, followed by the staggering rural swing against the Victorian Coalition government flags an important shift in the political landscape that threatens to yet again block progress towards sustainable energy.

Country Australians have now made their feelings absolutely clear to politicians. Where pursuit of the economic fundamentalist dream of ‘perfect’ markets with no cross-subsidies hurts country people, it will be opposed—and it will cost seats. Suddenly, politicians are being tempted to conveniently forget the economic arguments that country people should pay the ‘real’ cost of services. They are now looking at helping country communities to rebuild. Billions of dollars are being made available to buy back the rural vote.

Why is this a threat to sustainable energy? Back in the early-1990s the dominant view was that, when governments created ‘perfect’ energy markets, all customers would pay the ‘real’ cost of energy. Country people would no longer be heavily cross-subsidised

by city dwellers and rural energy prices would skyrocket. Then country people would realise that energy efficiency and renewables were their most cost-effective options, and would enthusiastically embrace them. This gave governments the excuse to ignore the pleas of sustainable energy advocates for support, because ‘the market’ would sort it all out. Sustainable energy development was set back by at least a decade by this policy position.

It’s not really surprising that this strategy has led country people to see themselves as victims, rather than (as the spin doctors would paint it) as lucky people who have been given an opportunity to respond to market signals. Now, in response to the rural revolt, we see politicians falling over each other in the rush to pour money into rural areas through diesel fuel rebates and indications that other energy prices will not be increased. The problem for sustainable energy is that it will probably again be forgotten. Country people’s unsustainable energy use will most likely continue to be subsidised, and sustainable energy will be denied access to the market niches where it is most cost effective.

This would be tragic for the environment, the Australian economy, sustainable energy industry and country people.

Yet there is another path that could give a win–win–win outcome—development of rural sustainable energy regions. This

Featured in: ReNew 70, January – March 2000

Page 59: Pears Report Collection

Pears Report Collection

59

“Country people’s unsustainable energy use will most likely continue to be subsidised, and sustainable energy will be denied access to the market niches where it is most cost effective.”

plant in Western Australia• conflict between the Snowy

Mountains Hydro and environmentalists over the extent to which hydroelectricity generation should be sacrificed to restore environmental flows in the Snowy river.

These issues show that all energy sources have environmental impacts, although some have smaller, different impacts than others. Most renewables are demonstrably much less environmentally damaging and socially threatening than fossil fuels and nuclear energy. But we need proper consultative processes to work through concerns about these impacts in a balanced manner, giving due consideration to local, regional, national and global factors. We can be confident that the answers are not simple, and that one set of guidelines will not be sufficient to deal with evolving technologies and regional differences, so this is not a situation where a consultant can be paid to write the definitive rules. In some cases, the solution may involve further development of technologies or services, and management strategies, so that environmental impacts can be limited. If we don’t set up sensible processes now, the take-up of renewables will continue to suffer delays. S

Act now—or live with an anti-sustainable energy market for five more yearsOver the next few months, the Victorian Regulator-General and the New South Wales Independent Pricing and Regulatory Tribunal are reviewing the rules applied to energy pricing in their states. If the regulators do not correct the anti-sustainable bias of energy pricing rules, they will be locked-in for another five years.

The problem for those of us who cannot afford to pay expensive experts is that these frameworks are very complicated. Energy companies show great aptitude for distorting and manipulating the rules, while regulators continue to try to apply ‘light-handed’ regulation in the naïve hope that industry participants will be good corporate citizens and play fair, when to do so could disadvantage them relative to their aggressive competitors. Maybe regulators could specify maximum levels of greenhouse gas emissions, or minimum levels of take-up of energy efficiency, renewable energy and cogeneration, above or below which they will take whatever remedial action is necessary to restore a balance. Then energy suppliers may focus more on delivering responsible outcomes in line with community expectations and international obligations.

What also seems to be needed is a small number of brokers who can work with a

range of sustainable energy product and service suppliers to assemble integrated packages that can be bid into the market. For example, a sustainable energy package could be offered as an alternative to the upgrading of transmission and distribution systems, or to expansion of conventional energy supply capacity. Without brokers of some kind, the sustainable energy businesses are simply too small to compete, as the market is structured so that only big players can join the game.

Lobby your politicians now. Demand that our energy markets work in the interests of the Australian community and the environment.

What is green energy?A number of recent events have shown that renewable energy is not a simple panacea. Issues have included:

• rejection of a wind farm proposal for a site near Portland in Western Victoria, on aesthetic grounds

• increasing controversy over the impacts of harvesting of fuelwood and wood heating on air quality, native forests and animal habitat

• widespread concern over proposals to use ‘wood waste’ from logging of native forests to run wood-fired cogeneration and electricity generation systems

• debate over a proposed tidal energy

Page 60: Pears Report Collection

Pears Report Collection

60

Two percent renewables target locked

Featured in: ReNew 71, April – June 2000

to competing factions within the Liberal Party. So the 2 % scheme became something of a test of strength of the two within Cabinet. Hill seems to have won this round.

The 2 % scheme will be mandatory, and will require that an additional 9500 gigawatt-hours per annum of renewable electricity (or displacement by solar hot water systems) be generated in 2010. Mandatory thresholds are to be met at intervals until 2010. The scheme will utilise a simple trading scheme, so that electricity suppliers which do not wish to arrange their own renewable supply can buy certificates which represent renewable electricity generation.

This is an exciting development for renewable energy. Beyond providing a significant ongoing market for renewables, it may also have an important ‘circuit breaker’ effect. Most large electricity suppliers and policy advisers have tended to focus on average supply costs at the power station, instead of marginal supply costs at the point of use. This means they have grossly under-estimated the potential for cost-effective application of renewables in many niche situations: indeed, they have ignored opportunities where renewables could be much cheaper than conventional solutions. The mandatory 2 % requirement will force these organisations to look beyond their

Alan Pears traces the history of the 2 % renewables scheme and shows how it’s already encouraging innovation in the renewable industry.

A DAY before the start of the Solar '99 conference at Geelong in December, the Commonwealth Government finally announced that it would go ahead with the mandatory 2 % Renewable Energy Target for electricity. This program was originally announced by Prime Minister Howard in late-1997, just before Kyoto. The proposal was fiercely fought by Australia’s resource industries and the main electricity industry lobby group, the Electricity Association of Australia.

This outcome is a credit to groups such as the Sustainable Energy Industry Association and green groups, which lobbied hard and effectively for the scheme. But there were other elements to the outcome.

The decision came just after the Bonn negotiations on the Kyoto Protocol. At Bonn, it became clear that there was a real chance the Protocol could be ratified in 2002. Suddenly, the cynical argument that we need not take Kyoto seriously, because the Americans would never ratify it, did not look so convincing. And recent growth in Australian emissions, combined

with declining optimism about the role of credits for reduced land clearing and tree planting, has increased nervousness in Canberra.

Another influential factor was a paper published by the Australia Institute on the Australian aluminium smelting industry. The aluminium industry was a key lobbyist against the 2 % target, arguing that compliance would cost them up to $77 million per year. But the Australia Institute identified hundreds of millions of dollars of subsidies each year to Australia’s aluminium smelters. It went so far as to suggest that Australia would be better off economically if the aluminium smelters did leave! Indeed, the annual subsidy to Victoria’s Portland aluminium smelter alone exceeded the aluminium industry’s ‘worst case’ estimate of the impact of the 2 % renewables target. Rumour has it that head offices of aluminium companies in the UK and US were shocked by this report. It certainly undermined their arguments against the 2 % target and raised some big questions about the benefits offered by this industry.

Lastly, there were the tensions between environment minister Senator Robert Hill, and industry minister Senator Nick Minchin. Minchin, encouraged by the resource industries, tried to block the scheme. Both are South Australian senators, and rumour has it they belong

in—great news, but how did we win?

Page 61: Pears Report Collection

Pears Report Collection

61

Energy Efficiency Victoria, a promise of interest-free loans for purchase of solar water heaters, and a commitment that government agencies will buy significant quantities of GreenPower. It’s a pity that, in dollar terms, the rural subsidy will far outweigh all these positive initiatives. It is clear that it would be political suicide for this government to back away from its promised subsidy, so the government should balance the situation by introducing matching subsidies for sustainable energy in rural regions. This will be an interesting test of its commitment to sustainable energy.

The good news on the subsidy front comes from the Australian Democrats. In a presentation to the Solar '99 Conference, Democrat leader Meg Lees pointed out that the GST deal they negotiated with the federal coalition government included a commitment to replace the Diesel Fuel Rebate with a new subsidy from 2002. This subsidy would be intended to encourage farmers and other rural diesel users to switch from diesel to sustainable energy systems. Senator Lees called for assistance from the sustainable energy industry in the development of the new scheme. This is just the kind of sophisticated solution we need within the new political reality: rather than removing subsidies and causing severe dislocation (and losing rural votes), we need to restructure subsidies to support sustainable outcomes.

Contact the Democrats with your ideas for revised subsidy frameworks now. S

preconceptions to the reality. They may well find that it is in their own interests to install a lot more than 2 % renewables. A further benefit of the 2 % target will be that it will create significant economies of scale, and help to drive down the costs of renewables.

The 2 % scheme is also leading to more creative thinking about how renewable energy systems can mesh with existing energy infrastructure. There is increasing interest in co-firing fossil fuel power stations with renewable energy sources such as biomass and landfill gas/biogas. An innovative project at the Stanwell coal-fired power station involves using concentrating solar thermal collectors to generate steam to be fed into the existing power station, where coal raises its temperature further, and the existing steam turbines generate electricity. This minimises the cost of the solar system while maximising the greenhouse benefits, by directly displacing coal.

But it’s not all rosy. The danger areas in the 2 % scheme include:

• limited environmental criteria—so some projects could be seen as environmentally unacceptable by the community, but could comply with the requirements of the 2 % scheme. This could undermine support for renewables, and could create confusion over the credentials of voluntary GreenPower schemes—which must meet strict environmental criteria

• no guaranteed minimum shares for

any specific technologies: we could find that a few cheap renewable technologies (for example biomass and solar hot water) will dominate, leaving other strategically important technologies without market opportunities

• the renewable energy industry has to deliver high-standard product in a context where growth will be very rapid, but it will be uncertain which technologies are winners.

Rural energy subsidies, bad news and good In my last column, I raised concerns about the possibility that desperate politicians would try to win the votes of country people by promising ongoing energy subsidies, and that these would undermine the viability of sustainable energy in the rural markets where it would be most cost-effective if the real costs were charged.

Since then, a new Victorian Labor Government has toppled the Kennett government. And guess what was one of their key promises? To maintain electricity subsidies to country households beyond the original phase-out date of January 2001. This ongoing subsidy will cost tens of millions of dollars (possibly up to $100 m) each year and undermines the cost-effectiveness of sustainable energy in those regions.

The new Victorian Government has flagged a number of positive initiatives supporting sustainable energy, including a doubling of the funding of

“This is an exciting development for renewable energy. Beyond providing a significant ongoing market for renewables, it may

also have an important ‘circuit breaker’ effect.”

Page 62: Pears Report Collection

Pears Report Collection

62

Government finally gets serious

Agricultural and Resource Economics (ABARE) 1997 greenhouse study which was, at the time, interpreted as showing that greenhouse response would seriously damage Australian business. SEIA pointed out that the ABARE study actually showed that the services sector (60 % of the economy) would not be affected, and that manufacturing and agriculture (a quarter of the economy) would actually increase their economic output under the ABARE greenhouse response scenario! And ABARE failed to consider the range of strategies that the adversely affected industries might use to limit or avoid negative impacts. Summaries of the hearings can be read at www.greenpeace.org.au.

Another sign of change was the speech presented by environment minister Senator Robert Hill at a greenhouse conference in March 2000. Senator Hill praised the efforts of companies acting in response to climate change. He went on to say, “So there is no doubt we will be facing constraints of some sort on carbon emissions in the future…” He noted that if Kyoto failed it would be replaced—and that any new process might not take into account Australia’s ‘national circumstances in the way we were able to achieve at Kyoto’.

An important warning to business was his comment on the likely workings of an

Alan Pears assesses the Commonwealth Government’s likely policy step as it prepares for the next international climate change forum.

THERE now seems to be a chance that the Australian Government will, before November this year, announce its commitment to ratify the Kyoto Protocol.

A number of factors lead me to this view.First, the scientists have stopped

pussyfooting around. They are now bluntly telling anyone who will listen that global warming is happening, and that human activity is a major cause. Now, 15 years since scientists first publicly voiced concerns that global warming might be a problem, intense research has confirmed their fears. This means the Kyoto Protocol will be just the first step towards large reductions in fossil fuel use over the next few decades.

Second, the next round of international greenhouse negotiations later this year will focus on setting the rules for including carbon sinks (for example, tree planting) in national greenhouse inventories. Australia could achieve its Kyoto target with much less difficulty if it could include a wider range of sinks in its inventory. However, many countries are reluctant to include sinks, on the grounds that they

could be manipulated and that they are really only a short-term buffer. What’s more, some countries are not very keen to give Australia an easy ride on sinks after our ‘poor little rich country’ performance at Kyoto. So, if Australia is to stand a chance of gaining agreement on widening the range of sinks included in our inventory, we need to demonstrate that we are serious about limiting greenhouse gas emissions. What better than a public commitment to ratifying Kyoto, combined with a flurry of funding for emissions reduction strategies (courtesy of the funds extracted from the government by the Democrats as a trade-off for the GST)?

Third, opposition to greenhouse response seems to be fragmenting, as some industries realise they could benefit from the situation, while others are beginning to accept that global warming won’t go away. For example, the gas industry has left the anti-greenhouse Australian Industry Greenhouse Network, while companies such as Shell and BP Amoco are repositioning themselves. The advocates of emissions trading are lobbying for early action.

Evidence being presented to the Senate Inquiry into Global Warming is also undermining the case against greenhouse response. In its presentation, the Sustainable Energy Industry Association revisited the Australian Bureau of

Featured in: ReNew 72, July – September 2000

about greenhouse?

Page 63: Pears Report Collection

Pears Report Collection

63

‘toe the whole-of-government line’.Maintaining high environmental

standards for renewables used in compliance with the 2 % target or where they’re cheaper than conventional energy is much more difficult. We can argue that this is an opportunity to set high environmental standards and achieve multiple environmental objectives as we introduce the energy supply infrastructure of the next millennium. But governments can argue that they have been elected to negotiate compromises that reflect the broad views of society—including those exploiting forests. And proponents of biomass energy solutions can ask why they should be targeted, when companies damaging the environment by building coal-fired power stations and mining oil shale near the Great Barrier Reef receive government support.

Personally, I believe that the energy infrastructure of the 21st century should reflect the highest possible standards of ecological sustainability, but we will need to work out what this means in practical terms. And we will need compensating mechanisms for sustainable energy projects to cover additional costs associated with meeting higher environmental standards than competitors. We can also support increases in royalties and removal of subsidies for exploitation of forests, and seek clear statements on which biomass projects are truly environmentally acceptable. S

emissions trading scheme. He said ‘I am not inclined to reward [through allocation of free permits] those who would make Australia’s national abatement task more difficult in the coming years’. Senator Hill also flagged a desire to reward early action by business.

Of course, Senator Hill must push this agenda in a Cabinet where several ministers are very antagonistic to the mere idea of the UN influencing activities within Australia, whether they relate to mandatory sentencing for crimes, environmental impacts or anything else.

Biomass and its environmental impactsJill Redwood’s article in ReNew 71 highlighted the tensions between many environmentalists and some supporters of energy from biomass. There are some very important issues here.

First, it is clear that Australia will need to rely heavily on energy from biomass in any serious renewable energy strategy. A third of Australia’s energy use is for transport, where biofuels will be critical, almost half of our energy use is heat—again, biofuels have an important role here. And if we are to have reliable renewable electricity supply, the storage role of biofuels will also be important.

Second, it is clear that most traditional supporters of renewable energy also have high environmental expectations, especially with regard to impacts on forests. However governments, as architects of schemes such as the Regional Forest Agreements (RFAs), want to use renewable energy programs to legitimise

their environmentally-dubious forest policies.

The situation is complicated further by the existence of GreenPower schemes, which involve voluntary payment by subscribers of a surcharge on their electricity price in return for renewable electricity. Clearly, customers who pay extra for GreenPower should have a say in the sources from which their electricity is drawn. Otherwise they will simply stop paying extra and the schemes will fail. This is well understood by most electricity retailers, and by the government agencies that administer these schemes. But it is not understood by some politicians and bureaucrats from other agencies. Indeed, SEDA and Energy Efficiency Victoria are being labelled by some as ‘greenies’ (which is a very bad thing in bureaucratic circles) simply because they are trying to maintain the market credibility of GreenPower.

It is in everyone’s interests to publicise the details of sourcing of energy for each GreenPower scheme. It is probably also useful to establish some kind of eminent committee of people trusted by environmentalists and the community to review proposed new sources, and to issue comprehensive opinions on their environmental credentials. Otherwise, it seems inevitable that each environmental group will publish lists of GreenPower products in order of environmental acceptability, but potentially using different criteria and adding to the confusion. And SEDA and EEV will come under increasing bureaucratic pressure to

“Now, 15 years since scientists first publicly voiced concerns that global warming might be a problem, intense research has confirmed their fears.“

Page 64: Pears Report Collection

Pears Report Collection

64

Emissions from energy grow—time

closure of the most greenhouse-intensive older power stations. The sticky problem is working out how this can be done without it being seen as a ‘bail-out’ for private investors who made poor judgements.

The problem is compounded by the widely held view that most electricity distributors and retailers are going to be absorbed into a small number of larger companies over the next few years. So now there are 20 teams of CEOs, marketing managers and PR managers fighting for their own jobs by flogging as much power as possible. This leads to very aggressive marketing and, in turn, high electricity growth.

Conventional market logic says that as demand grows towards supply capacity electricity prices will rise, creating an incentive for investment in energy efficiency and new supply capacity. This model involves consumers being passive victims of energy price rises, and responding after costs increase, rather than actively shaping the market conditions. We can learn a useful lesson from the Japanese strategies of the past few decades.

The Japanese, who are consumers rather than suppliers of many resources, actively encourage over-investment in resource supply capacity in other countries and work to keep suppliers disorganised and

As Australia’s energy consumption increases, Alan Pears calls for an urgent redress of financial incentives to deliver even more power.

THE Australian Government is lurching further into crisis over global warming. The 1998 national greenhouse gas inventory has been published, and shows accelerating growth in energy-related greenhouse gas emissions, particularly electricity. The prognosis for 1999 looks similar.

Electricity emissions growth has been driven by increasing use of the filthiest power stations and encouragement of increased electricity consumption in homes and business by electricity retailers whose profits depend on growth.

Electricity emissions rose by 10 % in 1998, while generation rose only (!) by 6 %, showing that dirtier power stations have taken market share from cleaner ones. While many point the finger at the power stations, it must be remembered that a power station generates electricity only when someone uses it, so both supply and demand sides of the equation must be considered.

To a great extent, the problem relates to the market frameworks. What we are seeing is the outcome of the creation of a

viciously competitive market that places zero value on the environment, has excess coal-fired generation capacity and can easily increase profits (or reduce losses) by selling more power.

Conventional electricity generation and supply is very capital-intensive. Once the asset is owned, the cost of generating or supplying an extra unit of electricity is very small compared with the revenue that can be gained, so under the energy market rules it makes financial sense to sell as much power as possible. For example, the average cost (including capital) of generating coal-fired power is three to four cents/kWh at the power station. But the immediate cost for coal supply and plant operation is less than one cent/kWh. So as long as the station earns more than one cent/kWh, it is better to run the plant than shut it down, even if the electricity sells at less than the long-run costs. This situation is not financially sustainable, which is why some investors are now suing their financial advisers, and the market value of power stations has fallen. But, while this fiasco plays out, the losers are the environment and suppliers of sustainable energy solutions.

Key priorities for governments should be a review of regulatory frameworks to reduce the financial incentives to deliver more power, and the development of workable ‘exit strategies’ that facilitate

Featured in: ReNew 73, October – December 2000

for consumer action

Page 65: Pears Report Collection

Pears Report Collection

65

effective energy efficiency measures) using Victoria’s brown coal-fired electricity, while Tasmanian hydro would help Victoria to cope with increasing peak demand. Wind farms in Tasmania would supply green power to the mainland.

The reality is likely to be far from this. If Victoria can’t manage its peak demand using energy efficiency, load management, cogeneration and renewables (mostly at negative cost), it could install 500 MW of gas turbines for less than $200 million. The cost of using Basslink would increase the price of Tasmanian wind power, making it uncompetitive with wind generators at good sites in Victoria. There would probably be a large overall flow of energy to Tasmania, leading to replacement of renewable energy by fossil fuels. Efforts to establish a wind energy industry in Victoria could be set back, while hundreds of millions of dollars that could have been invested in cost-effective energy efficiency measures would be tied up in one cable.

Once projects like Basslink are built, the money can’t be recovered and used for something else. So it is in the interests of the Tasmanian Government to promote construction of Basslink with private money. It will have access to more electricity, its money won’t be at risk, and if the cable turns out to be uneconomic, the Tasmanian economy will have an asset subsidised by whomever provided the capital. S

competing with each other. The outcome is that they keep prices, and hence their input costs, low.

It should also be remembered that investments in energy-consuming equipment and buildings lock in the level of energy use for many years, while energy prices could increase within a few years, driven by competitive forces and emissions trading or carbon taxes. So ignoring the likelihood of future increases in energy prices leaves energy consumers at considerable financial risk. The aim should be to minimise future increases in energy prices and drive down total energy costs through strategic investment in sustainable energy solutions. (Total energy cost is the amount of energy used multiplied by cost per unit of energy.) This approach is a guaranteed winner. It’s bemusing that very few seem to be applying it.

An increase in electricity prices of just one cent/kWh would increase electricity costs for Victorian households and business by around $300 million each year. So a smart state government should be encouraging hundreds of millions of dollars of investment in energy efficiency, cogeneration and renewables each year on the grounds that it will help keep energy prices low, as well as bringing financial savings through reductions in energy use. Applying this approach nationally, governments should be driving billions of dollars of strategic investment in

sustainable energy each year. One constructive strategy is for each

business or government agency to charge itself a levy on the cost of energy it uses—effectively an in-house carbon tax. This has two effects. First, it raises the perceived price of energy and encourages investment in energy efficiency and cogeneration, at a level more consistent with likely long-term energy prices. Second, it creates an internal pool of money that can be used to fund larger sustainable energy projects. Smart organisations will take this approach instead of waiting for price rises, a national carbon tax or emissions trading scheme, as it will put them well ahead of the game.

Which government will be the first to introduce such a scheme within its own operations and then offer incentives and support for business to follow its example? For those interested in applying this strategy, a levy valued at $20 per tonne of CO2 would add about two cents/kWh for electricity, $1.30/GJ of natural gas, and five cents/litre of petrol.

Basslink—Tasmania’s lifeline, or a noose around our wallets?Pressure is now building for construction of the $500 million, 500 MW capacity Basslink undersea cable. The supporting arguments sound appealing. Tasmania’s economy could grow (that is, their wasteful use of electricity could expand without having to implement cost-

“Electricity emissions growth has been driven by increasing use of the filthiest power stations and encouragement of increased electricity consumption.”

Page 66: Pears Report Collection

Pears Report Collection

66

Renewable Energy (electricity) Bill

that the penalty should not be tax deductible (!) and should be indexed with inflation (like all other penalties). It also proposed a review two or three years after implementation, to fine-tune the scheme based on real experience, instead of hypotheses. Importantly, the inquiry proposed that non-plantation native forest timber and wood waste should be excluded. This position reflected the widely held view that renewable energy should meet high environmental standards, and the extreme sensitivity of most Australians to misuse of forests—as well as the greenhouse impacts resulting from clearing.

Latest word is that the government has agreed that the penalty should not be tax deductible; there should be a review after three years; and (after heavy pressure from the Democrats, Greens and many others) native forest timbers and products from plantations on native forest land cleared after 1997 are expected to be excluded. These compromises address the worst aspects of the draft legislation, but there is risk that rejection of the other recommendations will undermine its effectiveness.

Because early targets are too low, the price of renewable energy certificates may be low due to a glut of capacity, so investors would have little incentive to build capacity. This could lead to shortfalls

International cooperation on greenhouse has never been more important, but as Alan Pears reports, Australia is struggling to even produce a coherent national approach to emissions reductions.

BEFORE the 1997 Kyoto Conference, Prime Minister Howard announced a scheme to require electricity retailers to buy an additional 2 % of their electricity from renewable sources. After three years of negotiation, the final scheme now before Parliament requires ‘liable parties’ (electricity retailers and a few other large energy consumers) to buy an extra 9500 GWhs of renewable electricity by 2010, with annual interim targets. Tradeable certificates are issued for every megawatt-hour (1000 kWhs) of renewable electricity generated: liable parties must surrender their share of the total required number of certificates each year to prove that they have met their obligation through buying or generating enough renewable electricity. Details are available at: www.greenhouse.gov.au.

The Renewable Energy (Electricity) Bill will probably be passed by parliament in early-November, just in time for the Australian Government to parade it

before the world at COP6, the next round of negotiations on global warming, at The Hague. Australia needs to make a good impression there, because our government hopes to negotiate extra loopholes (whoops, that should read greater flexibility) in the consideration of carbon sinks (storage of carbon in trees, soil and vegetation). Generous treatment of sinks would make it much less difficult for Australia to meet its Kyoto target.

Since our greenhouse emissions are spiralling out of control as a result of the flawed restructuring of our electricity markets, our continuing subsidy of fuel-guzzling 4-wheel-drive imports and other policy failures, the belated delivery of our Prime Minister’s modest 1997 promise should help in negotiations. But, as usual, we have hovered on the brink of converting what should have been a good news story into yet another divisive conflict.

A Senate Inquiry, established after the government presented the Renewable Energy (Electricity) Bill to parliament mid-year, found widespread support for the principle underpinning the Bill, but proposed many improvements to address obvious shortcomings. It found that the interim targets in early years were too low. It proposed higher penalties than the $40 per megawatt-hour (four cents/kWh) in the Bill, and recommended

Featured in: ReNew 74, January – March 2001

2000—a tough lesson

Page 67: Pears Report Collection

Pears Report Collection

67

tried to force Australians to choose between renewable energy and the environment. It is also a worry that they have rejected very sensible improvements proposed by the Senate. These games simply undermine the credibility and status of the government, both locally and internationally.

Now for the next political problem—interpretation of the biomass rules. In properly-negotiated RFAs, use of wastes for fuel may be both more profitable and even environmentally preferable to burning them in the forest. Unfortunately, quite a few RFAs have not been negotiated by consensus, and may include highly valued forests and habitats.

So serious problems remain. Attempts may still be made to use timber and wood waste from high value areas outside native forests to generate electricity. Environmentalists will have to be vigilant to protect these high-value forests, and renewable energy’s environmental credentials may be tainted by use of unacceptable biomass. The environment movement and the renewable-energy industry need to work closely to ensure that the Australian community is not forced to choose between renewables and the environment—we need both. A joint working group to identify which forests can be used might be a good step in the right direction. S

later on, and erratic investment patterns that could undermine the industry development claimed to be a key objective of the legislation. Liable parties could buy certificates from excess generation cheaply and ‘bank’ them for future use, or others could buy up certificates to speculate on higher future prices, potentially undermining the scheme’s contribution to our Kyoto target. The fact that the early targets are too low probably takes the edge off the potential problems caused by failure to index the penalty: since the certificate price will be low in early years, it’s unlikely anyone will have to pay the penalty. But this will certainly have to be addressed in the review.

The most contentious issue has been treatment of native forest biomass. The timber industry and its supporters wanted all forests eligible, for obvious reasons. Most of the sustainable energy industry was desperate to get this legislation through, as many deals were hanging on its outcome. They (including this anguished commentator) mostly took the view that other legislation at both federal and state levels, and community action (especially as households could soon choose to avoid electricity suppliers who used electricity from unacceptable sources) could provide mechanisms for the issue to be managed. Green groups (and ATA) were opposed to any impacts on native forests, even if it meant losing the renewables target.

Initially, the Democrats foreshadowed

that they would pass the Bill without excluding native forest biomass, because of their strong commitment to the renewable-energy industry and the strong resistance of the government to any change—they feared that holding out could lead the government to just drop the legislation. Green groups argued that the government really needed this legislation to take to COP6, so it would eventually compromise if the Democrats held out. Personally, I wasn’t too confident of the Greens’ argument, as the government had recently shown an inclination to almost enjoy rejecting international agreements (such as on human rights issues), and they were being heavily lobbied by the opponents of the legislation as well as greenhouse-denialists.

The Democrats’ initial position was overturned, apparently due to internal concerns and also in response to the Opposition’s tactics, which seemed intended to paint the Democrats as failing the green movement if they passed the Bill without excluding native forests. Obviously Labor wants the green voters in the next election. At the same time, governmental advisers seem to have realised that if they excluded native forests, timber from Regional Forest Areas (RFAs) could still be used—and that covers most of what they want, anyway. So the stage seems set for the Bill to be passed. You’ll know by the time you read this exactly what happened.

It is disappointing that the government

“It is disappointing that the government tried to force Australians to choose between renewable energy and the environment.“

Page 68: Pears Report Collection

Pears Report Collection

68

Flawed renewable energy bill finally falls over the line

argue GreenPower schemes will die because they will become more expensive and retailers will focus on compliance with their obligations instead of positive marketing of GreenPower. Some renewable generators claim they need both the GreenPower premium and the renewables premium to make investment in some renewables economically viable—basically they want to ‘double dip’.

At present, it looks as though the administrators of GreenPower schemes will keep them separate and additional to the mandated renewables. This recognises the reality that GreenPower buyers want something extra for their money. But many people are nervous.

As usual, we seem to be concentrating on threats instead of opportunities. To my mind, the benefits for GreenPower of the renewables legislation will include:

• a credible accounting system of certificates that can be used to prove that GreenPower is additional to mandated requirements—Renewables Certificates for the GreenPower can be ceremonially destroyed to prove that they can’t be submitted to the government regulator to comply with the renewables target.

• economies of scale, as GreenPower projects can be blended with schemes aimed at compliance with the legislation. Indeed, generators

In the wee hours of the morning on the final day of parliament for 2000, Australia’s most important piece of renewable energy legislation was made law. Alan Pears discusses its far-reaching implications.

THE Renewable Energy (Electricity) Act was finally passed in the early hours of 8 December 2000, one of the last bills passed by Parliament in 2000. Most details of the legislation are in my last column (ReNew 74). The government finally negotiated a deal with the Labor opposition instead of the Democrats. The deal excluded indexation of the penalty, allows use of ‘wood waste’, requires disclosure of the sources of renewable energy, and brings forward the review to two years from the launch. Because of the delay, its starting date has been deferred to 1 April 2001.

Allowing use of ‘wood waste’ from forests will be a major point of conflict. Already, with export prices of wood chips in the doldrums, operators of coal-fired power stations are offering attractive prices for wood chips to feed into their power stations. There are a few glimmers of hope on this issue. First, if it can be shown to the Environment Minister Senator Robert Hill, that much

more ‘wood waste’ than he expected is being used, he may consider placing limits on the quantities eligible—after all, it is an election year. Also, there is public consultation on the regulations, which will specify the detail regarding compliance (the draft regulations can be downloaded from www.greenhouse.gov.au/markets/2percent_ren/index.html). Last, electricity retailers may feel nervous about buying power from sources that are potentially unacceptable to many Australians as we move towards contestability for households and small business. This would be a really obvious reason to change electricity retailers, and a great focus for demonstrations outside the head offices of offending electricity retailers.

GreenPower and the Renewable Energy Bill There has also been plenty of debate regarding the impact of the renewables legislation on GreenPower schemes—where electricity customers voluntarily pay a premium so that their electricity retailer buys electricity from environmentally-preferable renewable sources. On the one hand, GreenPower customers are unlikely to be enthusiastic about paying extra for renewable power that a retailer would be legally obliged to supply anyway, so there is a case for keeping them quite separate. But some

Featured in: ReNew 75, April – June 2001

Page 69: Pears Report Collection

Pears Report Collection

69

At the same time, the government is trying to soften up opposition to greenhouse action by providing information on the subtleties of greenhouse emissions trading mechanisms. A report by the Allen Consulting Group for the Australian Greenhouse Office (Greenhouse Gas Emissions Trading: Allocation of Permits) makes very interesting reading. For example, it points out that businesses given free emissions permits through ‘grandfathering’ would probably have to pay capital gains tax on their final value, so they would be far from free. The paper explores some fascinating scenarios of how emissions permits might be allocated, and the implications for equity, the economy and different industry sectors. A carbon levy set at a low level looks really attractive after reading this paper!

David Abba passes away David Abba was the CEO of the Sustainable Energy Industry Association from late-1999 until he passed away suddenly on 14 December 2000. In his brief involvement with the sustainable energy industry, David worked tirelessly to build our profile and take us into the mainstream. The experience and networks he brought with him from his work in other industry associations allowed him to achieve a lot. David not only made a difference, but his urbane manner, positive attitude and determination made working with him enjoyable and a valuable learning experience. I, and many within the sustainable energy industry, will miss him. S

that comply with the GreenPower guidelines will be able to sell as much as possible as GreenPower, and the rest as renewable power. And they will be able to vary the mix as it suits them.

• reduced risks associated with investment in GreenPower projects. At present, if a GreenPower generator can’t sell all the GreenPower produced as GreenPower, it must be sold at standard market prices. Now, any excess power can capture the certificate premium. So an investor in a GreenPower project can now rely on a higher price for power produced (subject, of course, to the value the market places on the certificates).

• increased market sophistication. Not only will electricity retailers and distributors be more interested in identifying renewable opportunities that reduce their supply losses and costs, but there is scope to educate consumers about the range of environmental credentials of different renewables to create real market differentiation.

• if ‘waste wood’ remains eligible for the mandated target, buying GreenPower will be the only way environmentally-concerned electricity consumers can guarantee that they are not supporting the harvesting of native forests.

Greenhouse progressDespite the lack of agreement at international climate negotiations (COP6) at The Hague in November 2000, the greenhouse steamroller continues to gather momentum. Continuing

crazy weather and increasingly strong statements by scientists are feeding increasing concern. The report of the Senate Inquiry into Global Warming was released in late-2000, and it provides a valuable analysis of greenhouse issues. It presents over 100 recommendations for stronger action.

The Commonwealth Government has recently issued a consultation paper entitled Encouraging Early Greenhouse Abatement Action (available from www.greenhouse.gov.au) in which it canvasses a range of options for encouraging, or at least not discouraging, early action to reduce emissions. The government is in a bind. It has said it won’t introduce either a carbon tax or mandatory emissions trading before international schemes are introduced. So it cannot put a price on carbon, which is the one thing that would reduce uncertainty. At the same time, like most governments, it is not keen to offer financial rewards to those who reduce emissions, because this would cost it money. Meanwhile, some large emitters keep increasing emissions, knowing that this increases pressure on the government to offer generous incentives to desist.

It’s a very awkward situation. The difficulties are amplified by the government’s apparent reluctance to run a public education campaign and encourage households and small business to reduce emissions. This could impact on sales of large cars (all that we make in Australia, now) and the revenue streams of our struggling electricity industry. Also, an informed public may even become outraged at the behaviour of certain industry groups. Not something you would want in an election year.

“As usual, we seem to be concentrating on threats instead of opportunities.“

Page 70: Pears Report Collection

Pears Report Collection

70

Building energy efficiency codesfor Australia

using energy/greenhouse emissions as an indicator of building performance, and those who argue for recognition of overnight ventilation and design features to avoid air conditioning. On one hand, I would like to believe that we could avoid air conditioning in most of Australia, but I am not convinced that opening up houses to provide comfort is a practicable option for many in our suburbs, where noise and fears about personal security limit such behaviour. I’m still not convinced that we can’t encourage use of natural cooling but design the houses so that, if they are air conditioned, they will use minimal energy. What do you think?

Appliance energy efficiency in Australia One moderately bright spot on the sustainable energy horizon is the progress on appliance energy efficiency. A recent workshop in Melbourne reviewed progress to date and mapped out future directions in this field. Reports presented showed that the energy efficiency of most energy-labelled products has been improving and, with revised, tougher energy labels now introduced, and the long-awaited MEPS (Minimum Energy Performance Standards) program coming into play, further substantial improvements look certain. The cost of appliance energy efficiency in greenhouse terms is estimated at: $31 per tonne of

A step in the right direction, but Alan Pears is not game to hold his breath waiting for it to deliver significant savings.

IN JULY 2000, the Australian Building Codes Board (ABCB) reached agreement with the Australian Greenhouse Office to develop and incorporate energy provisions in the Building Code of Australia. The ABCB has just released a Directions Paper in which it outlines progress to date and maps the timetable for future work. Although some minor changes may be introduced early next year, it will take several years to include all the relevant regulations. But don’t hold your breath, there are no guarantees that the provisions will be set at levels that deliver significant savings.

To be fair, the bureaucrats, consultants and volunteers working on this process seem to be generally well-intentioned and hard-working. The problems are deep-seated: cutbacks in research into building energy since the mid-1980s mean that many issues simply can’t be resolved using non-existent solid data and research findings. Instead, vested interest groups representing different products (such as foil versus bulk insulation, and timber versus heavy materials) debate and delay action. And major building industry

associations have made it clear that regulations will only be supported if they merely remove worst practice, rather than requiring good practice.

The building industry associations are way out of touch with community expectations and those of many within the building and sustainable energy industries. Recent consultation on the proposed Victorian ResCode provision to mandate a minimum 4 Star energy rating for all new homes uncovered enormous public support for regulation of high standards of energy performance. The ACT has had mandatory 4 Star minimum rating requirements for five years, without the world ending.

What’s needed is strong public input calling for levels of performance that will allow new homes to be part of a sustainable future, instead of yet another liability as we move into a low greenhouse emissions world. You can read the Directions Paper at www.abcb.gov.au. And please make a submission, even if it’s short.

At this point, I should declare my conflict of interest. I am on the steering committee of this process, with the title community advocate. But I have no budget for liaison or publicity. So send me copies of your submissions on [email protected].

A particular issue of concern to me is the debate between the advocates of

Featured in: ReNew 76, July – September 2001

Page 71: Pears Report Collection

Pears Report Collection

71

And Australia’s government will actually be able to determine the extent to which business sectors benefit or suffer as a result of our response to Kyoto.

The government-preferred approach to greenhouse response is an emissions trading scheme. This means all emitters would have to buy emissions permits on a market, so the effective cost of fossil fuels would increase, supposedly damaging the competitiveness of Australian business. In reality, the Australian Government will receive the money from the initial sale of permits, so it will have many billions of dollars available to do things like rebate increases in energy costs to those

businesses vulnerable to competition from countries without Kyoto targets, finance energy efficiency and other emissions reduction actions, reduce taxes on labour, and so on.

This potential to offset distortions and impacts is rarely mentioned by Kyoto critics and is generally not well-modelled in economic studies used to support their position. And, of course, the businesses that reduce their dependence on fossil fuels through smart strategies could come out way ahead. But that would involve seeking opportunity instead of complaining about the injustices of the world. S

CO2 avoided (yes, a negative cost!) and a far cry from the $40 per tonne predicted by economic modellers for greenhouse response. This negative cost is actually an argument for much more aggressive action, as it shows we’re missing out on cost-effective savings!

A disturbing study also released at the workshop showed that 11.6 % of Australian household electricity is used by appliances and equipment on standby, when it’s doing little or no useful activity—so-called ‘phantom loads’ or ‘energy leaks’. And it’s growing at 8 % each year! Governments outlined the actions they are taking to respond to this. But their effectiveness is severely constrained by government acceptance of industry arguments that we must follow international processes, rather than lead on this issue.

A speaker from the appliance importers’ association also pointed out that proposed changes to Australia’s electricity voltage to 230 Volts (+10 %/–6 %) would not allow them to optimise the energy efficiency of their products. Michael Gunter of ATA has worked hard to raise this issue with limited success. Maybe this industry backing will lead to some reconsideration of a proposal that is designed to suit the electricity supply industry at the expense of consumers and the environment. Interesting that government is reluctant to act on standby energy if it is out of step with international practice, but it will accept the electricity industry’s internationally inconsistent proposals.

The government has also announced a public consultation process on the future direction of its appliance efficiency program. A discussion paper is available on the Australian Greenhouse Office website www.greenhouse.gov.au or email:

[email protected]. The more submissions there are

advocating strong action to make Australia’s appliances world-best, the better.

Can’t see the Bush for the trees? I’ve left until last discussion of President Bush’s efforts to put the short-term interests of some sectors of the US ahead of those of the people of the world, the environment, and his own descendants. In some ways, this statement may do some good. According to US greenhouse commentator Stephen Schneider, a subsequent survey showed three-

quarters of Americans support action on greenhouse. And there is serious support for action at senior levels in his own administration. After all, the President didn’t argue about greenhouse science—he’s just concerned that the companies who support him may be hurt.

A disturbing outcome of the Bush statement has been the media barrage by Australia’s anti-greenhouse forces using Bush’s position to undermine the very limited action Australia is taking. Media analysis generally ignored the fact that the Kyoto Protocol is a process taking a first step towards a global response to a serious global problem, not a conspiracy to cripple Australia’s ‘old world’ economy.

“11.6 % of Australian household electricty is used by appliances and equipment on standby ... and it’s growing at 8 % each year!“

Page 72: Pears Report Collection

Pears Report Collection

72

Let’s use RECs to drive renewables growth

an incorrect and hysterical view that the cost of greenhouse response will destroy the economy (which I dealt with in my last column), but many have also argued that if they act early to reduce emissions they will be disadvantaged in some way. The most obvious illustration of this fear is if the government ‘grandfathers’ emissions permits based on companies’ levels of emissions when emissions trading starts. That means an emitter gets free or discounted permits based on its existing level of emissions. So a company that has worked to reduce its emissions before that time would receive fewer free permits than one that had continued to pollute. But it’s amazing how many other scenarios people can dream up in which they might lose some theoretical benefit. Somehow greenhouse seems to be a special case—when government policy in other areas changes, industry generally just has to wear it, possibly with modest short-term adjustment assistance.

A simple solution for the government would be to announce that ‘grandfathering’ is simply not on the agenda, and that industries needing transitional assistance will be helped in other ways. For example, the British have introduced a climate change levy, and companies that sign legally binding agreements to report on emissions and pursue emissions reduction strategies

Alan Pears challenges state governments to use the renewable energy certificates system to support local clean energy generators and to set their own, higher, targets.

AFTER three years of effort, we now have a Commonwealth Office of the Renewable Energy Regulator allocating Renewable Energy Certificates to renewable energy suppliers, who can sell them to electricity retailers so they comply with the 2010 mandatory renewable energy target of 9500 GWh. But many people have criticised this very modest target, are very concerned about inclusion of forest biomass, and question whether the most strategically important renewables will benefit.

Now it’s time for the next step.With RECs, we now have a formally

supervised national accounting system for tracking generation of renewable energy. This can easily be used for other purposes. Already, the administrators of certified GreenPower schemes require electricity retailers to surrender the certificates attached to electricity sold as ‘green power’, to ensure customers really get renewable electricity additional to the amounts retailers have to buy to satisfy

the mandatory target. But we can go much further.

Several state governments have claimed they want to support development of renewable energy in their jurisdictions. There is nothing to stop them including in electricity retail licence conditions a requirement that the retailers surrender to the state government additional certificates. State governments could add extra conditions, such as certificates must be for renewable energy from sources in their state, produced from environmentally acceptable sources. They could even require certain proportions of the certificates to be from specific sources such as wind and Photovoltaic.

Let’s see whether state governments are really serious about supporting local development of renewable energy! I’d like to see community groups, sustainable energy agencies, and the renewable-energy industry campaigning for state-level commitments to renewable energy targets from local sources that are additional to the Commonwealth target.

Debate on ‘no disadvantage for early action’ The Australian Greenhouse Office has been trying to work through the barriers to Australian industry response to global warming—and credit is due to them. Not only have many business people taken

Featured in: ReNew 77, October – December 2001

Page 73: Pears Report Collection

Pears Report Collection

73

is to install load management systems that allow shedding of non-essential loads to limit peak demand. This should be mandatory on all new buildings.

Correction of a glitch In my last column, transferring text between software packages introduced an error. I pointed out that the cost of avoiding carbon dioxide via Australia’s appliance energy efficiency program is ‘-$31/ tonne’—that’s ‘minus $31’. But the printed column lost the ‘minus’ sign and replaced it with a colon, making the associated comments about the negative cost of energy efficiency look a bit strange. It seems that not just economists, politicians and business leaders, but also the software industry can’t come to terms with negative cost energy efficiency!

The point was that appliance energy efficiency improvement is fantastic value as a greenhouse response measure, and we should do much more of it! On this topic, the Australian Greenhouse Office recently issued its draft Regulatory Impact Statement regarding requirements for higher insulation standards for small electric hot water services. In a position that clearly contradicts the Government’s stated policy of pursuing maximum ‘no regrets’ emissions reductions, the RIS recommends going for the option that is less cost-effective and saves less greenhouse gas, while also requiring industry to change its products in two steps instead of just one. No wonder we’re struggling to make progress. S

can get 80 % rebates, as well as access to tax breaks on investments in emissions reduction measures. That seems like a pretty smart strategy.

Accidental energy growthOne reason why Australia’s energy use and greenhouse gas emissions continue to rise is that many decisions that are seemingly unrelated to energy actually increase energy consumption. This is why we need a ‘sustainability sieve’ or ‘zero energy/greenhouse impact test’ for all policy decisions. A couple of recent examples show what I mean.

Victoria has recently banned smoking in indoor restaurants—an action I support. But this created numerous outdoor dining areas, which need heating in Melbourne’s wintry weather. One example I looked at had 140 megajoules per hour of gas heating for an area of about 50 square metres. An average home central heating system is 90 MJ per hour. There seem to be no guidelines, controls or other ways of limiting this energy waste, presumably because no-one thought about it when framing the new law.

Another energy waster in Victoria has been introduction of retrospective laws on Legionella. Engineers are raising the operating temperatures of (often poorly insulated) hot water pipes in commercial buildings to minimise monitoring and maintenance obligations of building operators under the new laws. Again, dealing with legionnella is an important issue. But temperatures above 50°C, not

the 60°C specified in the regulations, are sufficient to kill the bugs, and the problem is mainly cooling towers. Now, thousands of hot water systems that were never designed to be so hot will be wasting energy for years. If there is a strong case for requiring higher temperatures, requirements for upgrades in energy efficiency should have been included as well. Again, no-one seems to have thought about it enough.

Of course, things can work the other way, too. The recent introduction of 50 km/h speed limits on local streets in Victoria should deliver a noticeable reduction in petrol use—if enforced!

Electricity marketsThe recent blow-out in electricity prices has certainly shaken the dogma of the past decade that competitive markets will deliver lower prices. In speaking with a few companies lately, I have asked them how they price their products—based on production cost plus a fair margin, or at a level the market will bear? Of course, they always say the latter. I then ask them what they’re prepared to pay for reliable electricity: they look rather pale as the penny drops. There is no doubt that electricity suppliers are learning how to charge what the market will bear. In a recent column, I argued that energy customers need to apply the Japanese strategy, by diversifying sources and using less energy, so they can exert some market power. One logical step in states where summer peak demand is an issue

“The recent blow-out in electricity prices has certainly shaken the dogma of the past decade that

competitive markets will deliver lower prices.“

Page 74: Pears Report Collection

Pears Report Collection

74

Oil—an underlying cause of terrorism?

install a number of cheap secondhand gas turbines to help avoid summer blackouts in Melbourne. The Victorian Government has been conspicuous in its failure to pursue effective demand-side management strategies to avoid peak load problems, even though the warning sirens were sounded almost three years ago. The government simply doesn’t acknowledge the value of demand-side action beyond simple interruptibility clauses in supply contracts (where, in exchange for a cheaper price, a large consumer agrees to cut demand for specified times). Instead, it has ‘streamlined’ environmental procedures to help energy suppliers install the cheapest extra capacity they can find. Unions have applied green bans, green groups have set up blockades, and concerned citizens have been marching in the streets.

This is just one outcome of the collapse of energy planning a decade ago. And we still have nothing to restore energy planning and public participation in energy development.

Government ministers are also working to encourage greater interconnection between states, because this will reduce the capacity of local generators to manipulate supply and prices and reduce risk of blackouts. But such an approach, while it makes sense if you believe in electricity (and greenhouse

As the world’s climate changes, Alan Pears points to the victims of Australia’s and other developed countries’ inaction on energy and greenhouse issues.

WHAT a strange September. When one of the people working with me on the 60L Green building (to be the offices of, among others, the Australian Conservation Foundation) emailed me photos he had taken of the New York disaster from the top of a green building he had been visiting at the time, my mind was drawn to this dreadful issue. On one hand, my heart goes out to those whose friends and relatives were killed or injured, and I feel a sense of personal vulnerability to the kind of terrorism that drove those actions. Yet, on the other hand, I must acknowledge that the US spends billions of dollars every year interfering in the politics and lives of the people in oil-rich regions, just so Americans can continue to drive fuel-guzzling trucks and live wasteful lives, while giving little to help the rest of the world improve its lot: one article suggested that the US aid budget was $30/person, compared with Norway’s $285/person.

Maybe I’m naïve, but if we could use energy efficiently and utilise regional renewable energy to run our economies,

maybe we developed countries could stop interfering with the lives of others, and support them to develop in their own directions. This will become increasingly important. The Middle East holds almost two-thirds of the world’s remaining oil—and world oil production is expected to peak soon. Some forecast that by 2050 that region would produce up to 80 % of world oil and gas. I don’t think Middle East countries feel a warm sense of loyalty to western countries that use oil wastefully.

Europe now imports half of its energy, and will soon import 70 %. If developed countries do not move towards energy self-sufficiency through sustainable energy (not by drilling holes looking for oil in Alaska or near the Barrier Reef), the pressures on world peace may become unmanageable.

Then there’s the issue of the millions of climate refugees who will join the political refugees in the rush to somewhere safe. Recent reports indicate that there are plans to take legal action against countries that knowingly contribute to global warming, on behalf of affected countries. While the US is an obvious first target, I wonder how long it will be before Pacific nations consider action against Australia?

Victoria’s addiction to fossil fuels We have recently seen some interesting activity in response to proposals to

Featured in: ReNew 78, January – March 2002

Page 75: Pears Report Collection

Pears Report Collection

75

energy-intensive industry and committed to build the Loy Yang B power station in 1988, even though it was obvious it wasn’t needed. Here we go again. The Victorian Government has simply lost all credibility on greenhouse issues with this action.

Energy, global warming and elections Due to recent international events energy and greenhouse issues were minor factors in the federal election, apart from the efforts of the Greens and Democrats to raise them. At the time of printing the federal election was still looming and there was increasing likelihood that a combination of Greens and Democrats could hold the balance of power in the Senate. This could at least influence implementation of policy over the next few years. The linking of mainstream green issues of forestry and loss of animal species to shifting of climate zones due to global warming could raise the priority of global warming in the eyes of environmentally inclined voters, who have traditionally not shown much interest in energy issues. S

emissions) growth and market solutions, is actually a waste of money if your aim is sustainability—for which less interstate electricity transfer would be needed.

Business electricity consumers are being severely shaken as they negotiate new electricity contracts. Many are seeing 30 to 60 % (or higher) increases in prices. Whatever happened to the promises that restructuring would reduce energy prices? They are now beginning to see that, just as in every market, electricity suppliers are charging what the market will bear, not what it costs to produce power. And business is prepared to pay a lot for reliable power on a hot day.

Recently, the head of the Commonwealth Government’s electricity reform group gave a speech in which he pointed out that the market needs price volatility to function. But the thing customers value most, apart from reliability of supply, is stable prices. And, since politicians want to be re-elected, it seems obvious that they will intervene if prices are volatile—as has already happened in NSW, where households and small business have been guaranteed access to a ‘back-up’ tariff. Could it be that markets and electricity supply are incompatible?

The response of governments to electricity market problems has been to set up an independent inquiry. The

Commonwealth Government has appointed Warwick Parer as Chair. He is the former Minister for Resources and Energy of the late-1990s (often described as the Minister for Coal) and close friend of John Howard. Both before and after his time in Parliament, he was a key player in the coal industry. Any reasonable outcome from an inquiry would be to break the stranglehold of the existing vested interest groups, such as the coal industry, on the electricity market. Is this the right man for the job? Does the government really want to have an effective competitive market?

In the first week of October, the Victorian Government announced a grand plan to lease large areas of brown coal resources for new projects. Their spin doctors have highlighted the new, low-emission coal technologies (at least a third better than the present appallingly high emissions) and their support of renewables through the Sustainable Energy Authority (almost $15 million per year compared with statewide spending of over $5 billion on energy bills). What is it about brown coal that attracts Labor governments? The government of John Cain Senior in the late-1940s proposed a brown coal-led economy. His son’s government in the 1980s, following on from a vision of coal-fired power stations and oil-from-coal plants proposed by the Hamer Liberal government in 1981, promoted growth of

“If developed countries do not move towards energy self-sufficiency ... the pressures on world peace may become unmanageable.“

Page 76: Pears Report Collection

Pears Report Collection

76

Renewable Energy Certificates

administrators have already stated that the scheme will be additional to the MRET, but the ability to cancel certificates would provide a clear mechanism to guarantee this.

Second, it would allow individuals and organisations that wish to support growth of renewable energy to gather and then cancel certificates on the certificate market, increasing the amount of renewable energy generated. This strategy may be preferred by some to buying GreenPower, because RECs may be cheaper than GreenPower in some circumstances, and you can buy any quantity of certificates, while the amount of GreenPower you can buy is limited to the amount of electricity you consume. Environmental groups could even organise cooperative certificate groups!

Third, it would mean governments that implement incentive schemes for renewable energy could be held accountable for cancelling the associated certificates, ensuring that their actions were additional to the MRET. Lastly, state governments could introduce licence conditions on electricity retailers operating within their state to submit RECs (which could be required to be sourced within that state, and from preferred mixes of energy sources). State governments could then use the MRET accounting system to influence the direction and scale of renewable energy development within their jurisdictions.

Alan Pears discusses the fine print and the need for amendments.

WE’RE now seeing schemes where buyers of solar hot water systems units and small renewable electricity generators are being asked (or required) to sign over the rights to the Renewable Energy Certificates to another party in exchange for a discount or rebate when they purchase the technology. For example, to qualify for the Victorian Government solar hot water rebate, you must assign the RECs to the government. At least one solar water heater manufacturer has negotiated discount deals through electricity retailers in exchange for the rights to certificates. But is this such a good idea?

It depends. If you want to save money on your own renewable energy technology, it will certainly help. But if your aim is to maximise the contribution of renewable energy in Australia, it’s not so good. The RECs you assign to another party can be used to comply with the Mandatory Renewable Energy Target, so your renewable energy may be captured by an electricity retailer and would would fulfill a portion of the (quite small) target. If you keep your RECs, or do not generate them with the Office of the Renewable Energy Regulator, the renewable energy you generate (or the electricity use you avoid, in the case of solar hot water) is

additional to the amount generated to comply with MRET. On this basis, I would be inclined not to sign over my RECs if I buy a solar hot water system, and I would not generate RECs if I installed a renewable electricity system. But I would miss out on some attractive discounts!

The situation is further complicated in Victoria (and possibly elsewhere), because the government requires you to hand over your RECs if you accept a solar hot water rebate, but has not stated whether it will sell them to electricity retailers or quarantine them. In reality, the Victorian Government could hoard these certificates and sell them at any time until 2020 to electricity retailers who need them to comply with MRET. While this government may have no intention of doing this (but I am not aware of any public statement of its actual intent), any future government could reverse this position, and undermine future development of renewables by flooding the market with hoarded RECs.

A change in the commonwealth legislation could overcome this problem. One option would be to allow the owner of a REC to cancel it at any time. This would help in various circumstances.

First, it would allow the operators of GreenPower schemes to cancel RECs associated with electricity sold through their schemes, further ensuring this electricity was additional to the mandatory target. GreenPower

Featured in: ReNew 79, April – June 2002

Page 77: Pears Report Collection

Pears Report Collection

77

and energy efficiency. As for MRET, the government would set targets, and energy retailers would have to collect enough MSET certificates to meet their share of the target by pursuing approved energy efficiency measures or by buying certficates on a trading market.

A second proposal floated by SEIA some time ago is a ‘reverse carbon tax’—the use of some of the revenue from emissions trading or carbon levies to pay companies and individuals who invest in approved energy efficiency measures an incentive linked to the size of the life cycle savings in greenhouse gas emissions. This approach provides a way of encouraging appliance and equipment manufacturers, builders, car manufacturers and others who influence emissions but don’t benefit directly from the savings to invest in energy efficiency and emissions reduction.

These two strategies are complementary. The MSET framework creates an incentive for energy suppliers to deliver some energy efficiency—dependent of course on the level of targets set. The incentives for those who influence energy use target a key group who would otherwise focus limited attention on energy efficiency. These are the kinds of broad policies we need if the enormous potential of energy efficiency is to be captured. S

A second option, which could be introduced separately or in addition to the first, would be to limit the time for which each certificate can be ‘banked’ to, say, three years before cancellation. At present, there is no time limit, so a certificate generated in 2002 could be used in 2020. This change may generate opposition from speculators, and those who fear a limit may reduce the value of certificates, reducing the benefits to renewable energy generators. On the other hand, such a measure would reduce the risk of the market being flooded with hoarded certificates in future years.

Energy efficiencyThe last couple of years have seen a dramatic acceleration of the mainstreaming of renewable energy in Australia. GreenPower schemes, the Mandatory Renewable Energy Target, Greenhouse Office programs, solar hot water rebates and GST offset programs negotiated by the Democrats have driven this transition. And a great thing it is, too. Much more is needed, but we now seem to have a critical mass. The financial sector and an increasingly influential renewable energy industry will drive development because the private sector can now see ways of delivering renewable energy profitably. Government Ministers will be able to open new renewable energy facilities, ensuring they gain appropriate electoral mileage from such development,

and building their support for more.Unfortunately, the same cannot be said

about energy efficiency improvement. Various government agencies have been working hard to implement programs such as appliance and building rating schemes and standards. However progress has been slow, and take-up of measures in the field has been sluggish. The restructured energy supply industry has largely abandoned support for energy efficiency and demand-side management, while promoting growth in energy consumption.

At best, energy efficiency improvement is difficult to promote, as it is abstract. It involves actions that cross traditional business boundaries—for example, building developers bear the capital costs of energy efficiency while the occupants benefit from the savings. It seems that energy markets around the world have not been able to deliver energy efficiency. Yet many of the largest and most cost-effective greenhouse emissions reduction options rely on energy efficiency, so we have to make it work if we want to deliver rapid and effective greenhouse response.

A couple of proposals bear serious consideration. The Sustainable Energy Industry Association (SEIA www.seia.com.au) has proposed expansion of the Mandatory Renewable Energy Target (MRET) to become a Mandatory Sustainable Energy Target (MSET), with separate sub-targets for renewable energy

“The last couple of years have seen a dramatic acceleration of the mainstreaming of renewable energy in Australia.“

Page 78: Pears Report Collection

Pears Report Collection

78

Politicians face crunch time onenergy and greenhouse

few critical electoral seats. Maybe the government could encourage Toyota to move its plant to Geelong? Or Ford could work with CSIRO to produce advanced hybrid cars locally?

When the Victorian Government offers millions of dollars to help Ford tool up to make fuel guzzling four-wheel-drive vehicles locally but does not support the wind energy industry or other sustainable energy industries, the anomaly must eventually be noticed. You’ve also got to wonder what information government is using to drive its transport policy. A colleague of mine recently received a reply to a letter to the Premier in which a senior bureaucrat claimed that Ford had improved the fuel efficiency of Falcons by 30 % since 1982. A quick review of the Commonwealth Government’s Fuel Consumption Guides showed that the Falcon’s city-cycle fuel consumption had improved by 8 % over that period. I wonder who provided that information to the bureaucrat?

In New South Wales, the government has issued a discussion paper looking at ways of introducing penalties for electricity retailers who fail to meet their greenhouse targets. There is some interesting history to this. The NSW legislation introduced in late-1995 included a requirement that electricity retailers prepare demand management

Alan Pears brings us up to speed on Australian Government energy policy.

WE’RE beginning to see the stakes raised in the sustainable energy debate. This seems to be ‘crunch’ year for the Kyoto Protocol—the push for ratification at the Rio+10 conference later this year is strong. And the Australian Government is in a bind. If we don’t ratify, after playing a leading role in the watering down of the Protocol, we will be labelled as spoilers. Plus, Australian businesses will be deprived of access to emissions trading, Clean Development Mechanism and other systems designed to make compliance with Kyoto easier and cheaper.

Tying ourselves to the Bush approach may look easier, but it would still involve reducing the greenhouse intensity of the Australian economy faster than previously—not a task that can be achieved without an uncomfortable level of market intervention. It also brings unknown consequences in the short term, due to the possible negative reactions of countries continuing to pursue Kyoto. In the longer term, as the need to cut emissions becomes even more extreme, we will not be as well positioned as others to respond. There are now serious differences across business groups about

which way to go. Greenhouse is moving rapidly from economic and political theory to real-world policy and action in Canberra. This is not a comfortable place for people who truly believe the conservative economic mantra—that interfering with ‘natural’ energy growth must be bad for the economy.

Meanwhile, the evidence supporting the serious nature of global warming just keeps on mounting. The experience of countries that have been prepared to tackle global warming seriously shows that you can get good results without wrecking your economy. The UK, for example, has introduced a climate change levy, incentives for investment in energy efficiency, and stronger regulatory frameworks.

At home, governments at all levels are being forced to face up to the contradictions they have allowed to continue—not always with a positive outcome. Recent newspaper reports in Melbourne flagged a proposal for introduction of a skewed stamp duty scheme for cars, with fuel guzzlers paying more and fuel efficient cars paying less. Rumour has it that Cabinet very quickly dumped the idea. Not surprising, really, when Ford (who manufacture fuel-inefficient cars, and claim they can’t profitably make fuel efficient cars in Australia) are major employers in a

Featured in: ReNew 80, July – September 2002

Page 79: Pears Report Collection

Pears Report Collection

79

A combined Regulatory Document and Regulatory Impact Statement has just been released (download from www.abcb.gov.au) for public comment until 28 June 2002. It is very important that progressive people contribute, as there are many people and organisations keen to ensure that requirements are minimal. Even the options proposed fall short of what I and many others consider to be cost-effective.

This process has certainly highlighted the staggering lack of good data on how to make buildings energy efficient, especially in hot climates. Hopefully this situation is being recognised, and we will see more funding for research and more interest from research organisations.

The Australian Building Codes Board has also noticed the strong support for improving the sustainability of new buildings. In a separate process, it is working on this area with a view to possible future regulation. It would be good to see people encouraging this action.

Regulators, bureaucrats, industry and politicians are beginning to notice the swelling support for sustainable buildings. A recent, national lecture tour on sustainable housing organised by the Australian Greenhouse Office and other associations attracted enormous audiences—in Melbourne over 600 people attended! Politicians are at serious risk of being left behind in the rush. S

strategies and meet per capita greenhouse targets. However, the legislation didn’t include any penalties for failure to comply. This is a classic example of the economic fundamentalists’ naïve, ‘light handed’, regulatory approach that relies on electricity suppliers being good corporate citizens.

The NSW Government seems to have finally admitted that regulations with no penalties don’t work, so it is now trying to work out how to implement penalties. Of course, the problem is that there is now a backlog of several years’ failure to comply by some retailers, and retailers claim they will have to pass through most of the cost of penalties to their customers. Predictably, large energy-intensive industries are mobilising their enormous lobbying power to minimise the impacts on them. It will be interesting to see what emerges.

Energy market reform The pressures are also building in energy market reform. It’s becoming increasingly difficult to claim that energy markets deliver lower prices. And this year the Victorian Government has had to allocate $118 million to subsidise electricity prices for rural consumers to avoid massive price increases. What will happen in future years? Will the government provide compensating assistance for the sustainable energy options this subsidy has undermined in rural regions? This dilemma faces all governments, not just

Victoria, and will be a major test of the market framework.

At the national level, the CoAG (Council of Australian Governments—the committee of all Premiers and the Prime Minister) is progressing with its energy market review. A discussion paper (downloadable from www.energymarketreview.org) has been released. Comments are due by 19 April 2002 and a draft report is to be published by December. This is a big test of the capacity of governments to redefine the market rules in order to achieve the community’s objectives.

A number of fundamental issues seem to arise when you look at the application of markets in energy, as in telecommunications, water and other fundamental services. A key problem seems to be how to get the signals from ‘user pays’ right. At present, electricity generators make windfall profits when supply is tight, but most users receive negligible signals in their bills at those times—so they are just victims. And somehow the market needs to give energy users strong signals at the time they invest in energy-using equipment regarding the impact of that equipment on their future energy costs: no-one has worked that one out yet.

Building energy regulation chugs alongThe process of developing and introducing energy requirements into the Australian Building Code is continuing.

“Greenhouse is moving rapidly from economic and political theory to real-world policy and action.”“

Page 80: Pears Report Collection

Pears Report Collection

80

Energy efficiency finally seen forits cost advantage

only happen if policy intervention occurs through financial incentives, regulation and other ideologically uncomfortable actions.

Greenhouse policyThe debate about whether or not Australia should ratify Kyoto continues. But this is not the core policy issue. If we accept that we are moving towards a carbon-constrained world (and thankfully not many still have their heads in the sand on that one), then the Kyoto issue must be seen in the context of a bigger picture.

In a carbon-constrained world, there will be two sets of issues. First, it will be important to set the local economy (households, small business, supply of materials for local use and most transport) on a trajectory towards low carbon emissions. This will demonstrate Australia’s genuine commitment to dealing with a global problem while minimising the potential cost of purchase of emissions permits or other compliance mechanisms. We’re a long way from achieving this—in fact, we’re going backwards.

The second issue will be how we deal with the global dimension of our economy—exports and imports. Australian Governments are agonising over whether forcing compliance by exporters (especially energy-intensive

Alan Pears writes how economic analysis of the Victorian mandatory 5 Star house energy rating system sets a precedent for evaluation of energy efficiency measures.

ONE measure announced in the Victorian Government’s recent Greenhouse Strategy was enthusiastically and spontaneously applauded by the assembled audience—the commitment to require all new homes to be built to a 5 Star energy performance standard. Some cynics may say that the applause was because this was almost the only visibly strong action to emerge from the strategy, but it is certainly a very important step in its own right.

Its importance goes far beyond making new Victorian homes more comfortable and energy efficient. The economic analysis that led the Victorian Government to run with a stronger commitment than the 4 Star rating that most people expected creates a very important precedent. The analysis was conducted by the Allen Consulting Group and Monash University’s economic modelling group. Both have been associated with a number of studies used by industry groups to paint gloomy pictures of the economic impacts on

Australia if we try to limit greenhouse gas emissions. The analysis produced some results that surprised many policy makers and the building industry.

According to the study, mandatory 5 Star energy ratings would create an additional 1000 jobs and increase Gross State Product by $560 million in Victoria over 20 years. And this study didn’t even place a value on the energy supply capacity that need not be built because of the lower peak heating and cooling demand of energy efficient homes. Also, the benefits from mandating 5 Stars were double those from mandating 4 Stars! Why—because bigger energy bill savings were captured, and there was more work for the building industry. And shifting more investment from the capital-intensive, low employment energy supply sector to the high employment goods and services and building sectors brings net economic benefits.

Those of us familiar with similar studies done overseas (and Australian work going back to the Environmentalists for Full Employment work of the 1970s) don’t find these results surprising. But now they are the outcome of work by ‘mainstream economists’. Maybe politicians and bureaucrats will now realise that many other energy efficiency measures could deliver even more attractive economic and employment outcomes—but they will

Featured in: ReNew 81, October – December 2002

Page 81: Pears Report Collection

Pears Report Collection

81

Energy markets realities

South Australian households are confronting large increases in electricity prices, with even higher prices to apply in summer, in response to explosive growth in home airconditioning energy use—one in 10 SA households bought an air conditioner last year. Victorian households have the dubious privilege of choosing between retailers who all offer contracts that allow them to increase prices with 30 days notice—why would you take the risk? Prices are also spiralling for business. The Australian Industry Group’s submission to the Council of Australian Government (CoAG) Energy Market Inquiry reports that a member survey showed new business contract prices rose from $60 to $70 per megawatt-hour (MWh) in 1999 to $89 to $120 per MWh in late-2000. It will be interesting to see the CoAG review panel’s suggestions on how to repair energy markets. In the meantime, there are some interesting submissions worth reading on their website at www.energymarketreview.org.

Our ‘coal ambassador’A recent Australian Financial Review article (20/5/02) describes how Australian diplomats worked hard to support construction of new coal-fired power stations in Thailand that would have used Australian coal. The AFR states “The then ambassador, Bill Fisher, became known as the ‘coal ambassador’ in the Thai media”. I look forward to the day when an Australian ambassador will be described as the ambassador for sustainable energy—but I’m not holding my breath. S

ones) will drive them offshore to countries that don’t have to comply with Kyoto. And companies involved claim any costs of Kyoto compliance will make them internationally uncompetitive. This problem has frozen governments into inaction and, in many ways, has discouraged action on local emissions reduction.

But if we look beyond Kyoto, to a genuinely carbon-constrained world where all countries are committed to emissions reduction, or where those who are acting are prepared to place sanctions on those who fail to meet their global responsibility, there will be a new and more fundamental criterion. All other things being equal, the lowest greenhouse intensity (that is lowest emissions per unit of product or service) supplier of a commodity, product or service will have financial and moral advantage over higher emissions intensity suppliers, and will therefore gain a competitive edge. Smart businesses have already recognised this, but governments seem to have been pre-occupied with the short-term.

Taking a long-term approach, then, many (but not all) Australian resource-based industries and other export (and import replacement) businesses could map out strategies to keep them at world-best greenhouse intensity over the next few decades. Then they could argue that they deserve some government support to get through any short-term distortions created by Kyoto or other greenhouse responses, because they are viable (at least from a greenhouse perspective) over the long term. This provides a

policy path for governments that don’t want to unnecessarily lose the economic benefits of some major export industries, but recognise the need to structure our economy for success in a carbon-constrained world.

Such a policy approach does create some problems though. To comply with Kyoto, Australia must meet a target for all its net emissions—including those from export industries. So protecting these industries from some short-term compliance costs would place more pressure on the rest of the economy to cut emissions, or on other actions such as carbon sinks (tree planting), capturing credits from activities in developing countries, and so on. All the more reason for Australia to ratify Kyoto so that we can gain access to these mechanisms.

Also, to gain public acceptance, it would be essential for the industries that benefit from such assistance to demonstrate their good will by assisting other sectors to cut emissions and plant trees. They would have to put their case for assistance clearly and there would have to be a publicly credible process for approval. And governments would have to more actively support sustainable energy and other businesses that are helping to reduce the greenhouse intensity of Australia’s economy. Maybe imports that increase our greenhouse intensity, such as fuel-guzzling four wheel drives, should also make a financal contribution to the cost of greenhouse response…

“Mandatory 5 Star energy ratings would create an additional 1000 jobs and increase Gross State

Product by $60m in Victoria over 20 years.“

Page 82: Pears Report Collection

Pears Report Collection

82

Keep talking energy efficiency

clear signals of the ‘need for the economy to move to a lower greenhouse signature while businesses retain flexibility to plan efficient pathways to achieve that.’ Sounds as though a carbon levy, local emissions trading or something like that is on the agenda.

Also worth reading is the series of Australia Institute press releases listing and refuting Silly Excuses on Kyoto (www.tai.org.au).

IPART—a regulator with an ear to the groundIPART is the NSW Government energy regulator. It is the only energy regulator that has made any real attempt to give sustainable energy a fair go in energy markets over the past few years—but has still had limited success. It has just released its final report on demand management and other options for delivery of energy services (at www.ipart.nsw.gov.au). IPART suggests improved pricing signals, better planning, clearer regulation of monopoly networks, and explicit incorporation of environmental objectives in decision making. It wants to see an active market in demand management services. Its recommendations include establishing a demand management fund, strengthening current government programs, stronger pricing signals, streamlined connection agreements for small generators, and standard agreements covering demand management. Other states and national

Alan Pears comments on a variety of recent high-level energy developments—urging governments not to neglect energy efficiency.

IT HAS certainly been an interesting time on the energy front over the past few months.

Kyoto, Johannesburg and all that The Australian Government’s spin doctors have been struggling since the surprise outcome at Johannesburg that enough countries are prepared to ratify the Kyoto Protocol for it to come into force. Every major newspaper editorial, and many business leaders, including former Coalition leader John Hewson, now support ratification, so it’s tough for Environment Minister David Kemp. Hewson is now tainted, according to the PM, because he has a vested interest in an emissions trading business—in contrast, the PM seems to believe that leaders of the coal and resources industries have no conflict of interest when they oppose Kyoto. Indeed, Kemp’s uncomfortable body language makes me suspect he really thinks that we should ratify, and that it is only his leader’s determination to back the US at all costs and differentiate himself from leadership contender Peter Costello (who I suspect might ratify, given his more progressive views) that keeps him

parroting lame justifications of Australia’s position. Then again, maybe the real strategy is to delay ratification until just before the next national election, so that the Labor opposition will have its major point of differentiation removed, but won’t have time to reposition itself?

Minister Kemp is now on the record as recognising that global reductions in greenhouse gas emissions of 50 to 60 % are necessary to limit global warming. And there is a clear commitment to meet our Kyoto target (even though staying out of the Protocol makes that more difficult). Australia’s rationale for not ratifying Kyoto is that the Protocol is not enough (nothing to do with Australia’s efforts to water it down, of course), while it leaves us vulnerable to possible difficult targets beyond the first compliance period of 2008 to 2012. The spectre of mass departures of our supposedly vital energy-intensive industries has been raised repeatedly. But other industries are threatening to move offshore to countries where they can capture Clean Development credits and participate in emissions trading, and our rapidly growing LNG (liquified natural gas) industry could well make more money from emissions credits than it makes from selling gas—if we ratify.

I recommend that you read the full government press release of 15 August on www.greenhouse.gov.au. It includes some interesting contradictions but also some hints of stronger action that will provide

Featured in: ReNew 82, January – March 2003

Page 83: Pears Report Collection

Pears Report Collection

83

29 November 2002. A Regulatory Information Bulletin has been published (www.buildingcommission.com.au) on the proposed energy efficiency standards, and comments are sought until that date.

Now let’s get serious about commercial buildings!

Business Council for Sustainable Energy Big news on the industry association front is that the Australian Ecogeneration Association (AEA) and the Sustainable Energy Industry Association (SEIA) have amalgamated to form the Australian Business Council for Sustainable Energy. Ric Brazzale, the very active former CEO of the AEA, is now running BCSE, and the amalgamated organisation consolidates the capacity and resources of both organisations. This is great news for sustainable energy. There is no doubt that bureaucrats and politicians prefer to deal with fewer organisations that represent more companies, and people like me will be able to focus our attention on supporting one organisation instead of two. BCSE will face challenges trying to represent the even wider range of businesses now included in its membership. But the other side of the coin is that lobbying efforts on issues that affect most areas of sustainable energy can be more focused and effective. Their website is www.bcse.org.au. S

regulators could learn a lot from IPART, it seems.

Let’s hope IPART can now speedily implement its proposals. Since there’s a NSW election not too far off, and the Carr government needs to avoid the price rises experienced in South Australia and Victoria, there may well be some interesting developments.

Action on energy efficiency at last?I lamented recently about how energy efficiency has become the wallflower of the energy sector over the past decade (ReNew 79). Maybe change is in the wind. The Commonwealth–State Ministerial Council on Energy now has a working group called the Energy Efficiency and Greenhouse Gas (E2G2). And there is a process for Commonwealth and state governments to develop a joint energy efficiency strategy, with Victoria’s Sustainable Energy Authority coordinating the process. As noted above, regulators are also beginning to get serious about demand-side action. Of course, there’s a long way to go, but when governments finally accept that they have to do something about global warming and the cost of energy supply, energy efficiency stands out as an exceptionally cost-effective option. I hope I’m not disappointed yet again. I would really rather not be a cynic.

Building codesThe Australian Building Codes Board has formally declared that it will be introducing national Building Code amendments covering residential building energy efficiency in January 2003. The new requirements are a bit messy, and are limited in scope. But this is an outcome of the difficulties of coordinating state agencies and industry groups and the inadequacies of information stemming from years of failure to fund important research and monitoring. Many people have worked hard and with goodwill to progress this step; let’s hope the focus will be on improving the code, rather than criticising the obvious limitations of this first step. My involvement in this process reminds me of many of the issues we faced when introducing Victoria’s insulation regulations in 1991—ignorance and fear made that process difficult, and many states and industry participants are still where Victorians were over a decade ago with regard to their understanding of building energy issues.

Meanwhile, Victoria’s attempt to lead Australia by declaring a mandatory minimum 5 Star requirement for new houses is under fire from the Housing Industry Association, which wants implementation delayed until 2005. To encourage the government to hold its ground, you could make a submission to the Building Commission before

“When governments finally accept that they have to do something about global warming and the cost of energy supply, energy efficiency stands out as an exceptionally cost-effective option.“

Page 84: Pears Report Collection

Pears Report Collection

84

Carbon and energy markets

as part of the path towards sustainability—but not wasteful use of gas. I don’t see any sense in encouraging people to install poorly insulated gas storage water heaters with continuous pilot lights. A 5 Star storage hot water system wastes more than five gigajoules of gas each year (costing $40 to $70 per year) before delivering any hot water: that’s enough gas to heat at least 70 litres of water each day and about twice the heat loss from a 125 litre electric hot water system (adjusted for gas combustion efficiency)! Similarly, although they are more efficient at low daily draw-offs, most continuous gas hot water system units struggle to be compatible with solar boosting and water-efficient showerheads and taps, so they are not a great answer yet—although some manufacturers have just about overcome the problems.

If the gas industry really wants to show that it is part of a transition to a sustainable energy future, apart from supporting complementary emissions trading and ongoing solar rebates, it could adopt approaches such as:

• ensuring that all new gas hot water units have electronic ignition and very low standby losses (at least as good as the electric Mandatory Energy Performance standards levels), and are compatible with solar pre-heating and water-efficient showerheads and taps.

• ensuring that all new gas pipes and fittings are hydrogen-compatible.

Our regular columnist Alan Pears discusses the NSW benchmarks scheme which puts a price on carbon, the current MRET review and where the gas industry fits into the greenhouse debate.

FROM January 2003, electricity retailers selling power in NSW will have to meet greenhouse targets under the NSW state government’s Greenhouse Benchmark scheme. For each tonne of CO2 above their target, they will have to pay around $15, but they can cut their costs by trading NGACs (NSW Greenhouse Abatement Certificates) generated by certified abatement actions including cogeneration, renewable energy, energy efficiency and fuel switching. The recently re-elected Victorian Government, conscious of the strong green vote, promised before the election to look at a similar scheme in Victoria.

There will be some very interesting bargaining over the next few months. With funding of many of the national greenhouse programs ending soon and heavy cutbacks across government agencies to fund the anti-terrorism and asylum seeker programs, combined with the usual effective lobbying from the minority energy-intensive industries, conservatives in the Commonwealth will try to take the opportunity to wind back greenhouse action. On the other hand, state governments are feeling plenty of

pressure from the green swing to push hard on greenhouse: and some of them are even finding that greenhouse response can be good for the economy—as we’ve been trying to explain for decades. At the same time, the Commonwealth will be trying to drive further energy market reform while states will be trying to limit the impact of reform to avoid losing the votes of rural and regional energy consumers and households. No room for idealism here!

The gas industry risks losing its green tinge?The gas industry has recently taken what seems to be a tactically poor stance, advocating removal of rebates for solar hot water. They propose that rebates should be linked to greenhouse performance—so gas hot water services would gain subsidies comparable with electric-boosted solar in many regions. This stance will certainly reinforce suspicions that the gas industry is using greenwash to promote its own interests, instead of being genuinely supportive of a transition to a sustainable energy future.

The obvious strategy the gas industry should adopt is to accept that governments are trying to build a viable solar industry for the long term, and lobby for both greenhouse-related incentives and solar incentives. The combination makes sense, and would make the gas industry much more popular!

I certainly see wider use of natural gas

Featured in: ReNew 83, April – June 2003

Page 85: Pears Report Collection

Pears Report Collection

85

replacement of state regulators by a single national one will face serious social and political barriers, even though they have some merit. The review also failed to effectively address many of the issues related to household and small business energy users: as in previous processes, the focus has been mostly on large industrial consumers.

When will a review of energy markets be conducted by a panel with broad expertise including social justice issues, environment, sustainable energy, small business, and ecological economics, as well as conventional energy supply? After all, households and small-to-medium businesses use more than half of the electricity produced, and the low electricity intensity (in terms of emissions per dollar of GDP) commercial and light industrial sectors generate over three-quarters of GDP. And when will such a review actually include a reasonable consultation and participation process, where community groups are provided with sufficient resources to participate in a meaningful way? Such a review also needs to be set in a context of large cuts to greenhouse gas emissions over the next 50 years, something the CoAG panel failed to do. S

• designing new gas burners so they can (preferably automatically) cope with a range of gas quality, so blends of natural gas, biogas, reformed natural gas, and other forms of gas can be used easily as they become available.

• promoting a ‘GreenGas’ product along the lines of GreenPower using biogas, landfill gas, solar gas reforming and other renewable gas sources to offset sales under this program.

• working with governments to ensure that a gas pipe is installed to every new building during construction so that future occupants will have the option of using fuel cells and other emerging gas technologies: it is much more expensive to install gas pipes after development. This will also help building occupants to negotiate with electricity suppliers, because they will have a fuel choice rather than being hostage to an electricity supplier.

CoAG Energy Market Review final reportThe Council of Australian Governments Energy Market Review has published its final report. It acknowledges that there are major problems, and that much more work is needed. The final report is available at www.energymarketreview.org.

Unfortunately, the review has focused on band-aids rather than fundamental issues. For example, it advocates more

transmission capacity to try to break the market power of large generators: why not make generators responsible for contributing to system reliability and limit the financial rewards for large generators from sales at times of tight supply? And why not divert money from new transmission capacity to energy efficiency, cogeneration and renewables instead? They would break the generators’ market power, reduce greenhouse gas emissions and save money. The review completely fails to acknowledge that many of the agents who influence energy demand are not involved in the energy market, and that new strategies are needed to ensure builders, developers, electricians, lighting shops, shop fitters and others promote sustainable energy solutions.

The review does propose some worthwhile changes, such as a mandatory code of practice between distributors and embedded generators, a ‘pay as bid’ scheme for demand-side bidding into the market (where demand-side bidders can be confident they will be paid what they originally bid for avoided power use, not a lower price that is a result of their bid easing the tight supply-demand situation), and it supports early introduction of greenhouse emissions trading. But the proposal to kill off the Mandatory Renewable Energy Target (MRET) could seriously undermine confidence in renewable energy investment unless promptly rejected by the government. And proposals for locational pricing and

“The proposal to kill off the Mandatory Renewable Energy Target could seriously undermine

confidence in renewable energy investment...“

Page 86: Pears Report Collection

Pears Report Collection

86

Good news and bad news

of energy price discounts may be negative. As energy prices declined, they cut

back on energy efficiency programs and invested in new plant on the assumption that prices would stay low. Now they’re stuck with energy-wasteful plant, higher energy bills, higher greenhouse gas emissions and limited expertise to save energy.

Macro-measures versus micro-measures One thread emerging from recent debates on sustainable energy policy is about the fundamentals of driving a shift to sustainable energy. On one hand, some see the role of government as being mainly to create a context within which markets will deliver change. These people focus on restructuring taxation, pricing carbon, and other big picture strategies. Some of these people are quite critical of past programs that have worked at the micro-level, with businesses and households, to help people to adopt sustainable energy, run training and certification programs, and so on.

What these ‘big picture’ people sometimes don’t appreciate is that the failure of past programs to deliver has been, at least to some extent, tied to the lack of political will to support such programs with strong signals such as removing subsidies from fossil fuels, pricing carbon and so on.

At the same time, it is important to review our past efforts at driving sustainable energy: and they have not

This year is a huge one for energy policy development and our regular policy columnist Alan Pears highlights where exciting and not-so-exciting change is afoot.

THERE’S a lot happening in sustainable energy at the moment—both good and bad. On one hand, virtually all Commonwealth greenhouse programs are reaching the end of their funding—with no clear future visible. Solar cell rebates have been heavily cut, and the Cooperative Research Centre for renewable energy (ACRE) has lost its funding. Wildly optimistic estimates of very low costs for geosequestration of carbon dioxide (that is, collecting it from power station flues and pumping it underground into empty gas or oil fields) have led some policy makers to question commitment to sustainable energy programs—and some recent decisions seem to reflect this.

On the other hand, the strong reaction against these actions has forced the government to announce funding of a renewable energy centre in Western Australia and to investigate options to replace the Photovoltaic Rebate Program. And, despite a recommendation from the Energy Market Review Panel to dump the Mandatory Renewable Energy Target scheme, statements from both the head of the Australian Greenhouse

Office and the Parliamentary Secretary for the Environment, Sharman Stone, have provided reassurance. Both have described MRET as “a cornerstone of Australian Government renewable energy policy”.

Preliminary results from the joint Commonwealth–State process aimed at developing a national energy efficiency framework have further reinforced recognition of the benefits of sustainable energy and energy efficiency in particular. Economic modelling has apparently shown that employment gains and economic benefits of $13 billion over 10 years would result from effective implementation of a ‘low’ energy efficiency scenario, and over 10,000 extra jobs would be created. The challenge will be to work out how to capture these benefits within the policy straightjacket of a conservative Federal Government that is trying to save up money for an election war chest.

When we finally get energy and greenhouse policy right, with strong emphasis on sustainable energy, some people might notice that the cost of educating economic modellers on how to properly analyse energy efficiency has been many billions of dollars of wasted expenditure on energy and energy infrastructure, and millions of tonnes of greenhouse gas. Even the big industries that benefited for a few years from super-cheap electricity prices are now realising that the overall effect on their businesses

Featured in: ReNew 84, July – September 2003

Page 87: Pears Report Collection

Pears Report Collection

87

gas emissions by, say, half over the next 40 years. Then, communities (or at least groups of people within communities) would become literate in energy issues from the ground up, and would have to confront the big picture issues such climate change. But they would do it from a position of empowerment. As communities work through the issues, they could identify their own priorities, and make their own trade-offs. Then they could call for proposals from renewable energy and energy efficiency program developers within their frameworks, not within frameworks imposed by state or Federal Governments. Nor would they be put in the position of having to consider isolated sustainable energy proposals from individual developers without a context.

This would take some time, but it would create an exciting democratic model for future development of energy infrastructure that is more compatible with the dispersed nature of sustainable energy systems and distributed generation. Community groups around the central Victorian regional city of Bendigo seem to be developing such an approach already, as part of an integrated development process. And programs such as Cities for Climate Protection and Cool Communities also provide some basis for processes. S

been as successful as we might have hoped. Sure, the lack of high level political and business commitment has contributed. But often, quality of delivery has been lacking, targeting has not been perfect, and intent rather than performance has often been rewarded. At the same time, we have learnt a lot, and recent programs are certainly working better.

A concern is that, given the Commonwealth Government’s desire to cut back on budgets, agencies such as Treasury and the Prime Minister’s department may propose replacing existing Australian Greenhouse Office and other government programs (and all the staff costs they incur) with changes in taxation or other incentives for sustainable energy. This would allow the government to claim that it is doing more, while cutting its implementation budget. This would be terribly convenient, but it would severely undermine the ability of Australian business and the community to respond quickly and effectively to the new environment.

We need a spectrum of programs and strategies. If some big picture strategies are introduced, we will still need to build up the delivery infrastructure through training and certification. We will need to help individuals and business to understand how to take advantage of new opportunities and avoid new threats. We

will need to spend a lot more, not a lot less, on micro-programs in addition to changing the big drivers.

This year’s federal budget may well tell us how this has played out.

Sustainable energy and community acceptance As we move from a traditional centralised fossil fuel model of energy service delivery to a sustainable energy model that relies on dispersed energy solutions, we must confront the reality that energy issues will impact on the everyday lives of many more people than they have over the past few decades.

The conflict over wind energy on coastal sites and biomass doesn’t seem to go away. The more I look at this, the more I question the deeply rooted assumption by government that we must make renewable energy work within an energy market context. The wind energy industry seeks out the best wind energy sites so it can compete in the energy market—even though these are also the most controversial sites. And, if the government puts global issues such as greenhouse ahead of local issues such as landscape, community anger builds as people feel ignored.

Maybe we need a different approach. What if government provided the resources for communities to explore how they could cut their greenhouse

“We need a spectrum of programs and strategies.”

Page 88: Pears Report Collection

Pears Report Collection

88

Even energy efficiency enthusiasts like me don’t expect energy efficiency to pick up all this improvement (although it could achieve a lot of it if effective strategies were applied). So we clearly need some very low greenhouse impact energy sources. MRET cost is equivalent to less than $20 per tonne of CO2 avoided, which seems pretty good value in comparison with economic modellers’ claims of $50 per tonne and other long-term proposals such as ‘zero emissions coal’ and nuclear. Developing our renewable energy industry creates a net increase in jobs while building an industry that replaces imports and captures export dollars. And the community want it.

Let’s hope the MRET Review Panel focus their attention on expanding the target and making MRET work better, rather than killing off one of the few positive measures we have.

Solar and gasI recently reported on the Australian Gas Association’s misguided lobbying to cut the rebates for solar hot water in favour of rebates for gas units. The Australia New Zealand Solar Energy Society (ANZSES) has published a powerful response to the AGA, pointing out some major errors in their analysis—worthwhile reading at www.anzses.org.

One of the big bloopers was the

ReNew’s regular policy columnist Alan Pears outlines the state of play of energy and climate change policy in Australia.

SINCE my last column, funding for the Australian Greenhouse Office programs has been extended for a year. Apparently the Australian Government will make a major policy statement on energy and climate change late this year that will chart the path forward. This will presumably drive the allocation of resources and institutional frameworks for the next few years.

It’s difficult to keep up with the processes that are developing inputs to this new policy statement. We have the ongoing digestion of the Parer Energy Market Review, the Mandatory Renewable Energy Target (MRET) Review, the National Framework for Energy Efficiency (a working group reporting to the Council of Australian Governments), a Taskforce in the Department of Prime Minister and Cabinet, and a Ministerial Oversight Committee on Energy chaired by the Prime Minister. Then there are all the state level processes...

The danger in all this is that, as the heavyweights move in, there will be strong pressures to define renewable energy and energy efficiency as fringe

issues, with the focus being placed on issues such as LNG exports, ‘clean coal’, geosequestration (storage of carbon dioxide in geological structures), energy market reform, encouraging oil exploration, and so on.

We are already seeing strong attacks on MRET, led by the Parer Energy Market Review, which claimed that MRET is an unnecessarily expensive way of reducing greenhouse gas emissions. And it distorts the market! Strange how, for some people, lots of other market distortions can be tolerated, including many that work against renewables and energy efficiency. But distortions that support sustainable energy are not to be contemplated!

MRET needs to be expandedIt seems to me that the case for an expanded MRET is pretty obvious. By 2050, the Australian economy will triple in size while under Business As Usual, energy consumption (and greenhouse gas emissions) will roughly double. At the same time, under conservative climate change scenarios, we will have to reduce emissions to less than half of today’s level. That means we need to cut our energy-related greenhouse gas emissions per unit of economic output by around 5/6 of today’s level—but we have been improving at less than 1 % per year, which would deliver only about a third reduction.

Featured in: ReNew 85, October – December 2003

Will interests converge on apath forward?

Page 89: Pears Report Collection

Pears Report Collection

89

a solar hot water system or rainwater tank, from mid-2004. From mid-2005, they will have to meet a 5 Star requirement and install either a rainwater tank or solar hot water system.

At a recent workshop organised by RMIT’s Centre for Design, the effectiveness of the Star rating scheme was brought home to me. A manufacturer of timber windows was pointing out that, relative to aluminium window frames, his product offered a 1/2 to 1 Star rating benefit. And a manufacturer of add-on air seals for exhaust fans told builders his product would gain them half a Star. We now have a simple language for energy efficient building products!

Energy efficiency and renewable energy I continue to be amazed at the lack of community recognition of the need to combine renewable energy with energy efficiency. Maybe we need an education campaign. For example, how fast would a normal, inefficient car like a Falcon or Commodore move with the solar panel of a Darwin–Adelaide solar car on its roof—or would it move at all? We could rename the solar race as the solar-efficient car race! Remote area power supply (RAPS) system owners and renewable energy enthusiasts already know that energy efficiency makes renewables more affordable and effective, so lets make sure others learn this important lesson too. S

assumption that all owners of electric hot water systems use standard electricity tariffs when the majority use cheap off-peak tariffs: correcting this error dramatically reduces the financial benefits of the gas option.

Greenhouse rating scheme wins challengeAt a recent seminar in Sydney, a case study of the application of the Australian Building Greenhouse Rating Scheme (ABGRS)—a SEDA scheme for rating of office buildings—to the Melbourne Central skyscraper was presented. ABGR rated the building at only 2 Stars. But in-house experts and two energy auditors claimed it was much better. Detailed analysis showed that ABGR was right—the experts had not noticed some problems that showed up as unusually high energy use outside working hours. ABGR is the only building rating scheme in Australia that relies on information from energy bills.

The importance of looking at actual performance rather than computer simulations or compliance with specific requirements such as insulation has been highlighted by this result.

We need to apply this approach much more widely. For example, much as building houses to a 5 Star energy rating is a good thing, poor installation of insulation and draughtproofing, inappropriate heating and cooling systems, and a myriad of other factors can mean the house will not be energy-efficient. Benchmarking actual energy bills

would help identify problems and create pressure to fix them.

Also, architectural award schemes must be changed so that no building can receive an award (of any kind) until it has been occupied for a year, and has shown that its occupants are comfortable and its energy use meets expectations. We need some accountability.

House ratings progress slowly across statesIn January this year, the Building Code of Australia was amended to include energy efficiency requirements for new houses. However, it is necessary for each state to adopt the code before they have any formal status. So far, the amendments have been adopted in the Northern Territory, South Australia and Tasmania. Western Australia should have followed by the time you read this. There is strong lobbying in Queensland to water down what are already fairly modest requirements, while New South Wales is still working out its approach. The anti-house energy rating forces in NSW are apparently working hard to exclude energy rating as an option, a very short-sighted approach.

Meanwhile, Victoria has announced it will introduce a 5 Star energy requirement with a phase-in from mid-2004. The 5 Star initiative was announced in mid-2002 in the Victorian Greenhouse Strategy. In a precedent-setting strategy, new houses will have to achieve 5 Stars, or 4 Stars with

“Developing our renewable energy industry creates a net increase in jobs while building an industry that replaces imports and captures export dollars.”

Page 90: Pears Report Collection

Pears Report eCollection

90

Making ourselves look good,

Weekend Australian of 30 August. Apparently, on advice from the coal, minerals, power generation, paper, chemical and aluminium industries, the Prime Minister overturned a joint proposal by Treasury and the Environment Department for introduction of emissions trading from 2013. The problem is that this decision won’t solve the problem. There will eventually be a price on greenhouse gas emissions. The question is when and how.

It is obvious to Australian business that more will have to be done on global warming. But the resolute resistance of the Australian Government to provide clear signals and effective response frameworks means business is in limbo. If anything, global warming seems to be happening faster than most scientists expected. And people are realising that global warming is not just benign: it means ongoing shifts in rainfall and weather patterns, more powerful and frequent cyclones and tornadoes where they haven’t happened before, and human deaths from heatwaves.

Economic development uncertaintyAs the gap between the Opposition (including minor parties) and Government on global warming widens, business must start planning for the possibility of a dramatic flip in policy. This makes

In this issue, ReNew’s regular policy columnist Alan Pears discusses Australia’s Kyoto crisis.

IN September, the Australian Government proudly announced our 2001 National Greenhouse Inventory. Using the Kyoto accounting methodology, it shows that Australia’s 2001 emissions have fallen to the same level as in 1990. And government projections indicate that we are close to meeting our 2010 Kyoto target of 108 % of our 1990 emissions, without needing to engage in international emissions trading or other mechanisms. Indeed, our government can now claim that we are much closer to our Kyoto target than are most countries that have ratified, and that have been critical of Australia’s failure to ratify: we are now taking the high moral ground!

How can these outcomes be reconciled with the staggering 29 % growth in greenhouse gas emissions from Australia’s fossil fuel use since 1990? Simple. First, Australia received a ‘free kick’ by being allowed to include its emissions from land clearing in the 1990 baseline—120 million tonnes—22 % of the total. These fell by almost 80 % by 2001. Second, Australia’s target was generous: most countries agreed to cut emissions below 1990 levels, while Australia’s target is 108 % of the

1990 level. These generous conditions were hard won through Australia’s tough negotiations at Kyoto, at the expense of international goodwill.

In the last paragraph of its press release, the government notes that, despite being on track to meet its 2010 Kyoto target, ‘emissions for 2020 are projected to be 126 % of the 1990 level on an indicative basis, reflecting the impact of ongoing growth in emissions in the energy sector’. In other words, growing fossil fuel use means we are a long way from the ‘lower emissions signature’ the government knows we need.

The wrong solutionThe danger of this situation is that apologists for the present weak approach to climate change may now argue there’s no need for much action until 2010, by which time we’ll have developed geosequestration (storing CO2 underground) and we’ll be building a hydrogen economy. This could undermine development of renewable energy and energy efficiency, both of which are cheaper and quicker. Why upset the powerful vested interest groups to pursue something the vast majority of the community want?

This perspective can be seen behind the recent decision of the Prime Minister, reported by Michael Bachelard in the

but at what price?

Featured in: ReNew 86, January – March 2004

Page 91: Pears Report Collection

Pears Report Collection

91

improvements, the average new passenger vehicle uses as much fuel as one built a decade ago because it’s heavier and more powerful.

In Victoria, electricity distributors who manage street lighting are fined if lights don’t work at night, but it’s OK if they’re on during the day, wasting energy. And governments continue to encourage the energy supply sector to expand our fossil fuel-based system, to ensure they don’t lose votes due to power blackouts.

Both Martians and people living in developing countries must see this behaviour as bizarre and arrogant, yet most people just don’t see a problem—yet.

Maybe we can learn something from recent strategies on water management. Where are the advertisements to ‘dob in an energy waster’? What about providing energy users with feedback to tell them if they are energy wasters or angels? And rebates for energy saving equipment? Somehow it’s OK to do these things for water, and even offer rebates for solar energy, but not for energy efficiency. Part of this difference can be explained by the obvious reality that water supplies are limited by rainfall. Also, water is much more tangible than energy. In contrast, many see energy supply problems as a failure of governments or energy markets to build enough power stations. It’s much easier to focus on blaming, than managing demand for energy. S

investment decisions and planning difficult, and is probably already undermining Australia’s economic development, as businesses delay commitments to new projects. Even the industries that are driving the government’s resistance to action will be reviewing their own investment strategies, knowing that policy action cannot be delayed much longer.

Most state governments are not much different. Queensland, Northern Territory and Western Australia are nervous about upsetting the energy-intensive resource-based industries that they have pinned their development hopes on. Victoria is a hostage to the brown coal-fired power stations (which employ the enormous total of 1500 people!) and the Australian car industry’s commitment to making fuel-guzzling cars and four-wheel drives. Mind you, the New South Wales Carr government’s decision to block development of the Redbank 2 power station on greenhouse grounds, as well as their Greenhouse Benchmarks scheme, shows that things can be different.

Australian global warming policy is in serious crisis, yet we will not pay the price for a few more years. John Howard and most current state Premiers will have retired by then. After all, it’s the next election that really matters in politics.

Lomborg and global warmingI don’t particularly want to enter the big debate about environmental sceptic Lomborg, but I can’t resist commenting on his position on global warming.

Essentially, Lomborg’s view seems to be that, since the cost of acting to limit global warming is enormous, it would be better to spend our money on more immediate environmental problems like clean water for people in developing countries.

But Lomborg assumes that the cost of greenhouse response is high. This position relies on economic modelling studies that ignore most of the potential for cost-effective energy efficiency improvement and generally assume relatively high costs for renewable energy, while setting the cost of global warming’s impacts at zero. There is increasing support for the view that global warming response is low-cost, or even profitable, while the cost of failing to deal with this issue is becoming more apparent.

The increasing discontinuity…There seems to be something seriously wrong with the fundamentals of Australia’s energy-related development in the context of sustainability.

At present, new houses are becoming bigger, with many new homes exceeding 300 square metres and having two or even three storeys. Yet the number of household occupants is declining— now 2.6 people—with 55 % of households being one or two people. Our population is ageing: how will we cope with the stairs?

A new Falcon can accelerate to 100 km/h in under eight seconds and reach a top speed of 200 km/h, while 50 km/h speed limits are being introduced in urban streets to tame car speeds and make streets safer. And, despite technology

“There will eventually be a price on greenhouse gas emissions. The question is when and how.”

Page 92: Pears Report Collection

Pears Report Collection

92

Equal opportunity needed for

more efficient) that’s considered to be a capital investment, and the tax deduction can only be claimed over the estimated life of the improved equipment. Even worse, equipment purchased before 1999 is eligible for accelerated depreciation (a higher tax deduction each year) if it is upgraded: but purchase of new equipment is ineligible for accelerated depreciation. So the least attractive option financially for a business is to invest in a new, more efficient plant. Even upgrading efficiency is less attractive than just maintaining equipment.

Of course, this doesn’t necessarily mean we should change the tax system, because it is designed to take into account many issues. However, currently there are no financial incentives for energy efficiency.

Progressive clean energy future studies Last year, the Australia Institute published the first progressive Australian energy futures study for many years. It demonstrated how deep cuts to fossil fuel use could be achieved over the next 50 years without hurting the economy. By the time you read this, another exciting report that presents a clean energy scenario for Australia, cutting greenhouse gas emissions by 50 % by 2040, will have been released. This project was supported by a number of organisations, including the Business Council for Sustainable Energy and the World Wide Fund for Nature.

ReNew’s regular policy columnist Alan Pears looks at a variety of schemes and research for a sustainable future.

THE recent release of comprehensive wind maps for Victoria (which are very impressive) highlighted for me an important issue about how sustainable energy is being disadvantaged relative to its competitors. All Australian governments spend millions of dollars each year surveying and researching details of resources for the mining, oil, gas, coal and many other industries. Much of this resource information is made available free or at relatively low cost to businesses that wish to exploit those resources. For example, Geoscience Australia in 2001 received $62.5 million of government funding but earned only $7.2 million from sales of goods and services. Then there’s the money state governments spend.

The question that arises is what kinds of resource information would help potential developers of renewable energy and energy efficiency projects? For example, someone wanting to develop energy-from-waste projects needs to know a lot about the nature of the waste resources in a region. People wanting to implement effective local energy efficiency and demand management projects would need to know which parts of the electricity

grid are close to their limits. They would also want to know the characteristics of energy consumers in that region, including the range of energy use patterns.

This is a different kind of resource information from that required for traditional mineral energy sources, but it underpins business success in the same way. Yet, at the moment, this information either doesn’t exist because no-one has collected it, or it is held by energy suppliers who see it as commercially valuable, even though they mostly seem not to be interested in pursuing energy efficiency seriously themselves.

Spending 50 or 100 million dollars per year on surveys, analysis, resource exploration etc could make a real difference to the ability of the sustainable energy industry to identify, gain finance for, and capture opportunities.

Tax and energy efficiency Even I was shocked when I attended a presentation by PricewaterhouseCoopers consultants at the November 2003 Sustainable Energy Authority Victoria (SEAV)/Business Council for Sustainable Energy (BCSE) energy efficiency conference in Melbourne on how the taxation system discourages investment in energy efficiency. Apparently, if a business maintains old equipment, it can claim 100 % of the cost as a tax deduction in that year, but if it improves the equipment (for example by making it

sustainability research

Featured in: ReNew 87, April – June 2004

Page 93: Pears Report Collection

Pears Report Collection

93

capture smaller additional savings. I hope someone comes up with the

magic formula for an effective energy efficiency trading scheme soon, because it really does seem to offer serious potential to drive energy efficiency—if it’s done well.

Building energy codes It’s all happening in this field. Late in 2003, the Australian Building Codes Board announced that it was going to review the residential energy code it introduced in January 2003. Apparently there has been a lot of criticism that the regulations are simply not tough enough! Energy and building regulators are not used to being criticised for being too weak, but there you are: this highlights the dramatic changes in community expectations in this area.

MRET review The MRET Review report has finally been tabled in parliament. While the recommendations clean up a lot of rough edges, the panel failed to tackle some big issues. Leaving the 2010 target at the present level creates a real risk that renewable energy development will stall for a few years late this decade, as demand for Renewable Energy Certificates will have been met.

We must also keep in mind that the panel’s recommendations are only that: the government has the luxury of being able to watch the reactions, and then tailor its response in the energy statement that is supposed to appear some time in the next six months or so. So it’s important to make some noise about MRET, and keep pushing for stronger targets. S

Studies such as these provide an important balance to the traditional studies that predict ongoing growth in fossil fuel use. But we need to see these studies as just the beginning, not an end. Because so little work has been done to research the full potential of energy efficiency improvement and the long-term future of renewable energy, many assumptions must be made in today’s studies. More analysis and research and development projects are critical to demonstrate what’s possible. This will involve far bigger investments than have been made to date, but without such activity we will not be able to progress. And a special program for economists and treasury policy makers is needed, to help them overcome their scepticism about the potential for energy efficiency improvement!

Energy efficiency certificate trading Spurred on by the success of the Mandatory Renewable Energy Target’s (MRET) trading scheme, and consistent with economists’ and key policy makers’ support for trading systems that aim to minimise the cost of achieving a given objective, there is rising interest in the idea of trading energy efficiency certificates. Such a scheme also seems likely to increase interest in energy efficiency by making the value of benefits more tangible, as well as by creating some obligations to comply.

New South Wales already has its Greenhouse Benchmarks scheme, in which electricity retailers and large electricity consumers trade NGACs (NSW Greenhouse Abatement Certificates) to reach targets set by the NSW Government.

And energy efficiency improvement is one way in which NGACs can be earned.

Unfortunately, setting up a trading system in energy efficiency certificates isn’t necessarily as easy as it is for many other commodities. Because improving energy efficiency involves using less of something rather than producing more, savings must always be assessed relative to a baseline. And setting baselines has proved to be quite difficult. Set too low, energy savers will gain a bonanza because they will be able to make big energy savings at little cost. Set too high, no-one will bother to try to save. And setting fair baselines across a variety of activities and industries is a serious challenge.

An energy efficiency trading scheme may also need to bring the future savings (and costs of not incorporating energy efficiency) forward to the point of decision making—purchase of the appliance or construction of the building. Otherwise, sensible measures may still not be adopted because the decision maker does not benefit sufficiently. The NSW scheme (and MRET) does this for some situations by using ‘deeming’—you collect the credits for 10 or 15 years worth of savings at the time of purchase.

A trading scheme that encourages capture of the cheapest energy savings may actually undermine the potential for future, larger savings. Often some savings are only cost effective if captured at the same time as cheap savings. For example, the extra cost of installing thicker insulation is small if you’re already planning to install some insulation. But if a building already has some insulation, it may not be financially viable to send someone to install extra insulation to

“It’s important to make some noise about MRET, and keep pushing for stronger targets.”

Page 94: Pears Report Collection

Pears Report Collection

94

A lot of hot air

strategies promoting development of super-efficient small air conditioners; incentives for local power generation and load management; bans on new buildings and renovations with high peak demand; and education and information campaigns.

Instead, the push is on to install more centralised electricity supply capacity with a little bit of load management (mainly by large industry) at the edges. This will drive up greenhouse gas emissions and electricity prices. And it will create more pressure for the electricity industry to sell more power, to utilise their extra supply capacity outside times of peak demand, when it is under-utilised and it’s cheap to supply more. Oh, and it will also increase profitability of the electricity industry.

The New South Wales Government seems to be taking a forward-looking approach by establishing a demand management fund to support smart solutions, and is including a peak demand requirement in the new BASIX planning requirements.

But there are powerful forces working against effective action, including community ignorance and media interest in publicising crisis instead of constructive and subtle solutions. We have a choice to take a sustainable energy path or to further add to our problems. I am nervous that we will yet again be led down the wrong path.

ReNew’s regular policy columnist Alan Pears takes a look at some broader energy efficiency issues.

AT present we are all sitting on the edges of our seats waiting for a series of long-awaited announcements on energy policy, especially by the Federal Government, and for the outcomes of processes such as the National Framework for Energy Efficiency. So in this column I thought I would turn to some of the broader issues and look at the associated problems and opportunities.

Is it a crime to try to stay cool on a hot day?Home air conditioners are under attack. The rapid increase in summer peak electricity demand, with associated risk of blackouts and investment in extra power stations and powerlines, is largely being blamed on home air conditioning. So our wasteful ways are the problem. Or are they?

The tensions are increasing. Politicians know that blackouts mean lost votes. Energy market reformers argue that paying the real price of energy is central to a properly functioning market: high prices send the signal to build more power stations (or, in a properly operating market, to save energy).

Some social justice advocates (correctly) point out that non-air conditioner owners (often the poor) are subsidising those who run their cooling. But others,

such as South Australian regulator Lew Owen, point out that trying to charge the full price (which could be up to $4 per kilowatt-hour at peak times, compared with the usual price of 15 cents) could be socially divisive. After all, if you find out two months later that your children ran your air conditioner after school on a few hot days and blew out your electricity bill by hundreds of dollars, how empowered would you feel by cost-reflective pricing?

This debate suits the electricity supply industry. It focuses the blame on individuals for using air conditioners, even though some electricity retailers are promoting air conditioners. Politicians are also blamed for interfering with the market to limit prices—no wonder it doesn’t work! So the electricity industry can position themselves as the good guys, struggling to work out ways to keep the power on, despite the impossible demands placed on them.

The situation could be different if we all lived in energy-efficient homes with highly-efficient air conditioners (for those who need them), and onsite solar cells (which deliver peak output on sunny days). At night, a super-efficient air conditioner could cool a well-designed bedroom using about as much energy as a ceiling fan. There need be no crisis.

What’s needed is an integrated strategy that helps householders to shade, insulate and draught-seal their homes; incentives to replace clunkier air conditioners;

Featured in: ReNew 88, July – September 2004

Page 95: Pears Report Collection

Pears Report Collection

95

energy consumption issue! And why don’t TVs have energy labels?

To be fair, in response to a paper on these issues (a report by Sustainable Solutions on home entertainment equipment available on www.greenhouse.gov.au) the government has begun consideration of TV labelling. But this is happening after the horse has bolted, again!

We need a new approach to energy labelling and minimum energy standards. Instead of a small group of public servants trying to catch up every time a new appliance technology appears, manufacturers of new appliances must demonstrate to the government before they go on sale that their products are efficient relative to other options. Where they use more energy than other options (defined broadly), they must carry labels stating the facts. This could be integrated with safety certification procedures that all products must now satisfy.

Let’s stop treating energy efficiency as an afterthought. It is costing us too much. S

Clothes drying—a sleeping greenhouse problemThe average household uses about 150 kWhs a year (about $20) for clothes drying, so it is generally not seen as much of an issue by policy makers. However, if a household dries all its clothes in an electric dryer, it could use 1000 kWh or more (1 5 % of average electricity use). With growth in apartment living, fewer people have access to low environmental-impact clothes drying.

What can be done? First, we can ensure that new apartments have built-in clothes drying racks, and that body corporates cannot ban clothes drying on balconies.

There are some interesting technology solutions, too. First, clothes washers with very high spin speeds (above 1000 RPM) leave less than half as much water in the clothes as older washers. Second, we could look at other drying technology options. For example, in Japan, some clothes dryers use domestic hot water: a loop of insulated pipe runs from the hot water service to the dryer and back, and water simply circulates to provide heat to dry the clothes.

Such systems could use solar heated water or, at worst, gas heated water with lower running costs and two-thirds or better reduction in greenhouse gas emissions.

There are other options, too, such as gas clothes dryers and heat pump clothes

dryers, and improved heat recovery. Again, the NSW BASIX planning requirements are beginning to tackle this issue, but I see little recognition of it elsewhere.

Plasma TVs—the big screen energy disasterThere has been explosive growth in sales of large screen televisions, including trendy plasma screens. Without making judgements about the need for large TV screens, this market phase is leading to unnecessary energy waste. A 109 cm plasma TV uses around 330 watts. Used five hours a day, that’s 600 kWhs a year or 10 % of average household electricity use.

The best rear projection TV of the same size uses around 120 watts, about the same as many older, smaller TVs. LCD flat panel TVs use even less power, especially if their brightness is turned down. LCDs are technically superior and much lighter than plasma screens, and cost about the same.

Over the next few years, organic LED screens will appear that use half as much energy as LCDs. The best 68 cm conventional TVs now use less than 60 watts—less than some 34cm TVs and less than half the power use of some other 68cm units.

Where are the public information campaigns informing TV buyers of these issues? Even a recent article in the consumer magazine Choice advising on plasma screens failed to mention the

“We have a choice to take a sustainable energy path or to further add to our problems.”

Page 96: Pears Report Collection

Pears Report eCollection

96

Securing more of the same

provides the excuse to refuse funding to innovative sustainable energy RD&D projects—just what Australia needs like a hole in the head.

Perhaps one of the most obvious examples of the Federal Government’s failure to grasp what a sustainable energy future entails was its response to predictions that Australian oil production will decline over the next decade. It offered the oil industry extra tax rebates for exploration activities. But there was no equivalent incentive for manufacturers or purchasers of fuel-efficient vehicles that would avoid the need to find (and burn) more oil.

In his presentation of the policy to the National Press Club, the Prime Minister presented a graphic example of why he believes Australia should not introduce a price on carbon. He explained that, if we did, a country like Indonesia could undercut our liquefied natural gas (LNG) prices and capture market share at our expense, and the atmosphere could be worse off. This stereotypes developing countries as unconcerned about climate change. Clearly the PM was not at a Sydney speech early in 2004 by a prominent Indonesian and former Environment Minister, Dr Emil Salim.

Dr Salim pointed out that Indonesia was a country of many islands, and that Indonesians recognised rising sea levels would have serious impacts. Dr Salim was in Australia seeking Australian support for a proposal for the World Bank to increase

In the lead-up to a federal election, ReNew’s regular policy columnist Alan Pears looks at the Howard government’s Energy White Paper.

IN THIS issue the obvious topics are the outcome for the Mandatory Renewable Energy Target (MRET) and the Howard government’s White Paper Securing Australia’s Energy Future. But by the time you read this, there may have been an election, and present policies may be consigned to the rubbish bin of history. Oh, well, here goes anyway.

The White PaperThe Australian Government’s recently released policy statement Securing Australia’s Energy Future was devastating for supporters of sustainable energy, as it essentially adopted the agenda of the energy-intensive and fossil fuel industries. The Federal Government clearly put its weight behind geosequestration (storage deep underground) of emissions from coal-fired electricity—even though it will only work with the construction of a new generation of power stations that will cost billions and take decades to build.

The White Paper was a disaster for renewable energy: first, hopes of expanding the MRET were dashed (see below). But even the seemingly positive allocation of funds for a ‘solar cities’

project could actually slow renewables growth because, the paper states, we will have to wait for five years of data before the results of this project are rolled out. Some have pointed out that Australia already has the world’s largest solar suburb—the Sydney Olympic Village. So why do we need a five-year trial?

One of the less discussed aspects of the White Paper was the section on energy efficiency. Mind you, this was not a major focus of the paper—it is a short nine-page section beginning on page 105. The Federal Government pledged to work with the states to introduce mandatory reporting of energy performance for existing buildings at time of sale or lease. Good stuff. There is also a proposal for large emitters (using more than 0.5 petajoule per year) to be required to undergo a five-yearly Energy Efficiency Opportunity Assessment and to report publicly on their implementation of the outcomes. The detail is yet to be worked out and, as we all know, the devil is in the detail. But if community groups are resourced to play an effective watchdog role, this could have some impact.

A deeply worrying aspect of the document is the innovation assessment included as an appendix. This assessment sets research development and demonstration (RD&D) priorities in the energy area. It concludes that Australia is a ‘fast follower’ rather than a leader in energy efficiency and a number of renewable energy technologies. This

Featured in: ReNew 89, October – December 2004

Page 97: Pears Report Collection

Pears Report Collection

97

wonder what policies he will support?

What’s best for renewables? With the government’s rejection of proposals to increase the MRET, it’s useful to look at what impact investing our hard-earned money in different renewable energy options will have. A significant, but rarely discussed, issue relating to the purchase of solar hot water systems and solar cells is that, in exchange for the rebates and discounts on offer, we have to sign away our rights to the Renewable Energy Certificates the equipment will earn over its life. This means that all of the renewable energy they produce will be part of the MRET Target.

The reality is that, if you didn’t buy that solar equipment, the electricity retailers would have to buy more RECs from other sources. That is, you are helping the electricity retailers meet their mandatory targets—but nothing more. In contrast, if you buy certified GreenPower, the RECs are ‘quarantined’, so that the GreenPower sold is in addition to the MRET target, not part of it.

To make an investment in solar hot water or solar cells additional to the MRET, you must hold on to the RECs allocated to them, or not register them for RECs. Do not sign your rights away. This issue needs to be publicised and debated, particularly because states such as Victoria are focusing their solar hot water incentive schemes on situations where solar installations are not eligible for RECs. This creates more pressure to sign away your RECs in order to gain a discount. S

the share of its energy investment into sustainable energy over the next few years. At present, 94 % is for fossil fuels. Mr Howard didn’t commit Australia to support such a change in his White Paper presentation, and the latest news is that the World Bank has rejected the proposal. Our Prime Minister is distorting the attitudes of developing countries with regard to climate change policy, and adding to tensions between Australia and developing countries.

Mandatory Renewable Energy TargetRenewable energy industry groups lobbied very hard for the government to increase the MRET and adopt the review panel’s recommendation that the program roll on beyond 2020. Research by the Business Council for Sustainable Energy (BCSE) showed clearly that the present rapid growth in renewable energy capacity will absorb all the requirements of the existing scheme by 2007, so that there will be a slump in growth unless the target is increased.

This problem has been amplified by the generous baseline set for existing hydro schemes, which has created a nice subsidy scheme for Tasmania at the expense of other renewables.

But those who argued that MRET is just an expensive subsidy program won the day. Soon after the announcement, Environment Minister David Kemp unexpectedly resigned from his portfolio and announced his retirement from parliament. Media commentators claimed that his defeat on MRET, which he is believed to have actively supported, was

a major factor in his decision, which was officially for personal reasons.

As well as the economic fundamentalists who can identify a subsidy for renewable energy—but can’t see a subsidy for fossil fuels when it stares them in the face—the aluminium industry played a key role in blocking expansion of MRET. They employed consultants ACIL–Tasman to estimate that an expanded MRET would add up to $80 per tonne to the production cost of aluminium. BCSE estimated that the cost impact would be more like $20 out of a price of around $2000 per tonne. And it could be argued that this would just recover some of the subsidy researchers, such as the Australia Institute, estimate the aluminium smelting industry has been capturing for many years. An interesting aspect of the aluminium industry’s position was that, while it opposed expansion, it did not oppose the existing MRET’s continuation. If MRET had been scrapped, it may have created a precedent for the future removal of other industry subsidies. Could the aluminium industry have been protecting its own back?

Greenhouse science finally winningIt was interesting to hear Australia’s new Environment Minister, Ian Campbell, speaking on ABC TV a week after taking up his new appointment. When quizzed on climate change by journalist Barrie Cassidy, he admitted he had been a greenhouse sceptic but that, after the briefings he had received, he now considered climate change to be possibly the biggest environmental issue we face. I

“The White Paper was a disaster for renewable energy.”

Page 98: Pears Report Collection

Pears Report Collection

98

Speak up for a green future

alternative strategy? And will other states follow suit? If so, the building of fossil fuel power stations to solve the demand crisis may not be the simple solution many now assume.

Energy efficiency inquiryOne of the initiatives in the Commonwealth Government’s Energy White Paper was a Productivity Commission Inquiry into energy efficiency. An Issues Paper was released on 30 September, and submissions were due by 10 November—but you can make submissions at any time during the process. A draft report will be released in April 2005, and further comment can be made by June. The final report should be delivered by the end of August 2005. Details can be found at www.pc.gov.au.

This is a very important process. The outcomes of Productivity Commission processes are taken very seriously by governments. If the commission can be convinced that there are problems with taxation structures and institutional frameworks, there may be action to fix them. But the challenge is to make a case within the narrow confines of classical economic theory and the specific terms of reference of the inquiry.

Classical economists don’t automatically consider that a situation where an agent expects a rapid return on energy efficiency investments demonstrates market failure:

ReNew’s regular policy columnist Alan Pears looks at the future of energy policy in Australia.

Our energy future: blackouts and black fuelsWE’RE settling in for another few years of coalition leadership at the federal level, while several states face elections in the near future. The Commonwealth Government’s direction on energy was made clear in its mid-year Energy White Paper: the focus is on reducing the impact of fossil fuel use, not on pursuing energy efficiency and renewable energy initiatives.

At the same time, most state governments are facing community fears about summer blackouts. Sales of small petrol-fuelled electricity generators to householders in Queensland are apparently at record levels. There have also been community accusations that publicly owned electricity suppliers are being used as ‘cash cows’ to fund other activities. Unfortunately, as governments rush to solve the immediate problems, the most likely outcome will be construction of more fossil fuel power stations and further network upgrading, with climate change issues put on the backburner. This will just create more stranded assets when we do finally face up to the climate change challenge.

One obvious question is: where are the public education and information programs that could help people limit their summer peak demand, and encourage businesses to link their back-up generators to the grid? If we worked together, we could create a more educated community, open to constructive planning for the future. Are governments waiting until there are blackouts? Are they relying on the electricity industry? Or do they think they can solve the problem with more fossil fuel-based infrastructure?

A recent decision by the Victorian Civil and Administrative Tribunal (VCAT) could complicate the situation. An inquiry set up to assess the impacts of a proposal for land use changes from Hazelwood power station was directed by the planning minister not to consider greenhouse issues in its assessment. But VCAT, under pressure from green groups, has decided that greenhouse must be included in the evaluation.

If Hazelwood’s proposal is rejected, its access to coal will be limited so that it may have to close down by 2009—four years after it was originally to be closed when it was publicly owned, but much sooner than its present owners want. Green groups have published a strategy that would replace Hazelwood with a mix of energy efficiency and low-emission electricity generation—but will the Victorian Government implement this

Featured in: ReNew 90, January – March 2005

Page 99: Pears Report Collection

Pears Report Collection

99

Disclosure of building energy performance An important initiative agreed on at a recent Ministerial Council on Energy (which includes all state and Commonwealth ministers) was to introduce mandatory disclosure of building energy performance at the time of resale or lease. The Australian Capital Territory has had such a scheme in place since 1999. In principle, this is a great idea. But the full potential of the initiative may not be explored. If the scheme is just based on House Energy Rating (as in the ACT), it will not help potential tenants or buyers to identify buildings with inefficient lighting and other fixed equipment, high running cost and greenhouse impact, day-rate electric hot water services and heaters, and so on.

Work is in its early stages—the Australian Greenhouse Office is commissioning a review of similar international programs. But we need other inputs, such as surveys of existing home buyers and tenants regarding what information they would find useful. And we need a participative process that includes community groups and business groups that represent commercial tenants. Let’s hope this does not become another lost opportunity. S

the agent may perceive high risks, or may have better things to do with its money. For example, a householder may choose not to invest in home insulation because they are not really sure it will save money, or may prefer to spend the money on a fancy home theatre. These are seen as rational choices unless it can be proved that lack of information or other ‘market failures’ have led to rejection of the energy efficiency measure.

The inquiry’s terms of reference also limit the range of issues to be considered. Only energy efficiency measures that are cost-effective for individuals are to be considered. Measures that have broad societal benefits but aren’t financially attractive to individuals will not be considered. So the inquiry really only considers one dimension of energy efficiency. On one hand, that means it will come to very conservative conclusions. However, if the inquiry does find a bias against energy efficiency, it will be a very powerful message for governments to act.

The more submissions the better!

Are ‘smart’ meters really that smart? Pressure is mounting for the roll-out of ‘smart’ electricity meters to smaller customers, including households. These meters record electricity use at each time interval, so that customers can be charged different prices at different times. The theory is that customers will then change their behaviour to reduce their costs, by using less electricity during peak periods. This is all very well, but it requires the customer to get timely feedback, to

be in a position to respond, and to care enough about electricity costs to act. What initiatives will be introduced to address these factors?

Looking beyond these issues, will we miss some other important opportunities if we roll out basic smart meters? This is a major infrastructure decision with long-lasting implications, so we should think broadly about it before committing. Could we be rolling out something better: a comprehensive ‘smart’ interface between the customer and the grid? It could include a capacity to meter onsite electricity generation, manage onsite energy storage and operation of appliances and equipment, and so on. It would also make sense to incorporate an earth leakage safety device and surge protection. Voltage control, so that the customer can manage voltage while supply voltage varies, could extend equipment life and reduce electricity consumption.

Of course, the usual arguments of expense and complexity can be used against this approach. But it could underpin cheap and effective adoption of onsite renewables, sophisticated demand management, and improved quality of service. And economies of scale would help solve the cost problem.

Another initiative of the Energy White Paper, the Solar Cities program, provides a valuable opportunity to explore the role of truly smart interfaces between households, businesses and the grid. Let’s hope this potential is explored.

“...the Solar Cities program provides a valuable opportunity to explore the role of truly smart interfaces between households, businesses and the grid.”

Page 100: Pears Report Collection

Pears Report Collection

100

Government needs to lead,

an increase in energy consumption is unavoidable. More coal-fired plants are the obvious ‘short-term’ answer, but this would place long-term emissions reduction at risk, and investors would risk being left with stranded assets—they are looking for government guarantees to protect their investments.

The reality is that we can actually cut energy (and electricity) consumption. If we can improve energy efficiency, total energy costs will decline, even as prices increase.

Victoria’s brown coal futureThe inquiry into planning permission for the Hazelwood power station to access more coal has continued. The inquiry reconvened to consider climate change aspects of the project. This process has put climate change issues on the agenda of Australia’s electricity industry. I was asked by the Environment Defender’s Office to give expert evidence on the potential for energy efficiency to contribute to the Victorian economy. My submission identified the equivalent of at least two and a half Hazelwood power stations in cost-effective energy efficient potential.

Before the inquiry I spent over two hours answering questions from Hazelwood and electricity industry representatives. The usual attempts to dismiss energy efficiency were made: the ‘rebound effect’

ReNew’s regular policy columnist Alan Pears looks at the good, the bad and the ugly in energy policy.

DECEMBER last year saw a flurry of activity at the state level on energy issues. New South Wales published an Energy Directions Green Paper (www.deus.nsw.gov.au) while the Victorian Government published its Greenhouse Challenge for Energy Position Paper (www.greenhouse.vic.gov.au).

The NSW paper dismisses energy efficiency in a couple of paragraphs, stating: ‘... Even if the full estimates of cost-effective demand-management potential in the immediate future are achieved, its effect will be to defer the need for new supply by a year or two, rather than eliminate it.’ It is difficult to understand how an agency whose recently appointed head has an outstanding record in US demand-side management could dismiss demand-side action so bluntly—and incorrectly. Public comment was due late-February, making it difficult for many community groups to engage.

The Victorian paper is a fascinating mix of good intentions and disturbing mindsets. While, on one hand, the government’s first objective is to ‘facilitate Victoria’s transition to a carbon-

constrained future’, another objective is to ‘ensure the Latrobe Valley’s long-term future’. The second objective appears to mean finding ways to continue to use brown coal to provide energy. The paper goes on to advocate the kind of energy policy objectives that I thought were antiquated in the 1980s: it proposes to ‘protect Victoria’s economic interests by maintaining a secure, reliable and affordable supply of energy’. As Amory Lovins and others have been pointing out since the 1970s, people (and businesses) don’t want energy, they want the services that energy helps to provide. The Victorian Government makes some positive commitments: it wants emissions trading; an expansion of the Mandatory Renewable Energy Target; it supports innovation (although much of it is related to making brown coal viable in a carbon-constrained future); and it is developing renewable energy and energy efficiency strategies. The paper is full of good intentions, but not many serious and tangible sustainable energy commitments.

Both papers reflect the dilemmas governments are facing. Climate change science suggests that Australia needs to cut its greenhouse gas emissions by 60 to 100 % by 2050. But governments are desperate to limit increases in electricity prices in the short term. They also believe

not follow

Featured in: ReNew 91, April – June 2005

Page 101: Pears Report Collection

Pears Report Collection

101

report, Innovation Australia: Backing Australia’s Ability, published in 2004, summarises a wide range of innovative research activities. Again, many of these activities will contribute to energy efficiency improvement. Examples include development of high-capacity optical communication fibres, micro filtration systems, e-health systems, distance education systems, fleet and freight management systems, traffic management systems, intelligent vehicle technologies, truck braking energy recovery systems, lightweight plastic fuel tanks and other vehicle components, increased yield of wine from grapes, and so on. Many of our cooperative research centres are contributing to energy efficiency improvement through improved materials, information and communications technology and industrial process efficiency improvement.

We need someone to draw together information on how Australia is already contributing, and could contribute a greater extent, to energy efficiency improvement, both at home and abroad. And governments need to focus more attention on accelerating activity in energy efficiency research, development and demonstration. We could be world leaders in this field, and capture export income instead of—yet again—becoming importers of products and services in an emerging growth area. S

was invoked (that is, people who save energy will use the money saved to buy more energy, reducing net savings). The argument that if energy efficiency existed, more of it would have happened, was also thrown around.

The impact of using alternatives on the wholesale price of electricity was presented as a ‘30 % increase in electricity prices’. In reality the impact would be much smaller, because much of the customer price for electricity is due to transmission, distribution and retailing costs. Few electricity industry representatives seemed keen to acknowledge that if we used less electricity, total electricity costs for customers could decline, even if prices went up a bit.

Building Code progress An outline of the Australian Building Codes Board’s proposed energy requirements for non-residential buildings, as well as a second round of more stringent proposals for residential buildings, are also available for public comment at www.abcb.gov.au. Comments are due in April. The residential requirements are a response to criticisms of the first round of regulations, enacted in early-2003. Many state governments believed the 2003 requirements were too weak, and proceeded to introduce schemes such as the Victorian 5 Star regulations and the NSW BASIX scheme.

The non-residential requirements are fairly modest in terms of their stringency, but they are the first ever regulations in

this area, and we can expect them to be tightened over time. The good news is that they cover all types of non-residential buildings, not just office buildings. But we will still need to keep pushing for more effective regulation.

New technology drives energy efficiencyIn its Energy White Paper of June 2004, the Commonwealth Government concluded that Australia was not an innovator in energy efficiency, but was a ‘fast follower’. This position provides a convenient justification for not funding much energy efficiency research and development.

But energy efficiency research is going on in Australia, often disguised behind other titles. For example, a recent Commonwealth Government publication describes Australia’s research in the trendy field of nanotechnology. Surprise, surprise, we are developing special roof coatings and paints that reflect and re-radiate heat, cutting cooling energy use. New coatings for food containers are extending shelf life (reducing spoilage and its associated energy waste). Nanotechnology underpins development of super capacitors, which will play a key role in hybrid cars, and potentially support renewable energy technology. Nanotechnology is also supporting development of improved filtration systems, stronger materials, micro-electronics, et cetera, all of which will contribute to energy efficiency improvement.

Another Commonwealth Government

“The Victorian paper [Greenhouse Challenge for Energy] is a fascinating mix of good intentions and disturbing mindsets.”

Page 102: Pears Report Collection

Pears Report Collection

102

Energy-saving actions

to the Energy Efficiency Opportunity (EEO) measure announced by the Federal Government in last year’s Energy White Paper. They do go one step further. Unlike the EEO, the ‘savings action plans’ make provision to require implementation of those identified energy savings measures.

The new NSW savings action plans, therefore, appear to match the Victorian Government’s existing EPA program. The EPA program requires large greenhouse gas emitters to carry out energy audits and implement all identified measures that have a three-year-or less payback period.

Recent Victorian Government reports indicate that, already, the EPA scheme is delivering over a million tonnes of carbon dioxide reductions and effectively saving tens of millions of dollars on business energy bills. Not bad for ‘blunt and inefficient regulation’.

Productivity Commission energy efficiency inquiryWhen this inquiry was announced in last year’s Federal Government Energy White Paper, sceptics suggested that it was likely to be a ‘hatchet job’ on energy efficiency (see my column in ReNew 90). Now that the draft report has been released it’s difficult to disagree with that view (available at www.pc.gov.au).

The Productivity Commission claims that ‘the benefits of energy efficiency may be overstated and the costs of adoption

ReNew’s regular policy columnist Alan Pears looks at some new initiatives and a not-so-renewable future.

RECENT developments show a very mixed picture for sustainable energy. On one hand, there is the vigorous bidding for ownership of Pacific Hydro, one of Australia’s largest renewable energy companies.

On the other hand, the Hazelwood power station has been given approval by the Victorian Government to emit an additional 250 million tonnes of carbon dioxide, and the Productivity Commission has released its draft report on energy efficiency, which calls for a stop to many programs.

There have also been close calls—imminent threats of closure or cutbacks—for a number of renewable energy incentive schemes, including the solar photovoltaic rebate scheme and several state-based solar hot water incentives.

Add to this the concern for the future of renewable energy as the Mandatory Renewable Energy Target (MRET) faces a premature cap on its achievements. We have also seen a build-up of the ongoing campaign by the nuclear industry to position itself as ‘the answer’ to satisfying ongoing growth in energy demand while cutting greenhouse gas emissions.

NSW schemes for energy and waterThe New South Wales Government has introduced a range of measures applying to both water and energy. First, energy and water savings funds are being established, with funding from water and energy network providers and government. The network providers will be able to pass the cost through to customers.

The aim of the Energy Saving Fund is to encourage energy savings, address peak energy demand, stimulate investment in innovative energy saving measures, increase community awareness and cut greenhouse gas emissions. This approach has been modelled on successful US demand-side management funds, where a levy is applied to utilities. Those wishing to implement energy efficiency measures then bid for financial support. This could provide a real boost to energy efficiency in NSW.

The second NSW scheme involves state legislation that allows the government to require large energy and water users to prepare ‘savings action plans’. The top 200 energy users in NSW are initially targeted. The proposed legislation will also require water and energy providers to release information about large consumers and their consumption. This will presumably allow them to be identified and targeted, with further regulation directing implementation of these action plans.

These ‘savings action plans’ seem similar

Featured in: ReNew 92, July – September 2005

Page 103: Pears Report Collection

Pears Report Collection

103

how they use energy.’Submissions were due late-May. Let’s

hope they educate the Productivity Commission.

Nuclear campaign neededThe nuclear industry now sees a great opportunity to paint itself as the solution to climate change. The industry’s great advantage is that it builds big centralised power stations that are just like coal plants but don’t emit greenhouse gas. Politicians and business leaders can understand such a simple alternative. It’s a vision the uranium industry is clearly spending a lot of money to drive.

But both the nuclear and the coal visions are based on the same assumption: that we want and need large amounts of electricity from centralised sources to underpin economic growth. That has been the case in the past, and ‘doing more of the same’ usually looks easiest and simplest.

If we are to avoid a nuclear/coal future, we really have to deliver some big cuts in energy use through energy efficiency improvement, and we have to aggressively roll out decentralised renewable energy. Without strong and consistent government policies and widespread community commitment, this may not happen.

And until we can show we have a viable package that can underpin ongoing improvement in community welfare and economic development, the nuclear and coal industries will have fertile ground to plough. S

underestimated. The real gap is likely to be much smaller than it appears.’ In other words, the commission considers that energy efficiency has been oversold.

But a recent Regulatory Impact Statement for energy measures for non-residential buildings (scheduled for introduction in mid-2006) shows a benefit:cost ratio of 4:6:1, when a ratio of 1:1 is cost-neutral.

The report does accept that information failures and split incentives (where people making the decisions about energy use cannot capture the benefits, while those who might benefit aren’t involved in the decisions—such as tenants and landlords) do exist, and that some ‘light-handed’ regulatory responses may be appropriate.

The recommendation of most immediate concern is the report’s proposal that the National Framework for Energy Efficiency measures endorsed last year by the federal and all state energy ministers should be deferred pending further independent evaluation of existing programs.

The commission’s usual anti-regulatory, anti-intervention philosophy is very evident in the report. For example, its view on appliance energy labelling and Minimum Energy Performance Standards (MEPS) is that they may be cost-effective. Yet these programs are recognised by many as extremely cost-effective, delivering greenhouse abatement at minus $23 per tonne. That is, they save money, and reduce greenhouse emissions.

The report relies on just one submission to question the whole basis of the home

energy rating schemes and associated regulation. It dismisses decades of economic evaluation in the US on energy efficiency schemes by simply stating that they used too low a discount rate. A low discount rate allows greater emphasis on future savings achievable by energy efficiency.

The commission’s proposed use of a higher discount rate in economic analysis rapidly reduces the value of future savings and tends to reduce the perceived benefit of measures that have upfront costs and long-term benefits, such as energy efficiency.

The commission also criticises the Australian Building Codes Board (ABCB) for using low discount rates and for inadequate evaluation of proposed new building energy regulations. The discount rates applied by the ABCB were the outcome of extensive consultation, research and reference to Department of Finance guidelines. Further, all of the ABCB regulations are actually approved by the Office of Regulation Review, which is part of the Productivity Commission!

It’s interesting to note that the one public comment from the Federal Government I could find (Financial Review, 21/4) shows the government distancing itself from the Productivity Commission’s view.

A spokeswoman for Federal Energy Minister Ian Macfarlane is quoted as saying ‘We’re looking at a broader situation here: it’s about education and it’s about changing energy practices. We do not apologise for getting business to rethink

“...the EPA scheme is delivering over a million tonnes of carbon dioxide reductions and

effectively saving tens of millions of dollars on business energy bills.”

Page 104: Pears Report Collection

Pears Report Collection

104

Time to face facts

production of each kilogram of Australian aluminium involves generation of about 17 kilograms of greenhouse gas. Using Australian aluminium for transport doesn’t create much net benefit—unlike aluminium from many other countries. Meanwhile, over a third of Australia’s aluminium cans (over a billion cans with a greenhouse ‘cost’ of around 220,000 tonnes of CO2 per year) are ‘lost’ rather than recycled.

The two reports highlight that Australia is really one of the global ‘black sheep’ of the aluminium industry. According to my calculations, Australia smelts less than 7 % of world primary aluminium (including primary and scrap) but generates about 18 % of its electricity-related smelting CO2. To smelt a kilogram of aluminium in Australia generates on average around 14 kilograms of CO2 from electricity, three times the average for the rest of the world. The Portland smelter is even higher than this. Proposals for expansion of Australia’s coal-based smelters compete with low-emission alternatives in other countries such as Middle East natural gas, much of which is now flared as waste. 55 % of world aluminium smelting uses hydro-electricity

How long will Australia’s dirty smelters be tolerated by a global industry that is trying to reposition itself as clean and green?

I should stress I’m not trying to be

ReNew’s regular policy columnist Alan Pears looks at the implications of the new Asia–Pacific Climate Alliance.

BIG news on climate change policy recently as the Asia–Pacific Climate Alliance announced its intention to tackle climate change through the development and rollout of low-emission technology. The Alliance, which includes the US, Australia, China, India, South Korea and Japan, has no targets and will focus on positive cooperation. It is supposed to complement Kyoto—but some reports suggest it is intended to undermine negotiations on post-2012 Kyoto targets. The first meeting of the Alliance is planned for November.

The implications are still unclear. Will the Kyoto countries be unified, and develop stronger strategies in response to the competition? Will short-term actions be diluted while the focus shifts to long-term ‘magic bullet’ technology solutions? Will renewables and energy efficiency be important parts of the strategy? Or will geosequestration, nuclear energy and new supply-side solutions dominate?

One positive message is that the US Government has finally acknowledged that human-induced climate change is really happening, and that something needs to be done.

Aluminium, Australia and the WorldAustralia’s aluminium industry has been a powerful opponent of emissions trading and carbon taxes because these could add hundreds of dollars per tonne produced to their costs relative to international competitors. In May, Australia’s aluminium industry and the global industry both released sustainability reports (available at www.aluminium.org.au and www.world-aluminium.org) that highlight the issues within the industry.

Globally, it is argued that aluminium could be greenhouse neutral within 20 years. This claim is based on including credits for factors such as fuel savings due to lightweighting of vehicles manufactured with aluminium, and predicted increases in recycling. The Australian aluminium industry has attempted to ride on the back of this global study, with Australian Aluminium Council chair Wayne Osborn saying ‘… every kilogram [of aluminium] used to replace heavier materials in car production can save 20 kilograms of carbon dioxide over the life of the car.’

This sounds good. Unfortunately, only a modest proportion (26 % globally) of aluminium is used in transport. There are other ways of lightweighting vehicles (eg. use of carbon fibre from renewable carbon sources or simply buying smaller cars) that may deliver larger net greenhouse benefits—or we could use cars less. And

Featured in: ReNew 93, October – December 2005

Page 105: Pears Report Collection

Pears Report Collection

105

clear they think it makes sense to focus on energy efficient measures that deliver private benefits and ignore all of the public benefit such as reduced greenhouse gases. But, as I pointed out to them at the Melbourne Hearing (transcripts available at www.pc.gov.au), if that’s so, they have no basis to make judgements about most existing and proposed energy efficiency policies and programs. Many have been justified on ‘net public benefit’ grounds, rather than any purely private assessment.

Then there’s the challenge of drawing a clear line between private and public benefit, or the role public policy can play in reducing the costs of energy efficiency measures and enhancing private benefit from energy efficiency.

While the Productivity Commission is prepared to acknowledge the existence of some information failures, split incentives, and other barriers worthy of limited government action, they struggle to grasp the deep-seated and pervasive nature of these barriers. Lets face it, many businesses profit from encouraging energy inefficiency. Maybe the crucial question is, ‘when does a market barrier become a market failure worthy of intervention?’

The government might have been better off appointing a panel of psychologists, sociologists and marketing experts, rather than economists, to look at this issue.

It seems that the only way a ‘rational economist’ with faith in markets can reconcile the existence of cost-effective energy efficiency measures with the widespread failure to adopt them is to conclude that the benefits have been overstated and the costs of adoption understated. S

anti-aluminium here. Australia’s alumina industry, which provides the raw material for aluminium smelting, is world standard in terms of greenhouse intensity. Aluminium plays important roles in the world economy, many of which can contribute environmental benefits. But does it make global sense to smelt aluminium using coal-fired electricity? Maybe a solution is for Australian smelters to become world leaders in energy efficiency, shift to renewable electricity themselves, and aggressively help other parts of the Australian economy to cut their emissions to offset those from smelting? It will be an interesting decade or two.

Appliance energy labelling dilemmasAustralia’s appliance energy labelling scheme is widely used and delivering large energy and greenhouse savings, but it may be time for a rethink about how it works. As we focus more on climate change issues and manufacturers shift to different technologies, some cracks are beginning to appear in the scheme.

For example, some efficient front-loading clothes washers have only a single water hose connection, so they use cold water and heat their own water when required. This heating uses electricity instead of hot water from a gas or solar hot water service, increasing both running costs and greenhouse gas emissions. Then there’s the difficulty of trying to make meaningful comparisons between gas, electric, electric heat pump and solar (gas or electric boost, day-rate or off-peak electric) hot water services for varying levels of hot water usage.

Then there is the scaling. The best

European fridges would score more than the maximum 6 Stars on a scale that was only updated a few years ago, while micro-fridges using inefficient Peltier devices (apparently just the thing for your bedroom) and portable fridges don’t seem to carry labels.

Maybe governments could develop and approve web-based calculators that people could use to assess their own circumstances where manufacturers would otherwise have to provide detailed information on their products performance. Surely a reasonable request in the interests of consumer information. Once we had the models and could see the impacts of different appliances and their usage, we could explore better ways to provide information to consumers. The Virtual Home Audit tool on the New South Wales Government’s energy website (www.deus.nsw.gov.au/les) is a useful step, but these options should complement labels, not replace them—unless we can have interactive energy labels!

Productivity commission lessonsThe final report of the Productivity Commission Inquiry into Energy Efficiency is due out for release in the next month. The hearings were quite feisty at times, and reflected a great deal of confusion over what the Terms of Reference actually meant. Presiding commissioner Neil Byron commented (in July EcoLibrium, the Australian Institute of Refrigeration, Air Conditioning and Heating (AIRAH) journal), ‘I don’t think I’ve ever been involved in an enquiry that has had so much misrepresentation of what it’s about.’

The Productivity Commission made it

“How long will Australia’s dirty smelters be tolerated by a global industry that is trying to reposition itself as clean and green?”

Page 106: Pears Report Collection

Pears Report eCollection

106

Report misses the mark

This could be done by utilising a variety of locally developed technologies such as super capacitors, smart hybrid drives, innovative engine technologies and ultra-lightweight materials combined with radical vehicle design.

Emissions tradingState governments are developing an emissions trading scheme that can be introduced regardless of what the Federal Government does. A Background Paper has been in the public arena, with comments closing on 11 November. There should be ongoing opportunity for input via www.cabinet.nsw.gov.au/greenhouse. I’ve put my submission in.

It’s likely that any emissions trading scheme will be very limited for quite a few years, so that investments in coal-fired power stations and certain industries are protected. But it is important to get a framework in place and at least start moving on this issue. At a minimum, it’s one way of generating revenue that could be used for more effective greenhouse strategies such as incentives for abatement.

A danger of supporting emissions trading is that it may be used as an excuse by governments to avoid implementing measures that would actually make a big difference in the short term.

Emissions and air travelThe Intergovernmental Panel on Climate Change has estimated that the overall warming impact of air travel is between

ReNew’s regular policy columnist Alan Pears questions the commitment of governments to reducing greenhouse gas emissions.

Markets and fuel efficiencyThe Productivity Commission’s final report on energy efficiency was released in October 2005. It has been re-titled The Private Cost-effectiveness of Improving Energy Efficiency. The inclusion of ‘Private’ in the title acknowledges that this is only part of the rationale for most energy efficiency policy. Since all regulation (and most public policy) is based on public benefit, not just on private benefit; the draft recommendations blocking regulation have been toned down.

The Federal Government’s accompanying press release stressed its commitment to energy efficiency, effectively distancing itself from the Commission. The government specifically mentioned support for energy efficiency standards and the Energy Efficiency Opportunities program, both criticised in the report.

But the report has mobilised industry opposition to strong energy efficiency measures, and the Commission has identified a number of weaknesses in data supporting energy efficiency measures, particularly lack of solid field data showing real savings. So we should read it carefully and heed its messages.

For me, an interesting example of the difficulty of separating private and public aspects of energy efficiency emerged when looking at attitudes of car buyers. For new car buyers, fuel consumption has generally been a fairly low priority (most cars are bought by business or people with significant discretionary funds), and fuel (even at today’s prices) is a relatively small proportion of new car ownership costs. In contrast, a 2003 ABS survey showed fuel consumption was the number two issue for householders buying cars (38 %, compared with 50 % for purchase cost), most of which are secondhand.

Attempts to just look at new car sales as a separate market ignore the fact that the range of vehicles available to secondhand buyers (who pay for running costs for the bulk of vehicle life) is constrained by the choices made by new car buyers. Of course, advocates of markets can argue that resale value will be influenced by the preferences of secondhand buyers and this will influence the behaviour of new car buyers. This doesn’t seem to be borne out by experience, as it is an uncertain factor a long way in the future.

This is a good example of a situation that requires government intervention to protect the interests of secondhand car buyers, society and the environment. Yet governments seem to be more interested in protecting the viability of a local car industry that has trapped itself in the large car niche market. The challenge is to help the local car industry to develop a viable low greenhouse impact path forward.

Featured in: ReNew 94, January – March 2006

Page 107: Pears Report Collection

Pears Report Collection

107

Essentially this is an ambit claim, a bit like those road strategies and energy visions we have seen in the past. The problem is that they can become self-fulfilling prophecies.

Worse, in his introduction to the report, Victorian energy minister Theophanous repeats the erroneous statement that energy growth is critical to maintaining economic growth. This same minister has previously stated (in his Hazelwood press release of 6 September) that business needs cheap energy prices to be competitive.

When will one of his advisers or the public service explain to him (and most other politicians, senior public servants and business leaders in Australia) that energy is a very small component of input costs for most Australian business (as confirmed by the Productivity Commission)?

The total cost of energy services, not energy prices, is what matters when looking at energy. Improving energy efficiency can offset higher energy prices and reduce total energy cost. Shifting to distributed generation can avoid infrastructure costs. I thought this was obvious 25 years ago.

Sad joke of the monthMany people find it difficult to tell who some Victorian public servants work for—is it Hazelwood or Alcoa? It’s a worry. And a similar joke could be made in most other states, too. S

2.5 and seven times as large as its direct emissions from fuel burning would suggest. This is due to a number of effects including contrails (cloudy trails). If they’re right, even switching aircraft to renewable fuels will not fully avoid the greenhouse impact of aircraft, because most of these indirect effects would remain.

The international air industry’s emissions are not included in any country’s greenhouse inventory (as is also the case for international shipping). Some airlines are beginning to acknowledge their responsibility to act, but this is a major emerging greenhouse response issue.

There are also some interesting implications for countries like Australia that rely heavily on international transport. In the short term, you can offset your emissions from air travel using a number of website-based tools at a cost that is surprisingly small compared with the cost of your holiday. It would be great if the airlines would let me use some of my unspent frequent flyer points to offset my emissions.

Hazelwood expansionThe ancient Hazelwood brown coal power station has, as reported previously, been given access to more coal so it can continue to operate for at least 25 more years. But the shocking outcomes are in the agreement between its owners and the Victorian Government.

If Hazelwood exceeds its emissions cap,

the Victorian Government could force its closure, or enforce penalties equivalent to about 1.5 cents per kilowatt-hour. But this still leaves it price-competitive and these penalties only apply to ‘existing boilers’.

In addition, Hazelwood’s owners are entitled to credit for the emissions avoided through the first 10 years’ generation from any renewable energy projects in which they are the ‘lead developer’, even if they sell their share immediately after commissioning. This is a very valuable benefit that no one else receives.

The agreement also requires that Hazelwood be treated ‘equitably’ (whatever that means) under all future emissions mitigation schemes. And the Victorian Government is required to make representations to the Federal Government regarding treatment of Hazelwood under future national schemes.

Please Mr Bracks, can I have a deal like that?

Yet again…The Victorian Government’s VenCorp has published its vision for development of electricity supply infrastructure for Victoria. Massive expansion and up to eight billion dollars of investment are, of course, considered critical for ongoing development over the next 25 years. One of the scenarios even includes a doubling in electricity use for aluminium smelting. How bizarre—see last issue’s column on this topic.

“It’s likely that any emissions trading scheme will be very limited for quite a few years .... but it is important to get a framework in place and at least start moving on this issue.”

Page 108: Pears Report Collection

Pears Report eCollection

108

Whoops!

Industry Association and the timber industry. Soon after, two remarkable press releases appeared. One, from Commonwealth ministers MacFarlane (Industry Department), Campbell (Environment) and Macdonald (then Forestry—now back on the backbench), lambasted the states for imposing this draconian and misguided regulation onto poor home buyers. They declared that the regulations meant the end of the ‘Queenslander’ style of housing. On the same day an hysterical press release from the Queensland Minister for Local Government claimed Queenslanders were going to be forced to apply the same housing standards as southerners. Both press releases were riddled with factual errors. For example, each climate zone has its own energy standard to meet—but they are all called 5 Stars.

It looks as though none of these politicians had consulted their own government agencies before firing these rockets. It seems that certain industry lobby groups have very good access to them. Indeed, the suggestion in the Commonwealth ministers’ press release that a moratorium should be placed on all new standards until a life cycle assessment-based method is developed, comes straight from the timber industry’s propaganda. They repeatedly make the assertion that if embodied energy were

ReNew’s regular policy columnist Alan Pears looks at the inaugural meeting of the Asia Pacific Climate Partnership.

THE first meeting of the heavily hyped Asia Pacific Climate Partnership (AP6) occurred in January in Sydney and the Australian Government worked hard to orchestrate this ‘alternative to Kyoto’. It not only fell flat, it seems to have been a watershed in many ways.

It was a slow news week, so a lot of journalists suddenly took an interest in climate change. They were less than impressed. Media commentary ranged from parodies to straight-out criticism and open scepticism. Only two of the ‘big six’ emitters, they pointed out, pledged any money, and the amounts committed were seen as pathetically small: Australia pledged $100 million over five years. Compare this, suggested some media, to the $40 million the government recently spent advertising its workplace reforms. So now we have a more educated, interested and critical media the government will have to be more careful. Whoops!

A key element was yet another Australian Bureau of Agricultural and Resource Economics (ABARE) modelling study, initially used with much fanfare

by the government to support its claim that AP6 could cut 2050 global emissions by almost a quarter. But head of ABARE, Brian Fisher was confronted by a journalist who pointed out that the modelling results suggested emissions would still double by 2050, despite the impact of AP6. When asked how we would achieve the much bigger cuts everyone agreed were needed, Fisher admitted he didn’t know. And my detailed reading of the ABARE report finds that the proposed savings will require mechanisms such as emissions trading (against government policy) and mandatory standards (‘economically inefficient’ according to the Productivity Commission). Whoops!

Government spent much of the meeting trying to handball the problem to the private sector. Industry responded by saying that until they had a clear signal (like emissions trading) from government, and could be confident of gaining returns on investments in emissions mitigation, they could do little. Again, whoops! Anyone for three strikes and you’re out?

The great 5 Star house regulation circus In December 2005, the Australian Building Codes Board agreed to publish amendments in the May 2006 update, including a 5 Star rating requirement into the Building Code of Australia. This, despite strong lobbying from the Housing

Featured in: ReNew 95, April – June 2006

Page 109: Pears Report Collection

Pears Report Collection

109

regardless of future running costs. The study also found that up to half of

the greenhouse gas emissions from high rise apartments came from inefficient central services. In one case, installation of sensors to control car park fans saved one apartment building $100,000 each year. Then there was the indoor pool heated by resistive electric heating elements!

It sounds as though apartment dwellers may save a lot of money and be much more comfortable. The NSW BASIX scheme puts the energy and greenhouse challenge to developers of high rise apartments: it will be interesting to see the results.

Green gas revisitedMany columns ago I called for the gas industry to match electricity suppliers by introducing ‘green gas’ products so we could offset emissions from our gas usage. We now have several options. Websites such as www.greenfleet.com.au and www.climatefriendly.com allow us to offset our home energy emissions through tree planting, purchase of Renewable Energy Certificates or NSW Greenhouse Abatement Certificates. Now energy retailer Origin Energy has offered ‘Green Earth Gas’ which uses offsets approved by the Australian Greenhouse Office’s Greenhouse Friendly scheme. People have varying opinions on the strengths and weaknesses of the options, but at least gas consumers can now choose to go greenhouse neutral. S

considered, timber would rate much better, relative to other materials. But they consistently fail to present the evidence to support this. It seems that evidence is not needed when you have an open door to ministers’ offices.

Timber floors have been losing market share since the 1970s, well before energy regulation. New two-storey homes have timber upper floors, while many slabs now have floating timber floors installed over them. So where is the evidence of lost revenue? And when we talk about life cycle analysis, will modern timber houses last as long as those made from other materials? What about the other environmental impacts of timber harvesting, paints and finishes, and so on? Is there any other area where all regulatory action is stopped until the ‘perfect’ analysis is done? Maybe we should remove speed limits and safety standards from cars until we have a perfect understanding of road safety s.

A major focus of the timber industry’s attack has been the rating tools, which it describes as being biased towards high-mass solutions. If so, why is the mudbrick industry complaining that the rating tools fail to sufficiently consider the benefits of mass? The Commonwealth ministers complained that ‘the timber industry has not been given the courtesy of consultation, or time to develop any modelling.’ In reality, the Prime Minister, in 1997, gave the building industry a year to act or be regulated. In mid-2000 the Building Codes Board began the present process of regulation development. The

rating tools have been in use in various forms since the early-1990s. Maybe these ministers should check before believing some industry groups.

Energy and housing densityThere has been heated debate for decades within urban planning circles about the energy implications of increasing urban density. Advocates of urban consolidation argue that more sharing of walls, floors and ceilings can cut energy flows and reduce resource usage. Opponents have argued that high density housing uses more energy-intensive materials and more energy. A report by the NSW Department of Planning and Energy Australia has provided some real data.

Based on a survey of over 4000 apartments, the study found that high rise buildings generated significantly more greenhouse gas per person than detached dwellings, while townhouses/villa units generated almost a quarter less.

Superficially, this seems to support the opponents of higher densities. But townhouses and villa units perform better than detached houses. So, is medium density the optimum? I suspect not. Villa units and detached dwellings have both been subject to energy standards (in NSW, the SEDA Energy Smart Homes policy) and are more likely to use gas appliances. In contrast, high rise development has not been subject to any energy regulation. And developers use large glass areas and lots of halogen lights to provide the glitz that sells apartments off the plan, while focusing on minimising capital costs

“Government spent much of the meeting trying to handball the problem to the private sector.”

Page 110: Pears Report Collection

Pears Report eCollection

110

The nuclear distraction

It seems obvious to many politicians (prompted by the uranium lobby) that we need a power source that produces lots of base load electricity. But much of our demand for overnight electricity is artificial: off peak hot water was promoted to find a use for excess coal-fired electricity. Cheap off-peak power has encouraged businesses to sloppily leave equipment on overnight and on weekends. In contrast, solar energy peaks on the hottest days, when conventional energy systems struggle to cope. A mix of renewable energy sources combined with smart management of demand can easily satisfy the energy service requirements of an energy-efficient society.

Politicians should also ask just what proportion of our energy needs could nuclear replace, as electricity provides only a fifth of Australia’s (and most modern economies’) energy. Do we want to risk our future on an option that won’t even solve our energy problems?

I have worked on numerous projects that have painted visions of enjoyable and economically attractive futures based on sustainable energy. We have done computer modeling that shows it’s possible and economic. Many ReNew readers live with these solutions and find them quite workable.

Yet it seems many politicians and business leaders simply cannot believe

ReNew’s regular policy columnist Alan Pears says that nuclear power is not the climate change silver bullet.

THE past year has brought a dramatic revival of nuclear power and uranium mine lobbying. For a comprehensive review of costs, waste management issues, risks of terrorism and nuclear proliferation, I recommend the website of the UK’s Sustainable Development Commission: www.sd-commission.org.uk.

The key new arguments from the nuclear lobby are based on its potential to help address climate change. Indeed, according to uranium advocates, Australia has a moral responsibility to provide its uranium to China and India to support global responses to climate change.

They also claim that environmentalists are now split, with some prepared to treat nuclear energy as the lesser of two evils, given the potentially devastating impacts of climate change. Pointing to divisions in the green movement is a powerful strategy that makes politicians feel more comfortable when taking a controversial decision—even if it’s exaggerated.

In response to those concerned about nuclear proliferation, they claim it’s too late to put the genie back into the bottle. Instead, if we sell more uranium

we can supposedly have a say on how it’s managed. Unfortunately, both major political parties seem likely to support uranium mining: the ALP is seemingly seduced by the possibility of a (very) few jobs and the potential to help our balance of payments problems.

To me, every extra kilogram of nuclear material in circulation is one too many. I don’t want my children to face a world like the one I grew up in, when most young people wondered whether humanity had any real future because of the risk of nuclear holocaust.

Can today’s politicians really have the naivety to believe that all future leaders will act responsibly on nuclear weapons, or that no-one working in a nuclear power station will ever make a silly mistake? Or that terrorists won’t at some point want to make a really big statement?

The argument that energy efficiency and renewable energy can make nuclear power unnecessary has so far failed to gain traction: Peter Harvey on 60 Minutes in April dismissed this vision as absurd, and he is not alone. We still face an enormous challenge to change this mindset. Renewables are painted as erratic and inadequate in scale. And few leaders can conceive that energy efficiency can slash our need for energy, despite examples such as new fridges using two-thirds less energy than those of the mid-1980s.

Featured in: ReNew 96, July – September 2006

Page 111: Pears Report Collection

Pears Report Collection

111

of the NSW regulations will drive market transformation, so they do become more widely available. The NSW Government could even use other mechanisms such as its Energy Saving Fund to encourage such a shift.

But I can certainly understand the Queensland perspective, which responds to what is available, and its approach would work even better if it banned incandescent globes, or placed a substantial levy on them and used it to subsidise CFLs!

Both approaches are tackling an important lighting issue—avoiding installation of low-voltage halogen lights, which are driving household energy growth and greenhouse gas emissions.

We also need some way of overcoming a hidden problem associated with all types of recessed lighting: the removal of insulation around these lights by electricians for fire safety. Inspections of new homes have identified a common practice of removal of insulation batts around halogen downlights—effectively reducing the R value of the ceiling insulation from R4 to R2!

So halogens are undermining building thermal performance as well as wasting lighting energy and cooking people under their heat. S

society can progress without massive quantities of subsidised electricity from coal or uranium. It’s a worry.

Six big businesses break ranksIn early-April, six major businesses—BP, IAG, Origin Energy, Swiss Re, Visy and Westpac—went public to argue that we had to get serious about climate change. They presented economic modeling that showed acting now would be cheaper and less disruptive than waiting till later. This was a powerful statement from some of Australia’s most successful businesses.

The response from the Herald Sun’s financial writer Terry McCrann (11 April) illustrated the strategies used by powerful vested interests to block serious greenhouse response. First, ridicule them as naive and gullible victims of the Australian Conservation Foundation’s propaganda. Then attack the economic modeling—done by the same people whose work is happily accepted when it produces the ‘right’ answers.

Thirdly, accuse CSIRO of bias. And finish off by suggesting that they are all acting in their own narrow interests— unlike the industry opponents of climate change response who are, of course, acting in the community’s interests by protecting them from the draconian outcomes of doing something about climate change.

This kind of material is so obviously manipulative yet a lot of people read and believe it. But at least some business people are now thinking

independently and speaking out. And when it’s recognised that they are some of Australia’s most successful businesses, maybe some will take what they say seriously.

Compact fluorescent lamps (CFL): what to regulate?Recently we have seen the first steps towards regulating the energy efficiency of lighting in new homes. In New South Wales, BASIX allows points towards the required energy target to be scored by installing fluorescent lighting. In Queensland, 40 % of the area of new homes must be lit by energy efficient lighting. This is exciting progress. But the two states have taken slightly different approaches. In NSW, fluorescent lamps must have permanently wired-in ballasts to qualify. In Queensland, CFLs plugged into standard bayonet fittings comply.

The NSW argument seems to be that if permanent fittings aren’t installed, the efficient lamps will just be replaced by incandescent lamps when they fail. The Queensland argument is that plug-in CFLs are now widely available and cheap so they are likely to be replaced by new CFLs, while the range of permanently wired-in ballast light fittings available is very limited and often expensive.

I don’t know which approach is preferable. In theory, if permanently ballasted CFLs were widely available, the NSW approach would seem better, as it locks-in ongoing use. Maybe the existence

“A mix of renewable energy sources combined with smart management of demand can easily satisfy the energy service requirements of an energy-efficient society.”

Page 112: Pears Report Collection

Pears Report Collection

112

The naked truth

more equitable low greenhouse impact transport options. We need practical policy focused on real outcomes, not minor tinkering.

For example, we need to shift most of the cost of sustainable options away from visible extra ‘user pays’ charges to underlying charges, in the way that car and road funding has done for decades. Petrol cost is a small part of the total cost of car ownership, let alone the cost of roads and support infrastructure, yet fuel cost is the only visible cost when someone is thinking about driving somewhere.

Using alternatives to cars must seem cheap to the decision-maker at the time of the decision, and services must be good. But we must ensure the transport and access poor don’t subsidise those with good access to facilities and low-impact transport who choose not to make use of them.

Maybe a levy could be applied to property rates to reflect their level of access to services and low-impact transport options. This revenue could reduce public transport fares, fund urban redevelopment, expand low impact transport options, and so on.

We must keep in mind that high fuel prices (above $30–50 per barrel) do not reflect the technical cost of fuel supply. Higher prices reflect scarcity or speculation, which must be managed by reducing demand, below capacity to supply on a sustainable basis, and discouraging speculators through policy.

Escalating temperatures and concernsIt’s time to get seriously worried about climate change. The most recent report

ReNew’s regular policy columnist Alan Pears calls for more positive action as the heat rises.

Peak Oil—the worst possible outcome loomsTWO competing views are emerging on the likely consequences of reaching the production limits of oil resources. The doomsdayers paint pictures of oil wars and dramatic inflation as desperate bidding pushes oil prices, and everything that depends on it, upwards. Economic optimists argue that, as prices increase, investment will occur in new oil fields and alternatives to oil, including enhanced recovery from existing fields, petrol from gas, oil from coal, tar sands, and renewables.

I suspect both groups are partially right, but over different time frames and to differing degrees. Already some of the enormous profits from high oil prices are flowing into investment in alternatives. And recent oil price rises have not just added to inflation, they have influenced decisions about oil use; Australian oil consumption has actually dropped. One analyst has estimated that a weekly increase of $10 in fuel cost is equivalent to an increase of 0.25 % in interest rates on a typical mortgage.

This investment in new supply capacity, combined with changes in demand driven by higher prices, may stabilise or even reduce oil prices in a few years. Keep in mind that oil prices collapsed in the 1980s and 1990s because of the investments and changes driven by the oil crises of the 1970s.

This could be a very dangerous outcome. It could encourage a complacent view that ‘she’ll be right’ and support scepticism about alarmists. Many of the band-aids being used to ‘solve’ the problem will disproportionately increase greenhouse gas emissions and waste resources, as they involve inefficient conversion of coal, gas or other energy sources into transport fuels. We may also see exploitation of developing countries through large-scale energy crops at the expense of food production and more sustainable development.

The mix of ‘market responses’ will tend to focus on the supply side more than the demand side. Demand side investment involves ‘non-core’ decisions by energy users, so tough investment and crude decision-making criteria are applied. In contrast, supply side investment involves carefully considered investment decisions by large businesses that look for long-term returns. Governments also tend to focus on the obvious supply-side response; in Australia you get tax breaks for looking for more oil, but no incentives for investing in fuel-efficient cars or public transport tickets.

And here lies the core of our long-term transport fuel problem. What seem like obvious solutions will in fact add to our problems over time.

Now is the time to apply strong policy measures to actively cut Australia’s underlying transport service demand, and to lay the foundations of a sustainable transport future. That means making hard decisions to limit the need for people to travel to access essential services through good planning, and promoting

Featured in: ReNew 97, October – December 2006

Page 113: Pears Report Collection

Pears Report Collection

113

coal exports is not looking great. Third, failure to cut international trade barriers to agricultural products and our inability to compete with low-wage countries in manufacturing means these sectors may not be able to grow exports much.

So, to a Prime Minister who believes deeply in low trade barriers, free markets and international trade, Australia does not have a lot of options to solve its balance of payments problem. African and South American competition in the mineral resource market, and the prohibitive costs of minerals processing, negate Australia’s export advantage in this area.

Suddenly export and processing of uranium and processing and storing nuclear wastes looks like the answer to a Prime Minister’s prayers. Australia and Canada have much of the world’s high grade uranium resources, so together we could become the nuclear OPEC, taking a stranglehold on world supply. And, since no-one wants nuclear waste, accepting it in Australia would provide another useful revenue stream. It would also allow the government to answer the critics on nuclear proliferation—because we could monitor the amounts coming back relative to the amounts exported.

To challenge this vision will require the creation of an acceptable alternative model of Australia’s economic future. Will exports of renewable energy, efficiency services, innovative and high value products, high value agricultural products, licensing of intellectual property, services and eco-tourism provide enough income? Can we reduce our imports of goods? Will Australians take more holidays locally? Can we encourage developing countries to increase wages or cut Australian wages? I hope we can come up with something, because we will not stop the uranium juggernaut without positive alternatives. S

to the Australian Government has flagged that climate scientists are shifting towards the view that we will reach or exceed the upper boundary of previous predicted warming—5.8°C by 2100. At the same time, many scientists are increasingly concerned that the Earth is more sensitive to greenhouse gases than previously thought, because of the multiple feedback effects. We need to be developing contingency strategies to deliver deep emission cuts very quickly. Politicians are becoming comfortable with targets of 50 % emissions reduction by 2050. They will need to cope with much stronger targets.

Positive incentives neededTraditionally, policy in sustainable energy has focused on either low-intervention measures such as research, information and education, or regulation, which is certain and cheap (for governments). Both these options are simply too slow and ineffective to deal with our present situation—although they have very important roles to play. And governments really know this. Do they rely on information and regulation to drive exploration for oil? No, they put in place tax breaks and other incentives to motivate people and business to invest. People need to feel valued and rewarded, and to see leadership.

New South Wales is moving in this direction with its Energy Saving Fund of $40 million each year, and its Greenhouse Gas Abatement Scheme that creates opportunities for those who cut emissions by creating an obligation for electricity retailers to buy abatement certificates. The Victorian Government is also cranking up its efforts with its Victorian Renewable Energy Target (VRET—a compliance obligation on electricity retailers) and a range of programs under its Sustainability Action Statement released in July. It’s great

to see this progress, but we need a lot more.

Beyond disclosure Under the National Framework for Energy Efficiency, governments are developing guidelines for mandatory disclosure of energy performance of buildings at time of re-sale and lease. In principle, this is a great idea. It can potentially hold designers, builders and landlords to account. The danger is that we’ll get a weak scheme that adds to costs while not helping buyers and tenants with meaningful information.

Tenants and homebuyers need to know if the major appliances and equipment will be expensive to run, as well as whether the building is well-insulated. So just having a simplified house energy rating, as already operates in the ACT, is inadequate. And we should really take the opportunity to check water efficiency and other important issues, too. For example, is the greywater system still working? A sustainability disclosure scheme could be much more valuable. To have your say go to www.nfee.gov.au.

Australia as the world’s energy powerhouse The thinking behind the Prime Minister’s recent enthusiasm for nuclear energy is becoming clear. He now recognises some key issues. First, loss of manufacturing and massive importation of goods mean Australia has a serious and growing balance-of-payments problem. This can only be addressed by cutting consumption of imported goods (not very politically attractive and practically difficult while staying within an economic fundamentalist ‘free market’ framework), or increasing exports. Second, climate change and the high cost of geosequestration (both now finally accepted) mean that the future of

Page 114: Pears Report Collection

Pears Report Collection

114

No denying change is needed

resources industries. No-one asked what he would do about the eight million plus Australians working in other industries.

More recently, he was on TV saying response to climate change could drive Australian jobs offshore to places like China. But that’s what his policies (and those of recent Labor governments) have been doing!

We will need very refined ‘spin filters’ to get through the next few years.

Do we have time for the ‘natural gas bridge’? Many climate change analysts (including me) have long promoted a shift from coal and coal-fired electricity to natural gas as a bridge to a low carbon future. But as the science drives arguments for more rapid and aggressive cuts in emissions, I’m starting to wonder about this. For example, George Monbiot, a British analyst (author of the recently released book Heat) suggests developed countries need to cut CO2 emissions by 90 % by 2030 if we are to equitably limit our emissions to the Earth’s capacity to absorb CO2. Australia would need a 94 % cut!

Natural gas might cut emissions by two-thirds per unit of energy delivered, but the gas industry promotes growth in gas use, not responsible and efficient gas use. So a shift to gas using the gas industry model may have limited impact on emissions. If

ReNew’s regular policy columnist Alan Pears looks at future impacts as things start to get hotter.

Have we passed the tipping point? EARLY bushfires and never-ending drought seem to have convinced most Australians that climate change is real —and its costs could be high. Politicians now must be seen to act. Importantly, many now realise that the past attempts at economic modelling of supposed damage to the Australian economy from response to climate change didn’t consider the economic impacts of allowing climate change to occur.

Indeed, one government economist a few years ago admitted this to a senate inquiry—and justified it because he claimed he couldn’t find reliable cost estimates. So he set the cost to zero! Classic economist: if I don’t know the number I will set it to zero—unless it’s something I think is really important in which case I will set it to a really big number.

The obvious cost of drought, water shortages and bushfires is now visible to Australians, while the massive global cost of allowing climate change to continue has been highlighted by the recent UK Stern report.

The kinds of barriers that slow progress

past the tipping point are exemplified by a recent ABARE (government economic group) economic modelling study. This study looks at the global picture and concludes that, for Australia, acting earlier or more aggressively than the rest of the world will hurt our economy and cause substantial reductions in income and employment.

But when you read the fine print, you find that the model applies a carbon price of over $600 per tonne in 2050. Renewable energy typically costs less than $30 to $50 per tonne, while a lot of energy efficiency is available at negative cost, so it seems the study is overly pessimistic, to put it mildly.

Indeed, studies for AGL and the Victorian Government have shown that early strong action saves us money because it diverts money to more sensible paths sooner. But, yet again, we have a convenient study for politicians to refer to as justification for failing to act. And none of these studies includes an estimate of the cost of allowing climate change to continue!

Now the question is how politicians will attempt to be seen to do things without upsetting a few favoured industries. For example, when launching the 2004 White Paper on Energy, Prime Minister Howard stridently claimed he would look after the 124,000 Australians working in the

Featured in: ReNew 98, January – March 2007

Page 115: Pears Report Collection

Pears Report Collection

115

no cooling in much of Australia. But with climate change, we’re getting increasingly hot nights and higher humidity at times, which make cooling more important, especially for the young and elderly. What’s more, cooling is needed at the time of year when we have most solar energy available!

The latest small air conditioners have remarkable performance: the best now have energy efficiency ratings of around five—that’s five units of cooling for each unit of electricity, more than twice as efficient as most older (and many existing) models. With these models, cooling a very well-insulated bedroom with double glazed windows at night could use no more electricity than running a ceiling fan. Of course, this is partly because ceiling fans are generally very inefficient, typical models use 90 watts while the best technology uses only 15 watts (but is not commercially available).

Indeed, using one of these units in a well-designed home for heating could generate less greenhouse gas than the most efficient gas heater—and you can run it on GreenPower for net zero emissions! And when you install your own PV system even better! S

For air conditioner energy ratings go to www.energyrating.gov.au

the gas industry was actively developing biogas, solar reforming of natural gas and hydrogen from renewables, along with gas use at maximum efficiency, it could be a very different picture, but this vision seems a long way from their approach.

The situation is made even worse by the bizarre signals sent by our ‘economic’ regulators. For example, Victorian gas distributors opposed the 5 Star housing regulations because their regulated profit is tied to gas sales per kilometre of pipe, and more efficient houses will use a lot less gas! While this regulatory model may increase the economic efficiency of utilisation of gas pipes, it works against an overall economic optimum: another example of the failure of the present approach to energy market reform.

So a balanced approach to using gas as a bridge for climate response would involve applying maximum efficiency to all new uses of gas, ensuring new gas pipes and equipment are compatible with the range of likely gas options (e.g. lower grade gases and hydrogen), and applying pressure to the gas industry or others to start large-scale production of renewable gas options. Otherwise, it may be more cost-effective to use high efficiency electric options linked to renewable electricity.

The importance of looking at life cycle impactsI have often spoken about the importance of making every investment in equipment an asset in a carbon-constrained future,

rather than a liability. This has several dimensions. Obviously, long-lived assets like buildings need to be able to deliver their functions (such as comfort) under future hotter, drier conditions. So they need to be designed for such conditions, and made adaptable. But criteria for purchasing also need to take into account life cycle impacts.

A classic example of the issue is the purchase of a new car by government or business. Often, this car will be used by the purchaser for only 60,000 kilometres or so. Yet its life is more like 240,000 kilometres.

Choosing a car that uses three litres per 100 kilometres more than another car will increase emissions of its original buyer by five tonnes over 60,000 kilometres. But over its life, this car will generate 20 tonnes more greenhouse gas. So the decision made by the new car buyer has far bigger implications than (s)he usually takes responsibility for.

From a policy perspective, new car, appliance, equipment and building buyers should take into account the life cycle impacts of their decisions. There is a case for them to pay for the life cycle greenhouse impacts as part of the purchase price.

Technology can change the rules Many people are critical of the use of air conditioners, often arguing that they are simply unnecessary. There’s no doubt that well-designed houses need little or

“Early bushfires and never-ending drought seem to have convinced most Australians that climate change is real...”

Page 116: Pears Report Collection

Pears Report Collection

116

Climate change realities

from the resources industries, and paint political alternatives as economically irresponsible.

The problem for the PM with this approach is that trends in climate science and public opinion are increasing pressure for a much more rapid and effective response. So there will be a major public relations and spin doctoring battle to influence public attitudes.

Zero net emissions: the next stepClimate change science is moving well ahead of government policy at all levels. ‘Deep cuts in emissions as soon as possible’ is the clear message.

As individuals, councils and businesses, it is now possible to act decisively and send a message to our politicians. Setting ourselves zero net emissions targets will do that, but such targets—and the ways we achieve them—need to be seen in context, so we understand how to set priorities.

Emissions reduction actions, including energy efficiency and cutting emissions from our wastes and activities, complemented by purchase of offsets such as GreenPower, abatement certificates and tree planting, forms the most common technique of achieving zero net emissions. This recognises the reality that each one of us can’t dramatically change everything quickly: it takes time to change cars, buy the right

ReNew’s regular policy columnist Alan Pears looks at the nuclear debate, climate change and election policy.

THE Howard government’s nuclear inquiry final report is now out, and there are not a lot of surprises. The report’s analysis of energy is very superficial: there is no discussion of how much base load power generation we might actually need. Nor are obvious base load energy options such as cogeneration and energy efficiency even considered.

Australia’s involvement in the nuclear fuel cycle seems to be the next ‘magic bullet’ in the government’s response to climate change, while it is also seen as a way of helping fix our serious Balance of Payments problem. Superficially, its recognition that nuclear power is only potentially viable if there is a price on carbon creates a dilemma for the government. At the same time, the PM needs to be seen to act on climate change, but he can’t give in to the ‘greenies’ and the ALP by shifting to renewables and energy efficiency as a core strategy. And he has committed to opposing emissions trading unless it is a global scheme.

The picture that is emerging seems to be something like this. In the run-up to the coming election, the PM’s panel of high

emitters (appointed to consider emissions trading options last year) will provide him with a way of phasing in emissions trading (with appropriate exemptions and transition assistance packages) in a way that big industry can support. So he will offer us the choice of the ALP/Greens/Democrats rushing into emissions trading prematurely, at the expense of the economy and our export industries, or the Coalition’s slower, more measured approach that will protect the ‘core’ industries of the Australian economy but still be seen to address climate change, eventually.

To support the nuclear scenario and coal geosequestration, he only needs to have emissions trading in place within the next 10 or 15 years. It will be at least that long before they actually produce significant energy output and, in the meantime, R&D incentives and tax breaks can be used to support their development. And delaying introduction of a carbon price will work against the development of their competitors—renewables and energy efficiency.

So, regardless of the real problems with a nuclear and coal geosequestration strategy, the PM has to maintain his support for them so that he can present a plausible alternative climate change policy to voters. And if he manages it well, he will also split the ALP, maintain support

Featured in: ReNew 99, April – June 2007

Page 117: Pears Report Collection

Pears Report Collection

117

require payment of at least 40 cents. As deregulation continues, there is nothing to stop energy retailers reducing the marginal price of electricity as they adjust pricing structures to attract profitable high consumers. Grid-connected generators could then be paid even less for their power.

Then there’s the fixed charges the retailers apply. In Victoria, that’s $160 each year at present (close to half of the electricity cost for a small efficient household), and retailers may argue for higher charges for grid-connected systems. It’s interesting to note that in the recent NSW trials of smart meters, the fixed charge was quietly doubled, hidden by the fact that it was shown as a daily charge instead of a quarterly one.

We now have governments interested in introducing feed-in tariffs. But the devil is in the detail. How they are structured, and the levels at which they and other charges are set, will determine whether they are simply window dressing or a serious policy initiative. And a lot of people will be working hard to make sure that any feed-in tariff is set low while ensuring energy retailers are free to adjust fixed charges.

So start lobbying! S

appliances, locate our homes relative to where we need to travel, and so on.

But we need to keep in mind that if everyone tried to buy offsets while trying to meet ever-tougher emissions targets, their price would go up because of scarcity. Anyone who commits to zero net emissions therefore needs to plan to progressively reduce their actual emissions, so they become less dependent on offsets over time.

We also need to develop credible accreditation and advisory mechanisms so that only valid offsets are recognised and potential buyers understand their characteristics.

For example, George Monbiot, the UK analyst, has argued that tree planting is not a simple offset for energy use. If we are to achieve deep cuts within a short timeframe, emitting a tonne of carbon dioxide this year has a much bigger warming effect than can be offset by a ‘lifetime’ tonne absorbed by trees over that time, although the tree will provide additional offsets beyond that date as it continues to grow. So if you’re concerned about the short-term effects, you might consider buying more trees per tonne or other types of offsets. Abatement offsets from energy efficiency improvement depend upon what baseline consumption is chosen, below which credits accrue.

And the range of emissions to be offset in order to claim greenhouse neutrality must be clarified. Is a household climate neutral if it offsets its energy use? What about its waste emissions? And the emissions associated with its food and materials consumption and use of services? On the other hand, should they

receive credits for investing in businesses that make and sell emissions-reducing goods and services? Maybe we need a graded scheme, so we receive recognition for avoiding our direct emissions, and more recognition the further we go? We will also need much-improved accounting mechanisms and more reliable data on the greenhouse impacts of a wide range of activities.

Feed-in tariffs: the new magic bullet?We now have both the South Australian and Victorian governments committed to introducing feed-in tariffs for small renewable energy systems. This sounds good in principle, but will the econocrats allow them to be structured in ways that actually encourage rapid adoption of emerging technologies? In Germany, small grid-connected PV generators are paid close to 80 cents (Aust) per kilowatt-hour. Each year the rate is reduced by 5 % for new installations, to create an incentive for the PV industry to cut costs.

Here the talk is more about ensuring that they are paid at least the marginal retail electricity price of 11 to 20 cents. To achieve a 10-year payback at existing PV prices, you would need to be paid 60–80 cents. A 20-year payback would

“We now have governments interested in introducing feed-in tariffs. But the devil is in the detail.”

Page 118: Pears Report Collection

Pears Report Collection

118

The good, bad and ugly

shortages. In contrast, Queensland’s Electricity Commission ran newspaper advertisements attacking solar hot water!

The mid-1980s also saw governments begin to restructure energy utilities, with many job losses as they were made ‘economically efficient’.

By the late-1980s, government interest in sustainable energy was waning across Australia. Excess electricity generation capacity had been built. Western Australia had developed its recently discovered gas fields based on a ‘take or pay’ contract, so the energy utility was actively promoting gas hot water as a replacement for those ‘old fashioned’ solar units many homes had on their roofs. Energy agencies were being absorbed by industry departments that saw energy growth and deregulation as the real focus of energy policy.

Energy reformAnd it got worse. An aggressive campaign for reform and privatisation of the energy sector was pursued from the late-1980s, and gained support from governments across Australia. A National Competition Commission was established, and energy reform was an early focus of attention. Indeed, Australia’s first national greenhouse strategy, the National Greenhouse Response Strategy of late-1992, made energy market reform the centrepiece of its energy emissions

For ReNew 100, regular policy columnist Alan Pears looks back at the last 25 years of Australian energy policy.

IN THIS short piece I can’t do justice to all the things that have happened over the past 25 years of Australian energy policy. But I can at least share a few highlights and lowlights.

The coal-powered 80sThe early-80s saw a very different energy scene from 2007. Community groups, including the Alternative Technology Association, were mobilising to respond to the Victorian Hamer Liberal government’s 1981 vision of a brown coal-led economic miracle: 23 brown coal power stations were to be built in the Latrobe Valley over the next 50 years, along with several oil-from-coal plants. Of course, this was a modest vision in comparison with the Western Australian plan presented a few years earlier. They were expecting such strong energy growth that they would be building a new nuclear power station every two years from 1990.

In New South Wales, electricity shortages forced the government to run a major electricity saving campaign in the early-1980s. And it worked! But the political fallout of the shortage led all

state governments to focus on building more supply capacity as insurance against electoral problems and union problems.

In the wilds of Tasmania, the campaign to preserve the Franklin, Tasmania’s last wild river, was in full swing, with success for environmental groups in 1983. At the national level, TV campaigns to encourage us to save transport fuel had been running in response to the price spike and shortages caused by the 1979 Iranian revolution. Within a few years, these efforts had faded out. After all, something like that would never happen again…

On one hand, the nation’s politicians were competing with each other to ride the ‘resources boom’. On the other hand, the beginnings of serious action on sustainable energy were also visible.

Environmental groups that had fought against uranium mining and Tasmanian dams recognised the need to promote a positive vision. Others were arguing that we simply didn’t need the many new power stations being planned. Some were questioning the benefits of offering aluminium smelters discounted electricity prices. These groups began to influence governments. Indeed, the Cain Labor government was elected in Victoria with a strong sustainable energy policy, while NSW established a strong range of energy efficiency programs to capitalise on the momentum gained during power

Featured in: ReNew 100, July – September 2007

Page 119: Pears Report Collection

Pears Report Collection

119

(and was eventually absorbed into the government department), a new Victorian Government announced an expanded Sustainable Energy Authority. The outcome in both states has been disappointing. Let’s hope recent signs of improvement lead to real outcomes.

Nevertheless, we have seen some important mainstreaming of energy issues in recent years. Building codes (including the NSW BASIX program) Green Star and ABGR drive building performance. VRET, NRET and WARET, as well as South Australian renewables targets now drive renewable energy along with expanded PV rebates. The Energy Efficiency Opportunities program, NSW Energy Savings Plans and Victorian EPA Greenhouse Abatement Plans for industry are beginning to push industrial energy efficiency. And NSWGGAS, NSW Energy Savings Fund (absorbed recently into a broader program), VEET (under development), and who knows what proposals in the run-up to the federal election are all examples of this new momentum. Indeed, the Australian Government’s proud announcement of the phase-out of incandescent light globes and (very belated) action on standby power reflects an acceptance that past policies have failed to capture the potential of sustainable energy.

We are at the watershed many of us believe we needed to reach a decade ago, but at least we are there. The challenge for the sustainable energy sector will be to cope with the stresses and strains of ‘catch-up’ growth in a very complex environment. S

abatement strategy. Yes, we were told that energy market reform would cut greenhouse gas emissions. And it might have, if the original principles had been followed. But energy reform degenerated into a narrow process run by vested interests, economic fundamentalists and speculators. We are still a long way from sorting out the mess that was created. Indeed, energy market reform is now one of the major barriers to a sustainable energy future in Australia—although it need not be if it were done properly.

In the mid-1990s in Victoria, the energy efficiency and renewable energy industries were brought to their knees, as the Kennett Liberal government cut programs that might undermine the profitability of the newly privatised industry. Most energy users believed the PR line that energy reform would lead to ever-decreasing energy prices. Indeed, prices for industry did fall as the new electricity industry participants offered discounted power to ‘buy’ market share in the early stages of the market. Other states watched what happened in Victoria and, apart from South Australia who leased their electricity industry for 99 years, mainly because of financial difficulties, they decided not to privatise.

In New South Wales, sustainable energy advocates managed to convince state leaders that it would take a few years for the new market to settle down and that, during that time, sustainable energy would be disadvantaged. So in 1996, SEDA (Sustainable Energy Development Authority) was established with a ‘sunset’ period of three years. High profile US sustainable energy advocate Cathy Zoi was

appointed to lead SEDA. She immediately employed a team of bright young people who delivered a range of innovative and surprisingly effective sustainable energy programs, including their Energy Smart Business, Energy Smart Homes, Australian Building Greenhouse Rating, and other schemes. SEDA upset the energy establishment, as they applied a much more entrepreneurial, marketing oriented approach to sustainable energy. Western Australia followed NSW and established its SEDO (Sustainable Energy Development Office)—a much more modest agency.

Preparing for KyotoNovember 1997 was a significant moment for sustainable energy. In the lead-up to the Kyoto Climate Change Conference, Prime Minister Howard was keen to establish some credibility in the international arena. So he announced what would become MRET (Mandatory Renewable Energy Target) and flagged stronger action on building energy performance and appliance efficiency. These  have underpinned much of the national progress on sustainable energy since then—such as it has been.

In 1999 there were negotiations on the GST between the Federal Government and the Democrats. To their credit, the Democrats demanded almost three to four billion dollars funding for sustainable energy in the deal, including PV rebates and a $400 million fund. Unfortunately, the government failed to live up to some of these commitments.

At the turn of the century, just as SEDA was being squeezed by NSW Treasury

“...energy reform degenerated into a narrow process run by vested interests, economic fundamentalists and speculators.”

Page 120: Pears Report Collection

Pears Report Collection

120

Trading and trade-offs

many businesses, this will be a bigger cost impact than the direct energy price effects. So purchasing policies will be a major focus.

This is not to say emissions trading will have adverse impacts overall. If the government auctions permits, it will have billions of dollars to encourage emissions reduction and to offset cost increases for vulnerable groups. And businesses and households that act to cut their own emissions and shift to low-emissions inputs will easily save more than it costs.

Can the energy industry change?The energy supply area is beginning to send some unsettling signals to those who are watching. Wholesale electricity prices have risen dramatically as several large coal power stations have cut their output due to lack of cooling water. And output from hydro plants is also well down, adding to cost pressures. The NSW regulator, IPART, has recently announced a 25 % increase in household electricity prices over the next three years, and business contracts are also trending upwards.

A recent cold snap in Victoria led to a shortage of natural gas, as demand exceeded the system’s capacity. There are also concerns about electricity supply capacity.

Unfortunately, these indicators are being seen by politicians and the energy

With an emissions trading scheme on the way, Alan Pears raises the important question of how low-income households will fare.

Emissions trading: practicalities emergeWE NOW have commitments to emissions trading from both major parties at national level. The major differences will be in how fast it is introduced and how generous the scheme is to existing large emitters in terms of allocation of free emissions permits. I hope that policy makers learn from experience with allocation of water rights. If they over-allocate, it will cost the community a lot of money to buy back those excess rights to pollute.

The science will also create challenges for emissions trading. All proposals involve providing a fair degree of certainty for emitters for 10 or 20 years ahead, so they can confidently invest. But the science is increasingly telling us that Australia needs to cut its total emissions now, with large cuts much sooner than previously expected. We have to hope that business discovers a lot of opportunities to cut emissions, so we easily meet the targets and the price of carbon is low. Certainly, experience with energy efficiency and other pollution issues is that there is lots of potential: the challenge

is always how to mobilise everyone to capture it.

As we look more closely at emissions trading, we are also seeing some interesting subtleties. A recent study by the National Institute for Economic and Industry Research estimates that, at a price of $25 per tonne of CO2, households will experience an increase in living costs of 0.3 to 2.3 % of income—with lower income earners experiencing a higher percentage impact—assuming that they (and their suppliers of energy, goods and services) do not reduce their emissions. Less than half of this impact will be due to direct increases in energy prices, and the rest through the ‘embodied CO2’ in goods and services purchases. Governments must introduce effective policies to help low-income households reduce their emissions in order to manage these costs. Policies to encourage suppliers of basic foods, goods and services purchased by low-income earners to cut their emissions will also limit the indirect costs of emissions trading.

Indirect cost effects of emissions prices on goods and services will also be an issue for businesses. Prices of goods and services they buy will be slightly increased (on average by 1.4 % at a CO2 price of $25/tonne) as the cost of CO2 is built into them—unless upstream suppliers act to cut the ‘embodied emissions’ in their inputs and their own emissions. For

Featured in: ReNew 101, October – December 2007

Page 121: Pears Report Collection

Pears Report Collection

121

on your access to energy at critical times. It rewards people who limit their demand. There are some potential social justice and transition issues. But this approach could be quickly applied to all new homes and major renovations. It could also be rolled out to buyers of new large air conditioners and central heaters, and to households and businesses with a history of unusually high demand around peaks—although financing packages and incentives for investment in load management and energy efficiency would be important.

The cycles of lifeI’ve been pleased to see the renewed interest in home energy auditing. Not many people realise that from 1983 to 1993, the Victorian Government ran an energy auditing and retrofitting scheme for low-income households, from which over 90,000 households benefitted. It was shut down during the energy market and privatisation process. I developed the computer software and helped to train advisors. I’m now seeing a lot of interest from people who want to get back to where we were in the 1980s! S

industry as reasons to build more energy supply capacity. The real solution would be to introduce much stronger action to limit demand. But that’s simply unthinkable to most players in the game of energy. The energy market framework is still not sending the right signals. Our energy policy makers have had 15 years to get energy markets right: maybe it’s time for someone else to have a go.

Cutting demandWe need to seriously contemplate a future where cuts to supply at times of peak demand are more common. To put it bluntly, it costs a lot of money to have lots of spare energy supply capacity available for the occasional extremely hot or cold day. And private energy suppliers find it risky and expensive to make provision for these situations, unless they can pass on the costs to consumers.

Under present arrangements, both those who use energy wastefully and those who are frugal suffer if there is an energy shortage—we all lose supply. It seems to me it would be a lot fairer if, when supply is limited, those who have modest and reasonable requirements were protected, while those with extravagant requirements should be the ones whose

supply is limited. If you want lots of energy at peak times, you could pay (a lot) extra to ensure the capacity is there.

With recent developments in smart metering and load management, this is becoming possible. For example, if I had a smart energy management system, a signal from the energy supplier could set a demand limit, and my smart system could shut down the appliances and equipment in the order I have nominated until I was within my prescribed limit. If I wanted a higher limit, I would have to pay a premium to ensure more supply capacity was available.

This approach would send some powerful signals. First, it would mean that households that were efficient would be protected from brown-outs and limits to gas supply—a reward for being sensible. Second, those who wanted lots of energy at times when it is expensive would pay. This would also create incentives for energy storage and onsite energy generation.

This goes beyond the present focus on ‘smart’ energy meters and time-based pricing. It involves introduction of active smart energy management systems, and sends a clear signal to high energy users: pay more or expect to have limits placed

“...experience with energy efficiency and other pollution issues is that there is lots of

potential: the challenge is always how to mobilise everyone to capture it.”

Page 122: Pears Report Collection

Pears Report Collection

122

A promising future?

schemes. Different renewable energy sources deliver electricity at different times. Present GreenPower schemes certainly offset all greenhouse gas emissions from customers with renewable energy and support expansion of the renewable energy industry. But if a customer uses a lot of electricity overnight, they are still creating demand for power from base load coal plants, effectively supporting their ongoing use.

With sophisticated intelligent metering and control, probably including some distributed electricity storage, energy retailers could offer customers a GreenPower scheme that uses a mix of renewable sources and smart demand management to match their demand for electricity to the timing of supply from their preferred mix of sources. Then, a GreenPower customer could actively and specifically support the expansion of preferred electricity sources.

Another key development that’s urgently needed is more detailed tracking of actual performance of appliances, equipment and buildings against their design performance. My observations in homes, offices and industry suggest that a surprisingly large amount of energy waste is due simply to faulty equipment and controls, along with sloppiness in management. Automated warnings when a fridge or electric motor is using more

So, what happens after the election? ReNew policy columnist Alan Pears looks at some key issues that just won’t go away.

CLIMATE change and energy have certainly been big issues in the federal election campaign. We’ve seen proposals for rebates, incentives, renewable energy and ‘low-emission’ energy targets, accelerated energy standards, and so on. And both major parties are now committed to the introduction of an emissions trading scheme. This is certainly a positive development. By the time you read this, we will have an election result, so the situation will be much clearer.

But there are some clouds. First, major parties have been reluctant to commit to near-term targets. The climate science is very clear: we need to rapidly reduce Australia’s greenhouse gas emissions and fossil fuel use. So urgent action is essential. But commitment to rapid change might frighten voters and provoke opposition from those who believe they will be losers. Hopefully we will move past this once the election is over.

Second, economic fundamentalists within government, encouraged by lobbyists from some industries, are working hard to argue that emissions

trading will replace the need for other policies such as energy efficiency and renewable energy targets. This would suit lots of interest groups. For example, energy retailers are now liable for compliance with renewable energy and greenhouse targets. A shift to emissions trading would move the responsibilities and compliance costs from them to electricity generators.

Putting all our eggs in the emissions trading basket would guarantee a delay in response, because it will be phased in from 2010 at the earliest. The uncertainties and delays would be yet another blow to our emerging energy efficiency and renewable energy industries. And, to the extent that it slowed adoption of energy efficiency and other changes by small energy consumers and suppliers of equipment, it would increase the cost of greenhouse response. But ideology, arrogance and vested interests are powerful forces.

The next big thingsIn my last column, I painted a picture of new, integrated grid and demand-side systems to manage both demand and supply. Since then, several people have pointed out to me that such systems are under development and being trialled already. Bring them on!

Another new development I’d like to see is a new generation of GreenPower

Featured in: ReNew 102, January – March 2008

Page 123: Pears Report Collection

Pears Report Collection

123

to financial hardship. Even with today’s petrol prices, around 70 % of the cost of cars is not petrol, but costs such as loan repayments, insurance and maintenance. So policies that reduce the need for households to own multiple cars, as well as use them less, will be very important in improving housing affordability. Indeed, some experts suggest that expanding public transport systems will increase the amount of desirable housing stock, placing downward pressure on prices and improving equity.

Such strategies will also reduce our vulnerability to future oil prices and availability, while improving our balance of payments by much more than exports of uranium ever could.

Driving home energy efficiency and sustainability improvement will also be critical, not just for the environment, but to reduce the cost of living and cushion people from increasing energy and transport fuel costs and improve quality of life when many forces are reducing it.

Governments will be forced to intervene, because higher interest rates will simply reduce demand for housing construction at a time of high population growth, adding to the pressures. We will also have to confront the inefficient use of present housing, with one or two people often occupying large homes, and both new construction and renovation adding to this trend. We are approaching interesting times. S

energy than it should will transform energy use. They could reduce business costs and other waste. For example, if a motor uses more power than predicted, this could indicate faulty bearings, pumps or other problems downstream. A warning means faults can be fixed under preventive maintenance instead of after the system has failed and production has been lost.

The base load debateThe nuclear and coal lobbies have been vocal in arguing that we need base load power stations, and that they are the only ones that can fill this role. Of course, we know that several renewable energy technologies and cogeneration can provide base load power, so this argument is specious.

But as pressure for new base load power stations builds, we need to extend the argument. Base load power stations themselves have serious limitations. They are not much help at all in providing extra power on hot summer afternoons, and when people really want it. And they produce much of their electricity in the middle of the night and on weekends, when we don’t need much. Indeed, around half of Australian homes heat water in the middle of the night, when few people are showering, using electricity at ‘waste product’ prices. This is a very inefficient way of producing hot water that creates demand for around eight coal-fired power stations. Many offices and industries simply leave equipment running because electricity prices

overnight and on weekends are very low. Why build power stations that produce

something an economically efficient and competent modern society doesn’t need much of, but can’t provide when we really need it? Oh, and these are either the most greenhouse polluting or involve becoming part of an extremely dangerous nuclear industry. It says a lot for the ignornace of policy makers and the effectiveness of the PR efforts of these industries that we are even having this debate.

I guess you’ve also heard the argument that using off-peak power doesn’t increase greenhouse gas emissions because the power stations have to run anyway, and would just vent steam if the power wasn’t used. This further reinforces the craziness of inflexible base load generation plant. And while it may have some element of truth in the short term, once demand drops by a large enough amount, whole coal-fired generators can be shut down. Most change is ‘lumpy’, and this is just one example of a common issue that applies from industrial production to trains and aeroplanes.

Equity, housing and transport infrastructureHousing affordability is also an emerging issue. Unfortunately, the debate has focused on the prices of new homes, rather than the fundamental issues.

First, the people with the greatest difficulties are renters, many of whom are nowhere near being able to even consider buying a home. Second, the cost of car ownership is a major contributor

“Why build power stations that produce something ... modern society doesn’t need much

of, but can’t provide when we really need it?”

Page 124: Pears Report Collection

Pears Report Collection

124

Ready to play ball?

Productivity Commission lobbying

Professor Garnaut has also made it clear that he will take very seriously the 2006 UK Stern Review. So it was interesting to see the Productivity Commission, that ever-reliable dry economic lobby group funded by the Federal Government, publish a paper in January critiquing the Stern Review. In this paper, the Productivity Commission exposes its ignorance of the recent developments in climate science, by questioning the Stern Review’s assessment of the seriousness of the problem.

It then identifies several key weaknesses in Stern’s approach. According to the Commission’s media release:

‘The staff paper finds that the Stern Review made some important analytical advances. The Review sought to move beyond analysis based on the mean expected outcome to one that incorporates low probability, but potentially catastrophic, events at the tail of probability distributions. The Review also attempted a more comprehensive coverage of damage costs than most previous studies.

‘The paper also finds that value judgements and ethical perspectives in key parts of the Stern Review’s analysis led to estimates of future economic damages being substantially higher, and abatement costs lower, than most

The Garnaut Review will be instrumental in shaping the new government’s response to climate change, but which way will Garnaut go? writes ReNew policy columnist Alan Pears.

WELL, Australia has a new Federal Government, with a strong mandate to respond to climate change. Its election policies include a comprehensive list of measures to help households, the building industry and business to improve energy efficiency, and strong support for renewable energy. The sense of urgency for strong action on climate change around the world is also building.

So there is increasing pressure to use the solutions we have now such as energy efficiency, cogeneration, renewable energy, and so on, because we can’t afford to wait a decade. It’s a whole new ballgame.

The Garnaut ReviewThe Garnaut Review will play a key role in shaping Australia’s response to climate change. The new Federal Government has made it clear that it will rely on Garnaut’s advice to set the 2020 emissions reduction target. You can check out the background and progress at

www.garnautreview.org.au.Indications so far are mixed. On one

hand, Professor Garnaut has been convinced that climate change is a very serious challenge, with potentially dire consequences for Australia and humanity. On the other hand, as an economist, he places a lot of faith in pricing carbon emissions correctly. In a lecture last November, Garnaut commented:

‘If the price [of emissions] is established at the right level, there is no need for other public policy measures… But for as long as the price, now and expected in future, is insufficiently high to ensure that Australia lives within the national emissions budget, a case can be made for other measures, such as the mandatory renewable energy target, during the transition to an environmentally and economically rational emissions price.’

He also listed market failures that might require action beyond emissions pricing, including research and development, infrastructure provision, lack of access to information, and adaptation to climate change. In these cases, other factors often dominate price signals, so complementary policies may be needed.

Yet, we have to convince Professor Garnaut that these market failures are real and significant, and that it is necessary to address them.

Featured in: ReNew 103, April – June 2008

Page 125: Pears Report Collection

Pears Report Collection

125

customers to exercise choice among competing retailers and their price and service offerings.’ This is a very narrow objective that ignores social and environmental criteria that were core elements of the original objectives for energy market reform.

The report found some evidence of misleading and aggressive door-to-door sales techniques. It found about 60 % of households and small businesses had signed energy contracts, but that it took proactive measures by energy retailers (such as door-to-door sales, discounts and special offers) to capture new customers. It also found an increasing rate of switching between retailers.

Nowhere did the report estimate the extra cost to consumers of all this marketing activity and switching between suppliers. Yet a major contributor to the recently announced NSW household electricity price rises was consideration of costs to ‘capture customers’.

Maybe the fact that retailers have to work so hard to capture and retain customers shows that competition in this form is simply not worth the effort; the report provides no evidence that energy bills are lower than they would have been under other retailing structures. It would be interesting to compare the performance of energy retailers with water retailers, who have geographical monopolies but are subject to benchmarking against other retailers. S

previous studies. The paper notes that the report could usefully have included more sensitivity analysis to highlight to decision makers the consequences of alternative assumptions or judgements.’

The Commission challenges Stern’s use of very low discount rates in estimating future costs of response to and impacts of climate change. Economists routinely discount the value of future financial activity on the grounds that a dollar spent in another way today would have earned a rate of return each year up until that point. So the value of a dollar you receive in 2050 has to be compared with a dollar received today plus 42 years of financial returns. So receiving a dollar in 2050 for a person is equivalent to receiving 12 cents today if that 12 cents were invested at 5 % per annum interest. Clearly, this approach has the effect of heavily reducing the significance of the distant future for today’s decision-makers.

Indeed, Stern chose low discount rates to attempt to address the issue of inter-generational equity, to consider the rights of future generations. If the long-term costs of our actions seem negligible, then it is logical to ignore them, even when they may involve the devastation of human society as we know it! But I guess that doesn’t bother the Productivity Commission.

In any case, the Productivity Commission doesn’t seem to have looked very closely at the economic modeling done in Australia in recent years. A study by ABARE (Australian Bureau of

Agricultural and Resource Economics) released for the AP6 meeting in 2006 suggests that CO2 prices in 2050 could approach $600/tonne under a ‘deep cuts’ scenario. More moderate modeling for the Business Round Table on Climate Change put the cost at close to $200/tonne in 2050 for a 60 % cut scenario. If you discount the cost of $200 in 2050 back to 2010 at 5 % per annum, that is equivalent to a CO2 price today of around $25/tonne, while the ABARE price is equivalent to $75/tonne. So even if you discount the future, long-term carbon prices will still be substantial.

If we applied CO2 prices of $25 to $75 now, we would drive a powerful change. My suggestion is that we just get on with introducing emissions pricing and defer the intellectual debate until we have some real experience of how it works.

Are energy markets working?Energy market reform has been hailed by economists and politicians as a great success. But is it? A recent report by the Australian Energy Market Commission has assessed Victorian retail energy competition, and declared it ‘effective as an important step in the journey towards an integrated and competitive national energy market’. This report underpins progress towards complete deregulation of retail energy prices.

The report states: ‘The objective of energy retail competition is to deliver efficient prices and services to energy customers and the opportunity for

“Energy market reform has been hailed by economists and politicians as a great success. But is it?”

Page 126: Pears Report Collection

Pears Report eCollection

126

Costs and benefits

question of how long it will take for the emissions trading scheme to grow into a mature mechanism.

Of course, advocates point out that the emissions target will drive the level of abatement, and this is true in the short term. If there are only a given number of permits available, scarcity will drive up the price until someone eventually acts to cut emissions. But failure to drive proactive, low-cost responses will drive up the permit price and apply pressure to government to set softer targets into the future because of the political backlash caused by the high abatement cost. And a higher emissions permit price will hurt vulnerable groups and business sectors more.

Mind you, emissions trading is an important part of our policy response, as we do need to send price signals. And the billions of dollars of revenue from auctioning the permits could fund strong incentive programs and assistance for the poor. But those who claim it will replace other action are either naïve, ideologically driven or looking after their own narrow interests. It’s just one element of a comprehensive response. That’s how the Europeans see it, and they have actually run a trading scheme for some years.

The Wilkins ReviewThe Rudd government has been elected

Is emissions trading the next silver bullet? It may not be that simple, writes ReNew policy columnist Alan Pears.

AT A time when sustainable energy policy is urgently needed to drive response to climate change, the situation just seems to become more ambiguous.

On one hand, the Rudd government was elected on a platform of a 20 % renewable electricity target by 2020 and an impressive list of energy efficiency policies. Victorian Premier Brumby seems to be zealously re-positioning his state to be a winner in a carbon-constrained world. And the momentum behind solar electricity feed-in tariffs is building rapidly.

On the other hand, proposals for emissions trading and cost-cutting imperatives seem to be threatening many established sustainable energy policies, while the feed-in tariffs proposed in South Australia and Queensland look more like window dressing than serious policies. And NSW Treasurer Costa, who is trying to sell or lease coal-fired power stations for the highest possible price, has attacked climate change policy costs and called for compensation for coal power station owners.

The proposal to introduce emissions trading is being used by anti-regulation

and ‘small government’ ideologues, econocrats and vested interests as an excuse to try to shut down existing sustainable energy programs and block regulation. Their logic is that emissions trading is such a wonderful and elegant policy mechanism that we simply won’t need these other crude and inefficient measures.

Unfortunately, emissions trading itself is a crude, inefficient and regressive policy tool. Only large emitters will actively trade emissions permits. The rest of us—households and the bulk of businesses (and the bulk of the economy) will be price takers. We will have to pay the flow-on costs charged by power generators, oil companies, cement and metal producers and other big emitters to cover their permit costs. Since energy is a small component of our costs—an average household spends less on electricity and gas than it does on phone and internet bills—this price signal won’t drive much behaviour change. But it will impact disproportionately on low-income groups.

It’s not clear that it will have much impact on the behaviour of the big emitters either. The dramatic increase in the value of the Australian dollar, recent oil price rises and electricity price increases due to drought and tightening supply have impacted far more than any likely emissions price. Then there’s the

Featured in: ReNew 104, July – September 2008

Page 127: Pears Report Collection

Pears Report Collection

127

any voluntary purchase of GreenPower beyond mandated targets actually reduces the number of emissions permits available on the market. This could be done by ensuring that voluntary surrender of a REC automatically deducts an equivalent number of emissions permits from the number available.

And we’ll have to work out how to deal with voluntary offsets too. Let’s say I want to offset the emissions from my electricity consumption through an independent offset provider rather than by buying GreenPower from my usual energy retailer. The problem is that my energy retailer will have built into my electricity price the cost of buying permits to cover the emissions from my purchase of conventional electricity. So I will pay to pollute and to offset that pollution. Why should I pay twice?

We will need some kind of accounting and management system to manage all this. It will certainly add to the complexity of the emissions trading scheme. But it is critically important to encourage and empower people to take voluntary action beyond mandated targets. S

at a difficult time. The global economy is finally suffering the consequences of its debt-driven, unsustainable economic growth, and Australia must tighten its belt. It’s not surprising then that the government has set up the Wilkins Review. This internal public service review has received very little publicity. Indeed, just about the only information on the public record is a joint press release by Ministers Wong and Tanner.

The review will be driven from within the Department of Finance by Roger Wilkins, former head of the NSW Cabinet Office. It reports in July. This process will ‘ensure that existing climate change policies are efficient, effective and complementary to the emissions trading scheme,’ according to Minister Tanner.

In the new world, key measures like appliance energy efficiency programs, building energy regulations and MRET are seen as ‘complementary programs’ that must prove they address so-called ‘market failures’. So an appliance efficiency program built up over 20 years, that is delivering millions of tonnes of greenhouse gas mitigation at a cost of minus $23/tonne, must now prove that it complements emissions trading—whatever that means. Australia risks losing what little momentum it has built up in responding to climate change. The reality is that our sustainable energy programs are very modest, mostly very cost-effective, and deliver a range of benefits including reducing investment in conventional energy supply capacity and reducing the cost of emissions trading. We need to expand them, not cut them back.

Let’s hope the Garnaut Review takes a balanced approach and that sustainable

energy advocates mobilise. And that the Rudd government does not fall under the spell of the groups that drove energy policy under the previous government.

Voluntary action and emissions tradingIntroduction of emissions trading could undermine voluntary action to cut Australia’s greenhouse gas emissions if we’re not careful.

Consider GreenPower. Once we have emissions trading, that will set the total number of emissions permits available. But if I buy GreenPower, my energy retailer will buy less fossil fuel-sourced electricity, so fewer emissions permits will be needed to cover emissions from sale of a given amount of electricity. Under a fixed emissions target, that leaves more permits available for other emitters. The reduced competition will even help reduce the

price of those permits. So I will effectively be subsidising emitters by spending more on GreenPower, while Australia’s overall emissions will not be reduced. Of course, my efforts will mean that we achieve the given target at lower cost, so this may mean the government will set tougher targets into the future, but that is a fairly indirect outcome for my money.

We will need a mechanism so that

“Introduction of emissions trading could undermine voluntary action to cut Australia’s greenhouse gas emissions if we’re not careful.”

Page 128: Pears Report Collection

Pears Report eCollection

128

What have we learnt?

of previous PM Howard’s style: frighten people and focus them on self interest, regardless of the truth. This is tragic. We need a bipartisan approach to this critical issue. Delay means more uncertainty for investors, as well as more pain in the transition. I hope that by the time you read this, they will have picked themselves up out of the gutter.

All the economic modelling over the past decade has shown that the economic downside of action on climate change is small. Indeed, some modelling has shown that, if we’re smart, we can turn a small economic cost into a gain. And, while Australia acting alone can’t fix the problem, it would be immoral to be part of the problem when we can so easily be part of the solution. Delay would also mean Australia loses an opportunity to position its business sector to profit from supplying Australians and other countries with the goods and services they will need to cut their emissions. Focusing on propping up old industries instead of shaping the new economy would be economically disastrous.

The China syndromeOver the past year I’ve had the privilege of making presentations to several delegations of officials from China, here to learn from us about policies and strategies to address climate change. It has been a bit

Thirty years on, the debate about climate change, energy prices and peak oil is all too familiar territory.

THIS December marks the 30-year anniversary since Seeds for Change: Creatively Confronting the Energy Crisis was published. I was a co-author of this book which, in many ways, was my apprenticeship in sustainable energy. The debates on how we can respond to the increasing pressures of climate change, increasing energy prices and peak oil are all hauntingly familiar.

Chris Mardon, then a CSIRO bioenergy researcher, and John Dick mapped out how peak oil would occur. Deborah White showed how buildings could be much more comfortable while using much less energy. Philip Sutton framed the principle of ‘solution multiplying approaches’. The now deceased visionary Maurie Crow mapped out how our city structure and transport infrastructure could be transformed. He explained the principle of ‘cluster and connect’ for urban development: Melbourne 2030, Sustainable Sydney 2030 and many other urban strategies are sanitised versions of what was proposed. We also looked at how industry, homes and transport could be transformed. The last chapter, ‘The Seeds

are There’, discussed how neighbourhood houses, community gardens and other frameworks could be developed into the backbone of a convivial sustainable city.

Seeds for Change explored how we could transform Melbourne into a low energy, high quality of life city. For those of us involved in this book, the three-year process of debate, discussion and evolution of ideas was a remarkable experience. The book was the icing on the cake.

One thing I’ve learnt over the past 30 years is how hard it is to drive change if it is not supported by the powerful vested interests in our society. But it’s worth the effort! We can wear them down—what’s the alternative?

Emissions trading gameIt has certainly been on for young and old recently, as Professor Garnaut has presented his vision of how Australia can play a globally responsible role in addressing climate change. The government’s Green Paper has laid out its much more pragmatic model. And the highly paid lobbyists have kept Canberra hotels full and newspapers full of stories of gloom, doom and economic disaster.

Sadly, the opposition descended into petty game playing, as it desperately tried to score political points and rebuild some support. The approach is reminiscent

Featured in: ReNew 105, October – December 2008

Page 129: Pears Report Collection

Pears Report Collection

129

petrol. And it is very difficult to tax DIY production of some fuels. On one hand, this situation creates financial incentives for people to shift to other options, but on the other hand the government will lose billions of dollars of tax income, which it will have to replace from other sources. The situation is complicated by the previous government’s commitments to increase tax on biofuels and LPG over time.

We need to shift to a system of transport energy taxation that is practical, reflects the fundamentals of environmental and social impacts, and addresses energy security, while government revenue requirements are managed. For example, LPG only marginally reduces greenhouse gas emissions (indeed, the present exemption increases overall emissions by keeping old fuel guzzlers on the road) although it reduces oil imports and brings some equity benefits by cutting fuel costs for people who can’t afford to replace old fuel guzzlers. The net benefits of biofuels vary enormously, depending on source and process.

I’m not saying this will be easy, but it is necessary. S

embarrassing to admit to them that they have much stronger initiatives on climate change in many areas. Several delegates expressed astonishment that we did not have energy standards for industry, as they do. At least I’ve been able to tell them about our successes and warn them about our failures. The efforts of some to paint China as an excuse for Australia to do nothing are not only wrong, but they’re insulting and ignorant. China needs and wants our help to change.

Transport policy As I watched the political squabbling over reducing the price of petrol by five cents a litre, I gave some thought to the long-term issue of transport fuel policy. First, it’s obvious that we need to expand and upgrade public transport. According to Professor Peter Newman, Director of the Institute for Sustainability and Technology Policy at Murdoch University, this means rail: buses can play a feeder role, but they are just not fast enough and they don’t have the capacity to be the backbone of the transport system.

Second, we really have to sort out the organisation and structures of our cities using the cluster and connect approach. These measures are important not just for transport, but to rebuild housing affordability and equity. As more homes have better access to services and public transport, the polarisation of property values will decline. And more people will save money by not needing to own and

run as many cars. Even at today’s petrol prices, around 70 % of the cost for an average household owning and running cars is not petrol. So owning fewer cars saves a lot of money that can be used to pay off a mortgage or cover rent.

Governments need new means of funding such change. One option will be the sale of ‘new’ land made available above railway easements and stations, as well as through higher tax returns on increased property values. It also seems to me that public transport expansion could be partly funded through a levy on all properties, proportional to the convenience and quality of access to public transport services. This could possibly be levied through local government. This approach recognises that a person who lives near public transport but does not use it is actually depriving someone else of convenient access, so they should pay something, regardless of their usage. It would also create an incentive for expansion and service improvement because the more people who were well served, the higher the levy revenue! Loans could be taken out for project funding, to be repaid from this revenue.

Fuel taxesGovernment will also have to rethink transport fuel taxation. Already LPG is taxed much more lightly than petrol. In coming years, electricity and natural gas, which carry no excise, will compete with

“One thing I’ve learnt over the past 30 years is how hard it is to drive change if it is not supported by the powerful vested interests ... But it’s worth the effort!”

Page 130: Pears Report Collection

Pears Report eCollection

130

Lost and found

Cost of climate response

There’s lots of talk about the cost of responding to climate change. But most of it is unduly negative. The reality is that we are already benefiting from abatement actions—often without realising it. Any household that buys a new family fridge will be saving around $150 a year on running costs compared with old fridges. Someone who lives in an insulated house is healthier and is saving money. And we have had to invest less money in energy infrastructure to supply them. In industry, variable speed drives and efficient motors, more efficient air compressors, ‘smart’ control systems and many other modern features save emissions, energy and money, while improving productivity. But we take these savings for granted, and focus on the negatives that flood the media.

Sure, we could (and should) have done a lot better. But we should be acknowledging these savings because they support further investment.

I also find that many people see emissions trading from a one-sided perspective. They see $20 a tonne of CO2 as a cost. That’s not right. This money flows to the government (if permits are auctioned or sold) and increases its revenue—just like increasing taxes. All that money therefore either reduces the need

For once it seems energy policy is not sidelined by economic drivers, but are opportunities still being lost? asks ReNew policy columnist Alan Pears.

IT’S certainly a relief to hear that the Federal Government plans to continue implementation of its emissions trading scheme, known as the Carbon Pollution Reduction Scheme (oh dear, the spin doctors have to meddle with everything nowadays, it seems), despite the global economic meltdown. They’re right to do this. It’s obvious that delay will just undermine investment decisions by continuing uncertainty. We would miss out on the chance to capture business growth opportunities if we fail to send positive signals to emerging low, zero and negative carbon businesses. And the more we delay, the more likely it is that businesses with opportunities to cost-effectively cut emissions will delay action in the hope of gaining a ‘compensation’ bonanza. I think many will be surprised to see how many remarkably financially attractive actions are taken by businesses as soon as the scheme starts. I hope researchers are getting good baseline data now, so that they will be able to report back on the unexpected good news.

The economic meltdown has also seriously challenged the ascendency of market economists. It’s obvious now that markets need some controls, and that they do have limits in their ability to drive rational and efficient outcomes. The economic crisis is also likely to apply even stronger pressure to the government to ‘compensate’ affected trade-exposed industries and coal power stations. This reinforces the argument that emissions trading is only part of the solution and that a comprehensive package of measures including incentives, research, development and demonstration (RD&D), regulation, information and recognition of voluntary action will be needed.

The government’s efforts to reinvigorate the economy make sense, but there are worrying signs that the opportunities to use this investment to position us for a successful low-emissions future are being lost. I just don’t understand why the first home buyer incentives were not linked to investment in sustainable features, and limited to smaller homes. Can anyone really argue that a new home bigger than say 200 square metres is a community asset? I see it as a liability that locks us into ongoing energy and resource waste and traps the buyer into higher debt and higher living costs. So why are we subsidising them?

Featured in: ReNew 106, January – March 2009

Page 131: Pears Report Collection

Pears Report Collection

131

we were promised they would get to energy efficiency after they sorted out the core issues of the market. After 17 years we’re still waiting. The problem is that key policy makers just don’t seem to get it: energy efficiency is a core part of any effective energy or emissions policy, not an optional add-on.

US election results The world can expect to see significant shifts in US policy on climate change and energy efficiency, based on the incoming president’s published policies. These seem to have been influenced by Al Gore’s recent call for the US to shift to 100 % renewable electricity in 10 years. At the same time, major shift was inevitable; Senator McCain was also a strong advocate of climate change response.

Perhaps a more subtle outcome of this election relates to how Senator Obama raised funds. He used his community organising background and the internet to raise a lot of money from small donors. So he may well be the first US president for a long time who does not owe a debt to big business. This will of course lead to massive public relations campaigns to try to keep him in line. But it just may leave him free to act more independently. Another example of how distributed systems support democracy? S

for government to raise other taxes, or allows it to do more to help us.

Much of the small cost of climate response shown by the economic modelling is actually due to modelling assumptions. They assume that we are pretty efficient in the way we allocate money now and that we use energy and resources quite efficiently. So shifting from present spending patterns to more sustainable ones, according to modellers, reduces overall economic efficiency and shows up as a cost to the economy, which is not a very big one, though. If a smart country can’t find more productive ways of investing its money than building capital-intensive power stations and freeways and over-sized houses, I will be very surprised.

The modelling for the Garnaut Review shows some interesting things. First, it shows a loss of growth in economic output of around 0.1 % each year until mid-century, when it shifts to become a benefit. But Garnaut went to great lengths to point out that this modelling included only one of four kinds of costs due to unabated climate change. That is, three of the categories of benefits from doing something about climate change could not be modelled. So it’s likely that the overall outcome will be a net benefit from the early days of action.

The interesting thing about the more recently released Treasury modelling

is that the ‘cost’ of achieving a 25 % emissions cut by 2020 is not much higher than the cost of much more modest cuts. Looking at Figure 6.9 (p.144) in the Garnaut Review suggests that under the no-cuts scenario, GNP per person grows by 67 % by 2050, while the low cut scenario (5 to 10 % cut) limits GNP growth to 57 % and the supposedly devastating 25 % cut scenario drives growth of 53 %, a 4 % reduction in growth over 40 years. This compares with a cumulative reduction in GNP growth of 10 % for the initial 5–10 % cuts. We would get a lot more bang for our buck by going for stronger cuts. Oh, and we might help save humanity.

National energy efficiency schemeWe now have three states—NSW (NEET), Victoria (VEET) and South Australia (REES)—with energy efficiency obligations on energy retailers, and other states contemplating similar schemes. All are different. Earlier this year there was a senate inquiry into developing a national energy efficiency scheme, promoted by former Senator Lynne Allison. The inquiry decided to ignore national coordination. In my evidence to the inquiry I warned that the government had the opportunity to lead now, or try to sort out the mess in a couple of years. The excuse I got from Canberra is that they are too busy with emissions trading. This is a re-run of the story with energy market reform:

“We would get a lot more bang for our buck by going for stronger cuts. Oh, and we might help save humanity.”

Page 132: Pears Report Collection

Pears Report eCollection

132

Breakdown to breakthrough

the same time driving investment in low emissions and offsetting industries offshore by denying them fair treatment under the CPRS. The government seems to be so focused on oiling the squeaky wheels that it is forgetting to lubricate the new wheels on which a successful low carbon economy will depend.

In the 1970s and 1980s, the argument for supporting expansion of the resources and metals sectors was that they would provide a bridge from our declining agricultural sector until we could build a smart, internationally focused high value adding manufacturing and services economy. However, as these industries grew, they used their political power to strengthen their position—yet, even in the boom, they created only around 8 % of Australia’s GDP. And, by driving up the value of the Australian dollar to near parity with the US dollar, they made our export and import replacement manufacturing and services industries internationally uncompetititive. This was one of the factors that drove our manufacturing industry to Asia, making us even more dependent on the resources sector. This is not a recipe for a successful, resilient, sustainable society and economy.

The Federal Government is also confronting the practical and political challenges of driving climate response policy. Within each level of government,

There’s mixed signals from the government when it comes to tackling the economy with green solutions, writes Alan Pears.

THERE’S nothing like an economic meltdown to change the policy landscape. On one hand, some find this is a great excuse to slow progress on climate change response while others, like President Obama (and PM Rudd to some extent) see a chance to build a new, green economy. Our prime minister sees a need to move beyond the free market model that became a bit too free, throwing us into the hands of the snake oil salesmen.

On balance, I think the meltdown will help to progress climate change response. First, a lot of old, inefficient industrial facilities around the world will close down. Second, given the obvious need to address climate change, any new investment will factor it in, driving energy efficiency and renewable energy inputs harder. So the transition may be accelerated. Share values of sustainable energy businesses are holding up better overall than those of traditional energy suppliers and resource industries. So smart investors will look much more closely at the emerging low and zero carbon industries.

At the same time, many people are

confronting the financial unsustainability of their lifestyles and are voluntarily or involuntarily making big changes. At least some are also shifting their focus from ‘me’ to the need to work together to secure ‘our’ future.

We are also seeing some important lessons. For example, the US car companies have successfully manipulated governments for decades to protect them while they sold profitable fuel guzzlers. Now the global trends have caught them out. Instead of adapting at their own pace and building new market opportunities over time, they are being dragged into the low carbon world—and they may not make it. Australia should look closely at this and ask whether our coal, resources, car and building industries can learn anything from the disastrous experience of the US car industry.

So far, the messages about Australia’s response under the Rudd government are confusing. On one hand, some investment in green jobs is being proposed. On the other hand, everyone is being encouraged to consume to restart the economy, and the Carbon Pollution Reduction Scheme is offering enormous subsidies to energy-intensive industries and coal power stations of around $4 billion each year.

It is perverse to discourage carbon ‘leakage’ due to energy-intensive industries moving offshore while at

Featured in: ReNew 107, April – June 2009

Page 133: Pears Report Collection

Pears Report Collection

133

abatement action and also add to risk of energy infrastructure failures.

Decentralised versus centralised solutionsIn late-January, south-eastern Australia experienced record heat. The Tasmanian end of the Basslink electricity cable couldn’t cope, while other power lines were threatened by fires and transmission systems in Victoria failed. At the same time, debate over hundreds of heat-related train cancellations in Melbourne flared and economists and politicians explained to the community that it just didn’t make financial sense to guarantee 100 % reliability under extreme conditions. Not many people were impressed by this argument.

All this highlights again the tensions between large centralised and interlinked systems and more diversified distributed systems. Yet again, demand side response that was available was not utilised. When will the electricity industry and its regulators take demand management and distributed generation seriously?

Soon we will have the option of smart demand side controls, some localised energy storage and distributed generation, so we can run independent of the grid for at least short periods. What will people be prepared to pay for that, especially when smart meters and time of use pricing—with $2 per kilowatt-hour power on hot days—are introduced? S

agencies are fighting among themselves to take responsibility for action, so they can either control and limit what happens, or capture the kudos for successes. And each state government, as well as the Federal Government, wants to be seen as a leader. In some ways it’s great to see all this competition, but the down side is that a lot of time and resources are wasted, while the best solutions can be swamped by power games. It’s confusing and frustrating for households and business and important outcomes are being delayed.

Emissions trading—where to?The elephant in the room can no longer be ignored. Community outrage and business concern about the unfair treatment of voluntary abatement under the proposed Carbon Pollution Reduction Scheme (CPRS) has ramped up. The Alternative Technology Association ran a successful meeting last October, which played a key role in focusing media attention. Now we have a new industry association, the Voluntary Carbon Markets Association (www.vcma.org.au), being formed to fight for recognition of voluntary abatement. It has been interesting to note the large number of businesses who see their business strategies undermined by this policy failure. GreenPower suppliers, local councils and major businesses all see their ‘carbon neutral’ status and associated reputation and market positioning collapsing. And offset providers are not

happy to see their livelihood threatened! Beyond this, we have seen fascinating

developments within the environment movement. Over the first weekend in February, a large meeting of environmentalists in Canberra concluded that the proposed CPRS was just too compromised to support in any way. So key environmental groups are withdrawing support. Not only is the target too weak and voluntary abatement undermined, but the generosity of the handouts to greenhouse-intensive industries is just ridiculous. Professor Garnaut also expressed strong displeasure at the success of their lobbying efforts and argued there was no basis for such subsidies.

It looks as though the government decided to go with a conservative package in the hope that it would apply pressure to the Opposition to vote for it in the Senate. Now the government has a very awkward problem, as it loses community support for the whole scheme while the Opposition plays games by proposing policies that will support various abatement options, both proven and unproven. The Senate should be a very interesting place, and it looks as though inquiries and amendments, along with lots of hot air, will make for a challenging process.

The worry about all this is that we really need to act decisively and quickly. Even apart from the impact on climate change response, delay will undermine prompt

“There’s nothing like an economic meltdown to change the policy landscape.”

Page 134: Pears Report Collection

Pears Report Collection

134

More than lip service please

also scales down very rapidly, so it will disappear before the industry can develop momentum through economies of scale and technology development.

This is complemented by a variety of feed-in tariffs introduced by state governments, most of them based on the ‘net’ model rejected by the PV industry, community advocates and Professor Garnaut, for good reason. Victoria even limits payment for exports to less than the generator host’s annual electricity bills.

Machiavelli would be proud. The PV industry has been put in its place.

What is needed? A combination of upfront rebate and gross feed-in tariff (FiT) makes sense. Australians typically discount the future heavily, so money upfront is a clear stimulus. An ongoing FiT return maintains awareness and encourages the PV host to maximise output. This combination also provides financial certainty and simplicity for the host, which is critical for success in a consumer market.

The levels of the combined rebate and FiT need to reflect a realistic trajectory over time that will support development of a viable PV industry, by reducing at a managed, realistic rate over time to avoid locking it into long-term subsidy dependence. We also need to recognise the far-reaching benefits of supporting a distributed generation model, of which PV

With the household photovoltaic rebate changing from July, what we really need is a strong national feed-in tariff for solar households, writes Alan Pears.

THE government’s election commitments on energy and climate change offered promise of real change towards a 21st century vision. Indeed, we are seeing some historically large amounts of money allocated to energy efficiency and renewable energy. But we also see perverse schemes that undermine the very visions they were meant to support.

Photovoltaics The government began its PV policy path on the back foot. Just before the election, the Howard government doubled its PV rebate to $8000 as a blatant vote-buying strategy. Little ongoing funding was allocated, so it was obvious the scheme would have collapsed soon after the election, had the Liberal party won the election.

Labor committed to this rebate level for 3000 homes in its election platform. Since then, it has continued this obviously unsustainable approach beyond its election promise, while trying to limit costs with an income cap. This containment strategy has back-fired, as

thousands have rushed this once-off opportunity. With the looming recession it became critical to move PV support off the government’s balance sheet, to reduce the visible public deficit.

Also, policy makers seem to have agreed that the Federal Government will address upfront incentives, while state and territory governments will run feed-in tariffs—with an energy-sector driven set of national guidelines agreed by the Ministerial Council on Energy (which reports to CoAG). This is presumably intended to meet the Rudd government’s election commitment to “work through the Council of Australian Governments [CoAG] to develop a consistent national approach to feed-in tariffs”. They didn’t promise that the outcome would actually help the PV industry!

Within governments, both federal and state, two false arguments took hold. First PV funding was ‘middle class welfare’. Second, there were much better ways of investing in renewables—PV was expensive and would deliver little.

So we will now have a national upfront rebate based on creation and sale of large numbers of phantom Renewable Energy Certificates (RECs). This undermines the Renewable Energy Target’s (RET) effectiveness and throws supporters of PV into direct conflict with advocates of other renewable energy options. It

Featured in: ReNew 108, July – September 2009

Page 135: Pears Report Collection

Pears Report Collection

135

this.) Weak targets combined with 100 % importation of cheap permits from avoiding deforestation in developing countries means permit prices will be very low and local abatement limited.

The recently announced one-year delay and guaranteed low price for 2011 further undermine the viability of the voluntary abatement industry. And a seriously flawed mechanism for encouraging GreenPower above 2009 levels sees it given ‘special treatment’, as the only form of local voluntary abatement that tightens the cap (with a five-year delay). GreenPower purchased before 2009 won’t count as additional to the target.

The problem is that we do need a price on carbon. And we need it from mid-2010 to limit the adverse investment impacts of ongoing uncertainty, and to ensure that climate sceptics and vested interests cannot claim victory. But we need to respond to the science and empower and mobilise all levels of government, business and communities to fix this problem.

A trading scheme designed with integrity can be part of this response. At worst, an interim carbon tax (or fixed price at $20 per tonne) could be applied from July 2010 until a better trading scheme can be negotiated. Any scheme must include criteria for government to be able to tighten caps at short notice without having to pay compensation to emitters. And it must allow additional voluntary actions to cut Australian and global emissions below the trading scheme caps. S

is a critical element. While supporting industry development,

effort must be made to optimise the societal return. Focusing additional incentives on fringe of grid (where conventional supply is expensive and line losses are large) and urban areas where capital-intensive expansion of electricity network capacity can be avoided or deferred does this. A component targeting low-income and rental properties is also important. Communal PV systems should be encouraged. Some link to improving PV hosts’ energy efficiency is desirable.

Such targeting complicates the scheme and means benefits will vary by region. But maybe that is an important and valid message. We need an inclusive process to work out something that is fair and effective.

Renewable Energy TargetIt all looked so simple. The government’s promise was 20 % renewable electricity by 2020, phasing out “as emissions trading matures and prices become sufficient to ensure a mandatory renewable energy target is no longer required.”

This was a great opportunity to tidy up the mess left by the previous government’s failures driven by the energy-intensive industries and conventional energy sector. Instead, the initial decision to phase out the RET after 2020, regardless of what really happens with emissions trading and energy pricing, undermined achievement of the core promise, the 20 % contribution by 2020. Under this model, banked RECs from early in the scheme could be used to meet the short-term peak in the annual

targets around 2020, effectively cutting the total investment in renewables and the generation capacity required to meet the target. And, of course, the multiple phantom RECs offered for PV will further undermine the target.

The latest revision maintains the 2020 level until 2030, but it does this by simply allowing existing generators to keep creating RECs. So a pre-1997 hydro scheme (treated very favourably under the original MRET) remains a cash cow for 30 years. Limiting the REC creation period for a given generator to say 20 years would drive ongoing expansion beyond 2020 without any extra cost to government.

Who knows what forces have driven us to this situation? What seemed like a simple and reasonable policy was initially distorted so it failed to meet its original intent. This has been replaced with a scheme that provides extra profits for existing renewable generators.

Machiavelli would again be proud.

Emissions trading, or Carbon Pollution Rewards Scam The lofty goals and elegance of emissions trading have also degenerated as the practicalities of implementation have dominated. We now have a perverse scheme proposal that rewards large emitters who squeal loudest, while the businesses that underpin a low carbon future are discriminated against and driven offshore. Those who voluntarily abate are disenfranchised, including state and local governments, as well as businesses and individuals. (See Voluntary Carbon Markets Association www.vcma.org.au for explanation of

“We need an inclusive process to work out something that is fair and effective.”

Page 136: Pears Report Collection

Pears Report Collection

136

Sense of urgency required

go to Copenhagen with an initiative that integrates voluntary abatement activity with emissions trading. This combination can drive abatement by large emitters while empowering and engaging with state and local governments, businesses and households to deliver more abatement.

It is fascinating that Australia is the only country where a serious discussion on how voluntary additional abatement could coexist with an emissions trading scheme seems to have occurred. For example, Germans have belatedly realised that their enormous commitment to photovoltaics has not reduced their emissions: industry and transport have simply emitted more under the trading cap.

I suspect there are a few reasons for this. First, Europeans seem to believe their governments act in the public interest; Australians are more sceptical. Second, European countries have committed to achieving the bulk of their abatement within their own borders, so there is a sense that their responsibility is being met; Australian emitters can comply using up to 100 % cheap imported credits. Third, European and UK governments have generally tried to set targets based on consensus science; Australian governments have fiddled targets through negotiation with powerful industry groups.

Lastly, Australia has a highly developed voluntary abatement and offsets industry. This has evolved because of long-term failures of governments to perform and

In this his 50th column for ReNew magazine, Alan Pears looks forward to Copenhagen and asks why climate change policy has failed to be implemented in the last two decades.

FOR almost 20 years energy ministers and regulators have managed to ignore environmental performance guidelines set by prime ministers and premiers. Are things finally changing?

Just before it was broken up in the early-1990s, the State Electricity Commission of Victoria published a study that showed how it could cut greenhouse gas emissions by 20 % from 1988 levels by 2005 at low cost. But all such visions were lost in the reform process.

The original 1992 guidelines for development of the energy market specifically set the objective “to encourage the most efficient, economical and environmentally sound development of the electricity industry consistent with key National and State policies and objectives”.

The Ecologically Sustainable Development Strategy and both the CoAG-approved 1992 National Greenhouse Response Strategy and the 1998 National Greenhouse Strategy included clear environmental requirements for energy markets including promotion of demand side action and cogeneration. A 2002 review by former energy minister and coal industry leader Warwick Parer concluded

that the demand side of the energy market wasn’t working and that it needed to be fixed.

In July this year, a damning study by energy consultants McLennan Magasanik Associates, who have worked on energy policy issues for decades, was released. This study, commissioned by Sydney’s Total Environment Centre, documents the recent and ongoing failures of energy ministers, policy makers and energy market regulators and managers to respond to clear direction from prime ministers and premiers to fix the demand side and perform on climate change. This should not have been allowed to happen: it is a shocking failure of public policy over almost two decades.

The Prime Minister needs to ask how progress on this key issue has been blocked for so long, despite high-level commitments to address it. And strong remedial action must be taken. Reviews and good intentions are not good enough. Strong and specific action to ensure immediate and real outcomes that drive demand management, cogeneration and climate response must be pursued with urgency. This will require intervention in the activities of the club that runs energy markets in Australia.

International climate change policy: Copenhagen here we comeHumanity’s future rests on a rapid response to climate change, and the Copenhagen meeting in December is a critical focus.

Australia has a unique opportunity to

Featured in: ReNew 109, October – December 2009

Page 137: Pears Report Collection

Pears Report Collection

137

makes around 95 % of the world’s compact fluorescent lamps, which are progressively replacing inefficient incandescent lamps in developed countries. China makes some very efficient appliances—and some inefficient ones. Creating an incentive for export of high efficiency products would drive design and manufacture towards higher efficiencies, and the benefits would flow through to developed countries via reduced energy consumption. What’s more, these products would then gain economies of scale and be available to local consumers in developing countries. This would help them to drive efficiency improvements within their own economies.

Instead of bickering about who takes the lead, we need to create positive motivating signals for all countries.

PostscriptThis is my 50th column for ReNew. When I looked back to my first column in issue 59, I found that its topic was how energy market reform had been failing to deliver renewables and energy efficiency. We can’t afford to allow my 60th column to yet again raise this issue: it must be fixed. S

As well as 50 columns for ReNew magazine, there is another milestone worth noting for Alan Pears. Alan is now known as Alan Pears AM, after being awarded a Member of the Order of Australia in the Queen’s Birthday Honours List. The award is well deserved, after years of hard work promoting energy efficiency and sustainability. Congratulations!serious international credibility problem after its performance at Kyoto.

a strong desire by ordinary Australians to make a difference on climate change. GreenPower emerged in 1997 and now drives two million tonnes of annual additional abatement. Offset providers began appearing in 1997 with groups such as not-for-profit GreenFleet.

Many local councils and progressive businesses have publicly committed to go carbon neutral or make large emissions reductions, with programs such as the now defunct Cities for Climate Protection providing support and accounting systems. Some state governments and government agencies have also made public abatement commitments. The Federal Government did develop an accounting mechanism for voluntary abatement, the Greenhouse Friendly scheme. But this is to be shut down because policy makers think it is no longer needed. Committed businesses have spent millions of dollars complying with the scheme’s stringent requirements and want to keep it: unlike large emitters, they are receiving no compensation for the loss of this important marketing tool.

Australia could present a model such as that put forward by the Voluntary Carbon Markets Association to the international community. It could frame this as a way of engaging and mobilising communities, businesses and other tiers of government to drive stronger abatement beyond levels agreed under international protocols. Such a mechanism would also provide a way of giving partial recognition to forms of abatement, such as bio-char, that do not yet meet the stringency of

Kyoto-compliant actions. Knowledge and experience could be built as a basis for future international acceptance.

Another area where Australia could play a constructive role is helping to resolve the tension between developing and developed countries. Developing countries rightly argue that the rich nations have caused much of the climate problem and that they have more resources to fund response. But it is critical to find a way for developing countries to take on formal commitments.

One option may be to encourage developing countries to commit to limiting their level of emissions per capita to below the global per capita average. The present global average is about seven tonnes per capita and this must decline to 1.5 or two tonnes by 2050. If developed countries deliver, they will reduce this average, so the cap for developing countries will tighten. At the same time, this cap level cannot be used by developing countries to argue that their development is being constrained unreasonably, as developed countries would also be moving towards that level.

A second innovation could be for developing countries to gain credits for export of goods and services to developed countries that reduce their emissions. At present, there is widespread concern about ‘leakage’ of emissions-generating activity to developing countries. The focus of this has been emissions-intensive industry, but in absolute terms, the shift of manufacturing emissions may well be more significant. China, for example,

“The Prime Minister needs to ask how progress on this key issue has been blocked for so long, despite high-level commitment to address it.”

Page 138: Pears Report Collection

Pears Report Collection

138

Highs and lows

electricity generation source, so the world’s emissions would decline. And Victorians would save on the existing massive subsidies.

The transition arrangements could also be damaging. For example, a low-emission product (say a HDPE or PET drink container) will pay its full carbon cost, while high-emission containers such as glass and aluminium get 94.5 % of their permits for free. So low-emission products could actually suffer bigger price increases than their high-emission competitors. Just the signal we don’t need! We need compensating incentives for adversely affected low-emission goods and services. Or regulations that protect their market shares.

Challenging the ‘energy efficiency’ sceptics One reason why modelling the cost of emissions abatement in Australia shows higher costs than elsewhere is that our economic modellers generally apply conservative estimates of energy efficiency improvement potential and rates of innovation. Traditional economists and policy makers believe that businesses are, on the whole, as energy efficient as it makes economic sense to be. So logically it follows that there is little potential for cost-effective energy efficiency improvement. Australian industry has actively reinforced this view. And, in any case, many economists suggest the ‘rebound effect’ will mean that any savings will simply be absorbed by growth in energy consumption for other

Now that global pressures are driving us toward adoption of a deeply flawed and weak emissions trading scheme, it is useful to consider its implications for Australia, writes Alan Pears.

THE subtle dimensions of the proposed Carbon Pollution Reduction Scheme are becoming more visible. Liable Parties can buy 100 % of their permits from offshore, while exports of Australian permits are banned. Indeed, export of permits will only be allowed after a change in the legislation, which is likely to be difficult to achieve.

At the same time, the government is lobbying hard for the Clean Development Mechanism (CDM) to be extended to include avoided destruction of forests in developing countries (but, notably, not in developed countries such as Australia, where it might make things difficult for loggers of old-growth forest). This is likely to deliver large numbers of very cheap permits—and potentially undermine the credibility of the CDM mechanism, while reducing government revenue from permit sales and allowing Australian emissions to continue to rise.

This means Australia’s permit price will be driven by the lowest-priced CDM permits. Indeed, some Liable Parties may be able to buy very cheap CDM permits through private deals. So Australia will

have the lowest carbon price in the world. This scenario contrasts with Treasury’s estimates of future Australian carbon prices, which suggest our permit price will be well above the global values estimated in the 2007 IPCC report. That IPCC study also showed that driving innovation could significantly reduce the price of emissions permits.

Is Treasury over-estimating future permit prices? If so, it is feeding the frenzied lobbying for special treatment.

The distortions created by transitional allocation of free permits, as well as inadequate recognition of additional voluntary abatement through retirement of permits, will drive emissions abating investment and businesses off-shore in an abatement leakage. It’s odd that the government is very concerned about the risk of emissions leakage (emissions-intensive industries moving offshore with their emissions), while it shows no concern for abatement leakage, which involves the loss of the industries we need to build a low carbon economy.

It’s even stranger that none of these ‘at risk’ emissions-intensive industries have moved offshore as a result of the increase in the value of the Australian dollar relative to the international price benchmark US dollar. Yet, as pointed out in a recent Crikey article, this has had a much bigger impact on their bottom lines than any likely carbon price. In any case, if our most emissions-intensive industry, aluminium smelting, moved offshore, it would most likely move to a low-emission

Featured in: ReNew 110, January – March 2010

Page 139: Pears Report Collection

Pears Report Collection

139

Rebounds, amplifications and flow-onsAs far as the so-called rebound effect is concerned, it is a classic example of an element of truth being used as an excuse not to do something. The idea is that, if you save energy, you will have more money left in your pocket. You may use this to do more of the activity on which you have saved (because it is relatively cheaper), or to spend on other things that consume energy.

There are a few problems with this. Firstly, the amount of money most people save on energy efficiency is a small proportion of the total cost of a delivered service: even for an average car, fuel cost is less than a third of total costs, so spending all the financial savings from saving fuel on driving more would reduce the overall fuel savings, but only partly offset them. Indeed, for a services business, saving energy might reduce total input costs by half a percent, not really enough to allow them to waste much more energy.

Underlying this issue is the reality that, instead of using emotive and biased terms like ‘rebound effect’ we need to describe it in more neutral terms as a ‘flow-on’ effect. We could choose to (or be required to) invest the financial savings from energy efficiency in saving more energy: this would be an ‘amplification’ effect. For example, if someone is happy with the savings from buying one energy efficient lamp, they may use the savings to buy more—and save more. Whether we get a rebound or an amplification of energy savings depends on how we spend the money saved. Individual choice and institutional change can drive us towards amplifying the savings. S

things!Recent developments in a number of

areas have challenged these views. First, we are beginning to see results from the first serious Australian industry energy efficiency programs. At a state level, both New South Wales and Victoria now require high energy (and water) consuming businesses to carry out audits, submit action plans and implement measures with better than a three-year payback period. Nationally, the Energy Efficiency Opportunities (EEO) program requires all companies using more than 0.5 petajoules of energy (several million dollar annual bills) to carry out detailed assessments and publicly report on measures up to four-year payback, as well as reporting on their responses to these opportunities.

The Victorian scheme in its initial form identified annual abatement of over a million tonnes at payback periods averaging under two years. EEO, based on the first round of reports, has identified over $650 million of annual savings and 6.5 million tonnes of abatement with less than a four-year payback. Over two-thirds of these savings have payback periods of two years or less: that’s equivalent to an interest rate on an investment of over 50 % annually. How could businesses afford to

ignore such fantastic returns? These results are just a beginning: as

skills, knowledge and data management improve, much larger savings will be found. Even so, the savings already identified will go some way towards offsetting the cost of buying emissions permits. The reality is that Australian industry is not very skilled at identifying or capturing energy efficiency potential. Lean staffing, lack of measurement, monitoring and diagnostic systems, short-termism that leads to rejection of worthwhile investments, and low priority have all taken their toll.

A key problem has been the dogma associated with energy market reform: it was going to deliver ever-lower energy prices, so why would anyone bother to save energy? Unfortunately, industrial energy prices have increased by around 30 % since the National Electricity Market began. So, many businesses have made investment decisions that favoured energy waste, believing that lower prices would offset this cost. These decisions are already costing them more, even before the enormous costs of additional power generation and transmission and emissions permit costs are factored in. Whoops.

“A key problem has been the dogma associated with energy market reform: it was going to deliver ever-lower energy prices, so why would anyone bother to save energy?”

Page 140: Pears Report Collection

Pears Report Collection

140

Lessons to be learnt

Another interesting lesson for me at Copenhagen was how aggressively China is driving efficiency improvement. Not only are they strengthening building energy policy, but they are actually enforcing it: compliance is up from 21 % to 82 %. A building energy label was introduced in 2008. Tax incentives and exemptions, accelerated depreciation and other policies are being used. They must be serious.

Electricity sector changesIn the electricity sector and industry, there is also dramatic change. For example, 53 megatonnes of inefficient cement production capacity, 20 megatonnes of inefficient steel plant capacity and 20,000 MWs of inefficient coal-fired power stations have been shut down. That’s over 300 megatonnes of annual emissions avoided—over half of Australia’s total emissions. In another session, I heard that coal power stations under 50 MWs must be closed down and the threshold for closure will be increased to 100 MWs in 2010. Fifteen types of small inefficient industrial plant will be required to be shut down over the next five years. New larger plants that use world best technology are being built. Nevertheless, emissions would be much higher without this planned phase-out of obsolete technologies. Is there a lesson here for

Alan Pears witnessed little progress during his visit to the Copenhagen Climate Summit, but he did unearth some interesting information on electric bikes in China.

THE Copenhagen Climate Summit has been and gone. While there was some progress, most were disappointed. More importantly, the anti-climate response movement has used the lack of progress as a basis for ramping up unjustified questioning of climate science to challenge efforts to put a price on carbon emissions. I was at COP 15, and my detailed review is online at www.rmit.edu.au/cfd/publications. But a few points may be of particular interest to ReNew readers.

China leading the wayOne exciting area of innovation is electric bikes. Last year in China, electric bike sales exceeded 20 million—double new car sales. The Chinese are fast learners: they have realised in a few years that cars take up an enormous amount of space and that modern vibrant cities simply can’t fit enough roads and parking for mass car use. So they are ramping up provision of public transport and bike infrastructure (and enforcement), while many people

are finding electric bikes provide an ideal option for commuting up to 15 kilometres. Indeed, friends from the Netherlands who spent a year in Australia discovered on their return home that older Dutch people have also embraced the electric bike. It certainly makes riding into those strong headwinds much more feasible for the older cyclist!

The Copenhagen Wheel was launched at the COP. This is a drop-in replacement wheel for bikes with some remarkable features. It has an electric motor and battery and smart communication capability. With an iPhone mounted on the handlebars, you can send data to others and to traffic managers. So you can meet with friends and know where everyone is, while your data contributes to the bigger picture to help identify where additional bike lane capacity is needed and to document the levels of bike use.

Unfortunately adoption of electric bikes in Australia is undermined by our outdated regulations that require bikes with more than 200 watt motors to be registered and fitted with indicators. Almost all practical electric bikes have motors around 250 watts. It puzzles me why governments have failed to change this regulation when the problem has been raised repeatedly for over a decade. Maybe it’s another example of lack of political priority?

Featured in: ReNew 111, April – June 2010

Page 141: Pears Report Collection

Pears Report Collection

141

energy labelling is a symbol for many people that warns them something might use a lot of energy.

Governments have dropped the ball on promotion of energy labelling over the past decade: they seem to have preferred mandatory standards, as they are cheaper and easier to argue for in a Regulatory Impact Statement. But they don’t drive much cultural change or mobilise leading edge innovation. And conservative groups in industry, supported by economic fundamentalists in government, block and slow implementation. A combination of strong information programs and standards is a good package.

On another topic, many have been concerned about the ‘phantom RECs’ problem with photovoltaics. Unfortunately, a similar problem exists with solar hot water. ORER allocates RECs for most solar hot water systems based on a daily draw-off of around 200 litres per day. But a recent study published for the phase-out of high greenhouse impact hot water systems estimates that average daily hot water usage is more like 120 litres. So around 40 % of solar hot water RECs are ‘phantoms’. This is another reason to get them out of the Renewable Energy Target and to support them some other way. S

Australian governments in relation to certain coal-fired power stations?

Environmental policyMy comments may well be out of date by the time you read this but I hope we will get an interim carbon levy, starting in mid-2011, when the CPRS was intended to begin. While I would prefer an emissions trading scheme, the CPRS is just too compromised and too rigid. It should be seen as one element of a range of strategies, rather than a silver bullet. In particular it must not be allowed to undermine voluntary action and innovation, as the present proposal does (see www.vcma.org.au for more detail on this).

There has been widespread criticism of the implementation of the national insulation scheme and the Green Loans program. Both programs are well-intentioned and are delivering large-scale benefits. But they have highlighted the lack of infrastructure and implementation experience in Australia’s sustainable energy sector, including government capacity. They have also underlined a widespread problem: governments generally see enforcement of environmental performance as an optional extra. Building energy codes, appliance efficiency standards, pollution controls and toxic leaks are all under-

enforced. This is a serious problem that must be dealt with. It seems environmental policy is believed by many in government as well as industry to undermine business success. So they simply don’t enforce the laws properly. The reality is, of course, the exact opposite.

On a brighter note, it is now possible to buy a large flat screen TV without guilt. TV energy labelling began in October last year and already we have 7 Star products on the market. The most efficient 100 cm flat screen TV uses 30 % to 45 % less energy than a typical large traditional CRT (with a set-top box for digital signals), and less than a third as much as some other flat screen TVs of the same size. Isn’t technology development a wonderful thing? The big question is, if we had introduced these labels when we first realised there was a problem, how much energy would we have saved over the lives of the inefficient TVs sold over the past five years?

TVs are the first appliance category that has had labels introduced since the early-1990s. This is an important information policy failure. At a focus group I attended a while ago, the consensus was that large TVs couldn’t use much energy because, if they did, the government would have introduced energy labels years ago. I don’t think policy makers have realised that

“Last year in China, electric bike sales exceeded 20 million—double new car sales.”

Page 142: Pears Report Collection

Pears Report Collection

142

It’s all about big business

CPRS deal, in the end, was very generous to my business, and the delay they have announced takes a lot of pressure off for the rest of my employment contract. But life would be even easier for me under the Coalition. So, though Labor seem pretty much under control now, I can’t afford to support them.

“Even if the Greens get the balance of power in the senate after the election, not much is likely to happen for some time. Labor feels threatened by the potential of the Greens to steal their votes and the pragmatists in Labor would resist toughening their approach under pressure from industry. The Greens would be pushing for much stronger action consistent with what the climate science says needs to be done. Negotiations are likely to be painfully slow.

“So the smart strategy for me is obvious. Visibly support delay on the grounds that early action would destroy the economy. (I really mean my business short-term profitability and my reputation as a successful CEO may suffer a bit, but I can’t say that!) Argue for massive assistance packages in any response scheme with the underlying threat that I’ll move my business offshore (which I might do anyway, because of the high Australian dollar and labour costs). Quietly fund spoiler groups that oppose climate response. Secretly work hard to develop

Business leaders need to lead the way when it comes to action on climate change. Alan Pears looks inside the mind of those at the top to see what’s holding them back.

THERE has been a lot of discussion about the motives of the climate denialists. But the problem is much worse than just dealing with denialists. The very fabric of our society drives business leaders to block action.

If I was CEO of a greenhouse-intensive business...What is going through the mind of a typical CEO of a large, multi-national greenhouse-intensive business that confronts the possibility of stronger climate policy? Here is my attempt to enter the mind of one.

“First, I need to maintain short-term profits, even if it is at the expense of future success of the business. I am two years into my five-year contract: I need to look good in 2013. Also, my shareholders discount future benefits heavily, and the value of the business as estimated by many financial advisers is linked to a multiple of its annual profits. So not many people are particularly interested in the long term.

“Second, I need to outsmart my business

competitors. So, even though I accept climate change is real and I am driving a strong strategy to cut emissions and position my business for success in a low carbon economy, I need to keep this very secret. Indeed, if I ‘accidentally’ let it slip out within business circles that I am a climate sceptic, I oppose early action, and we’re not doing much to prepare my business for a low carbon future, this may trick my competitors into doing less. So I will gain long-term advantage over them.

“Third, the business has a lot of capital sunk in to existing assets. Running them for longer without having to invest in major upgrades to cut emissions is a high profit strategy in the short term.

“Fourth, the louder I scream, the more likely a delay in the introduction of a carbon price, and the bigger the handouts I’m likely to get from the government to shut me up. These deliver me windfall profits that will help me to position my business as a winner over the longer term. They will also undermine the position of emerging low-emission technologies and business models that compete with me. And delay leaves me the option of ‘voluntarily’ acting to cut emissions to improve my public image.

“Fifth, if I were to support stronger action on climate change, I would be undermining the electoral prospects of Abbott and the Coalition. The Labor

Featured in: ReNew 112, July – September 2010

Page 143: Pears Report Collection

Pears Report Collection

143

deep cultural factors. We can’t afford not to succeed.

It’s interesting that an advisory group, comprised of key political interest groups, has been set up to provide input to the process. Maybe this is an attempt to avoid the CPRS disaster by negotiating deals to build support during the development process.

Insulation and halogensThe attacks on the insulation program seem to go on forever. I’m still waiting for people to focus attention on the real problem: the fact that fire authorities have known for years that halogens have been causing fires, yet have failed to address the core problem. Why haven’t fire, electrical and building authorities solved the safety problem by banning lamps that generate too much heat when covered by insulation? In 2007, fire authorities reported that halogens caused around 40 fires in Melbourne alone, so they’ve known about the problem for years.

The present approach of blaming the insulation is back to front. Leaving big gaps in the insulation around the lights undermines the effectiveness of the insulation; indeed, it can halve the overall insulation value! In the 21st century we should be able to safely insulate our buildings, and that means authorities must ensure that all electrical equipment is safe when covered by insulation. S

strategies that will maintain our global (not necessarily Australian) profitability in a low carbon economy. And do a few high profile things that show my company is ‘genuinely concerned’ about the environment. Problem solved. Too bad for humanity, the economy and the Earth.”

To act effectively on climate change, we need mechanisms that ensure business leaders think more long term and consider the broader public interest. Without such changes, we are doomed to a divisive battle between business leaders who are acting rationally (within their business context) and civil society. The alternative is for socially responsible shareholders and businesses, including financiers, to apply pressure to others to act in the public interest, or for a courageous government with real vision to take on the bluff of big business. We’re in real trouble.

Hazelwood pressureHazelwood is Australia’s most greenhouse-intensive large power station and the Victorian Government is under increasing pressure from the community to do something about it. For example, Environment Victoria has released a study showing how it could be replaced by a mix of other options by 2012. An announcement of some action before the election late this year would certainly help electorally.

The jigsaw is being assembled. First, the contracts for Victoria’s aluminium smelters will shift from Hazelwood to Loy Yang from 2014 and 2016. This

alone will cut the smelters’ emissions (and future carbon costs) by around 20 %. The government is keen to build a ‘new generation’ coal plant, believed to be around 400 MWs—a quarter of Hazelwood’s capacity, with emissions per unit of electricity around 40 % lower and ‘carbon capture ready’.

Energy efficiency improvement, cogeneration and renewable energy could provide the rest of what’s needed, so Hazelwood could be shut down one generating unit at a time over the next few years.

Also, the recent CPRS negotiations have indicated that it might be cheaper for the Federal Government to just buy Hazelwood and manage its closure than to waste billions of dollars on ‘assistance’. So both the Federal and Victorian Governments could potentially restore some of their credibility on climate change.

Energy Efficiency Task Force: a ‘step change’?The deadline for submissions to this process has now passed. It will be interesting to look at the submissions and see what the government makes of them. They are available at www.climatechange.gov.au/government/submissions/pm-task-group/paper.aspx.

The bar has been set high: to propose a step change that will make Australia an OECD energy efficiency leader, instead of being a laggard. To do this will involve challenging some powerful interests and

“To act effectively on climate change, we need mechanisms that ensure business leaders think more long term and

consider the broader public interest.”

Page 144: Pears Report Collection

Pears Report Collection

144

It should be a no-brainer

our successes. All of these could have been managed by effective policy.

In industry, recent programs such as Energy Efficiency Opportunities, Victoria’s EREP and NSW’s E&WSAP have shown that large cost-effective savings have been ignored for decades. In the commercial sector, the first ever building energy requirements were introduced in late-2006, so we are just beginning to see their effects. The recent increase in stringency will take some years to flow through.

Investment in energy supply infrastructure typically has a ‘payback period’ of 8 to 15 years, while investments in emerging energy supply options have much longer payback periods. Yet most businesses and households will not invest in an energy efficiency measure with more than a two-year payback. As a society, we are seriously under-investing in energy efficiency. This is costing our economy billions, and driving up greenhouse gas emissions and energy costs.

We must confront a fundamental question: why do we persist in failing to invest in measures that save a lot of money, cut emissions, and improve quality of life and productivity? We need dramatic institutional and cultural change.

As someone who has benefitted from improved comfort and low energy bills, and has helped many organisations to save money and improve productivity,

Alan Pears asks why energy efficiency is under-rated in a low-carbon future and discusses whether natural gas could help wean us off coal power.

RECENT studies such as the ClimateWorks–McKinsey strategy, and statements from the leader of the IPCC mitigation taskgroup have highlighted the enormous potential of energy efficiency improvement to deliver multiple benefits, including cutting greenhouse gas emissions.

Yet the underlying culture in Australia is focused on growing large-scale energy supply capacity, not driving efficiency. The Prime Minister’s Energy Efficiency working group has accepted energy growth as a fait accompli, according to their issues paper in April this year. Grant King, head of Origin Energy, argued in his recent Deakin Lecture that, despite impressive improvements in energy efficiency, electricity use by households had continued to grow in recent years, so we can’t rely on energy efficiency and must focus on increasing supply. (This lecture can be viewed at www.slowtv.com.au)

All acknowledge the importance of energy efficiency and factor in more than has been achieved in the past, but

energy efficiency is not central to most approaches. This is a serious problem that will cost us money, hurt the environment and support over-investment in energy supply capacity, with serious risk of stranded assets.

Past failure to deliver easily visible reductions in energy use reflects weak and piecemeal policy, not failure of the few effective policies we have implemented. In the few areas we have seriously addressed, we have achieved results.

In the residential sector, improvements in efficiency of products subject to energy labelling and minimum performance standards have stabilised and begun to reduce overall consumption of fridges, dishwashers and clothes washers, as well as improving the thermal performance of new buildings. But these policies have been underfunded and standards have been weak. For example the best European fridges are much more efficient than our best. Our most efficient air conditioners are twice as efficient as our minimum standards.

Explosive growth in halogen lighting, inefficient flat screen TVs (now rapidly improving after belated introduction of energy labels), larger houses, widespread installation of central heating and inefficient air conditioners in thermally-appalling existing buildings have driven demand growth that has overwhelmed

Featured in: ReNew 113, October – December 2010

Page 145: Pears Report Collection

Pears Report Collection

145

efficiency improvement and a funded strategy to move gas to zero emissions over the next couple of decades.

Vale Peter SzentalPeter Szental played a pivotal role in the development of the energy efficiency sector in Australia. Sadly, he passed away in July at age 60. I met Peter in the 1980s when his fledging energy efficiency business, Energy Conservation Systems, was bidding for work with the Victorian Government. He built this business over time, developed the 40 Albert Road green building and played key roles in the Business Council for Sustainable Energy.

Peter was outspoken and controversial. But he always stood up for the broader public interest and put his own money on the line many times. We have lost a deeply committed friend.

No comment on election policies?I have chosen not to review election policies on energy and climate change in this column because any comment would be outdated by the time you read this. And neither of the major national party policy positions really addresses the fundamental issues anyway. The Victorian Government’s recent announcements, however, provide room for some optimism. S

I still struggle to understand why it is so hard to make energy efficiency a central pillar of our society.

The great gas debateI’ve raised the issue of whether we should still be treating natural gas as a transition energy source in previous columns; the case for gas has been weakening as the rate and scale of necessary change has increased due to inaction on climate change.

This issue has become a focus in Victoria, with Environment Victoria proposing some extra gas generation as part of its strategy for the rapid closure of Hazelwood power station. On the other hand, Beyond Zero Emissions (BZE) has argued for an entirely renewable solution. BZE has also used US data to suggest that the greenhouse impact of natural gas is much greater than is generally recognised—although Australian data suggests our gas industry’s emissions are significantly lower.

Both groups make some important points. But there is room for both if we are smart.

To date, the gas industry has complacently sat back, arguing that gas is great because its emissions intensity is a lot lower than competing energy sources. But that is no longer enough to justify the use of gas. The big long-term issue for the gas industry is to prove to Australians that it can move towards zero emissions gas supply over time, using biogas and maybe biomass pyrolysis and hydrogen. The community would then be more likely to accept wider use of gas.

In my view, our approach to gas will need to vary with circumstances. For example, small, energy-efficient households simply can’t justify the cost of being connected to both gas and electricity because the fixed supply charges are so high, and increasing.

They need to look at either all electric/renewable energy, or renewable/gas (e.g. fuel cells) and energy storage to provide onsite electricity without connecting to the electricity grid.

The situation is complicated by the rapidly improving efficiency of some electric technologies, such as the best reverse-cycle air conditioners which have lower emissions and are cheaper to run than gas heaters, even using brown coal-fired electricity!

In industry, a combination of improved process efficiency and cogeneration could deliver all needed electricity and heat services without increasing gas use, and probably reducing it.

In the commercial sector, gas and electricity are both typically used at very low efficiencies. For example, central hot water systems lose enormous

amounts of energy as the hot water is pumped around buildings in poorly insulated pipes. Around three-quarters of all the greenhouse gas emissions from commercial buildings are generated by efforts to keep people comfortable and provide light. We know the potential for saving energy is enormous.

So I’m inclined to think that some investment in gas-fired power generation makes sense as part of a strategy for the rapid closure of dirty power stations, and as a longer-term backup for renewables. But it must be linked to aggressive energy

“Why do we persist in failing to invest in measures that save a lot of money, cut emissions, and improve qualityof life and productivity?”

Page 146: Pears Report Collection

Pears Report Collection

146

Call a spade a spade

Target and energy efficiency. Tricky.I must admit that finding a way to frame

an energy efficiency target is challenging. By targeting end-use efficiency improvement you might encourage replacement of efficient local gas use and cogeneration (with conversion losses on the customer side of the meter) with grid electricity (much bigger losses at the power station), which would be perverse. But using primary energy as the indicator is too broad. Maybe we need separate efficiency targets for each energy source!

The report’s modelling of the target shows that around half of it will be achieved by measures already in place. So why don’t we call it a 15 % primary energy efficiency target?

Modelling of the energy efficiency scheme proposal assumes that only household measures with up to three-year paybacks and industry measures with up to five-year payback periods will be implemented (p.222). Investment in centralised fossil-fuel based energy supply infrastructure typically has much longer payback periods, so the modelling accepts that we will continue to over-invest in energy supply capacity at the expense of more cost-effective energy efficiency. Why should energy efficiency policy makers propose that Australian society should continue to waste money?

The proposed national energy efficiency

The Federal Government’s recent energy efficiency report shows some potential but still offers nothing definite, writes Alan Pears.

THE Energy Efficiency Task Group report originally commissioned by former Prime Minister Kevin Rudd has now been released (available at www.climatechange.gov.au under ‘consultations’). It acknowledges Australia’s poor past energy efficiency performance relative to many other developed countries. It also flags a lot of exciting ideas, such as an ‘aspirational’ target to improve primary energy efficiency (measured as energy/unit of GDP) by 30 % by 2020, along with many new measures and the strengthening of existing ones.

But you have to read the fine print to find many of the potentially most powerful proposals, including a national energy agency to coordinate and fund energy efficiency and a single Ministerial Council to coordinate energy efficiency. The report recommends a national energy efficiency scheme, probably a certificate trading scheme, that would deliver net benefits of up to $6.6 billion over 30 years and cut household annual energy bills by up to $180. Surely that’s good news for governments under attack over rising

energy prices!Innovative funding mechanisms via

local government are proposed, similar to the trial scheme just begun by City of Melbourne with Victorian Government support. By loaning money for energy efficiency improvements to buildings through councils and repaying via a levy on rates, interest costs are reduced and the beneficiaries of the investments repay the loan.

Some of the language in the report is a bit of a worry, though, especially in the early parts where discussion of the potential benefits uses tentative language like ‘may’. And it assumes that energy growth will continue. All the recommendations are politely offered ‘for consideration’.

What is an ‘aspirational target’ that relates specifically to ‘primary energy efficiency’? It means improvements in efficiency of the energy supply system will count towards it, including renewable electricity production. Each unit of renewable electricity replaces three or more units of primary energy from coal or gas because of a quirk in the way statistics are calculated in Australia. So the actual rate of improvement of end-use energy efficiency under this target may be much lower than many readers might expect, and renewable energy will be ‘double counted’ under the Renewable Energy

Featured in: ReNew 114, January – March 2011

Page 147: Pears Report Collection

Pears Report Collection

147

their thinking, allocated only direct onsite emissions to these sectors. Since 85 % to 90 % of their emissions result from the use of fossil fuel sourced electricity, the NGGI incorrectly made them look trivial. NGGI attributes all electricity emissions to the ‘electricity’ sector! Even the NGGI allocation to economic sectors leaves all electricity emissions out of the commercial and residential sectors. Likewise, most advocates of emissions trading look at the NGGI and conclude that they’ve got stationary energy ‘covered’ by including power stations. They don’t seem to grasp that it is end users (and suppliers of appliances and buildings) that create the ‘need’ to run the power stations.

Because the NGGI only looks at flows of emissions from points of emission, it also ignores existing carbon stocks and potential resources that would avoid emissions. For example, the waste industry has estimated that over 40 million tonnes of emissions each year could be avoided if we recovered and reprocessed ‘waste’ materials to recover the embodied emissions in them. But the NGGI only shows emissions from decay of organic wastes. Likewise, ignoring the stocks of stored carbon in forests undervalues the importance of maintaining that enormous store.

It’s fascinating how the way we present information can distort understanding and lead to strange policies! S

scheme is described as ‘transitional’. That seems to be code for shutting it down when emissions trading is introduced: the report proposes phasing it out when a ‘mature’ carbon price is operating. This seems to reflect the government position that all programs must ‘complement’ an emissions trading scheme. Unfortunately the government still doesn’t seem to understand that an emissions trading scheme needs to complement other programs as well.

The report also carefully avoids linking energy efficiency improvement to greenhouse gas abatement beyond the 2020 government emissions target. This reflects the government’s reluctance to recognise and credit voluntary abatement action as ‘additional’ and its belief that a carbon price will be the main policy driver. So saving energy will reduce the cost of meeting the Kyoto target and the government’s 2020 abatement target, but it won’t reduce our emissions further. This blocks the most powerful motivator for many Australians to save energy. See www.vcma.org.au for more information of voluntary abatement.

Electrifying issues for electric carsThe electric car is coming close to ‘silver bullet’ status for low-emission transport. But we need to be careful, as most claims about vehicle range on full charge are based on relatively slow urban driving. As speed increases, aerodynamic drag rapidly increases so that, cruising at 100 km/h, an electric car may have less than half the range claimed under urban conditions.

In the United States, General Motors have changed their claims for the Volt’s range from 40 miles on electric only to 25 to 50 miles after criticism from motor magazines. So even driving on urban freeways and arterial roads seriously cuts the range. Many see battery replacement stations as the answer, but it may be difficult to establish enough of them, and the hassle of frequent stops is an issue.

One promising solution, based on my modelling, is installation of a small 15–20kW engine-powered generator instead of some of the batteries. If this is started when starting a long trip rather than waiting until the battery is drained, it can extend range dramatically. It also offers a limp-home speed of 60 to 70 km/h and a useful backup generator for home.

The trick is to predict when the car may be used for a long trip, so the generator starts early to maximise range. One option could be for the driver to be prompted to select the range extension mode manually at the start of a long trip. Another could use GPS destination data and/or monitoring of driving style to predict a long trip or high speeds. In this mode, the electric car is really a ‘smart’ plug-in hybrid with a very small engine-generator.

National Greenhouse Gas Inventory distorts policyFor many years I wondered why government policy staff focused so little attention on the roles of the residential and commercial energy efficiency in greenhouse gas abatement. Finally I realised that the NGGI, which shaped

“...you have to read the fine print to find many of the potentially most powerful proposals...”

Page 148: Pears Report Collection

Pears Report Collection

148

Featured in: ReNew 115, April – June 2011

Seriously perplexing

only be one element of a package of measures needed to deliver effective, equitable outcomes.

Carbon Farming Initiative—a step in the right direction?I am keen to see the Federal Government treat voluntary abatement action appropriately by cancelling Kyoto permits to ensure it is ‘additional’—that is, it should count as global emissions reduction instead of just making room under the Kyoto cap for others to emit more. It has been a challenge to get the government to acknowledge the importance of empowering Australians and mobilising voluntary abatement. So I was fascinated when the government recently announced its Carbon Farming Initiative.

The CFI sets an important precedent: the government will cancel Kyoto permits equivalent to certified additional abatement from activities within Kyoto covered sectors (as well as other activities outside Kyoto) in agriculture and forestry. All we need now is for them to apply the same approach to sustainable energy and waste management. Then we can get on with serious abatement instead of battling with econocrats.

Building code in hot water?From May 2011, the new national 6 Star building regulations will be introduced—

Climate change programs have been cut to repair damaged infrastructure caused by extreme weather. Alan Pears challenges the econocrats this issue.

IT HAS certainly been a wild summer of contrasts, with fires, floods and cyclones causing mayhem. But the Federal Government has the solution: a carbon price. In a remarkable decision, energy efficiency and renewable energy programs have been cut to fund repairs. Does this tell the sustainable energy industry it’s expendable? Does it encourage climate change denialists? Does it show that econocrats who believe price signals drive everything are winning in Canberra? Have the pragmatists just tidied up some politically risky programs without thinking about the signals they’re sending? Or is it policy on the run? I’m bemused.

The complexity of carbon pricing impacts was highlighted recently for me when the New South Wales Government announced it would provide cheap black coal for privatised power stations. Some have suggested that this undermines emissions abatement. But it’s not straightforward.

Before this announcement, it seemed likely that global coal price pressures

would drive up black coal prices. So black coal plants would face both a carbon price and an increased coal price. Victorian brown coal plants would face only a carbon price impact 30 % higher than black coal. So the overall outcome might well have made brown coal power stations cheaper to run than black coal.

And, at expected carbon prices, they would still be cheaper than gas and renewables at the margin, especially because gas prices are expected to trend towards much higher international prices when LNG export facilities are built on the east coast and compete for local gas.

So the New South Wales Government subsidy may undermine the financial viability of higher greenhouse impact brown coal power stations, while increasing the financial value of black coal plants.

All Australian export businesses have had to cope with a large increase in the Australian dollar exchange rate, which is a far bigger problem than any carbon price would be. But how many exporters have received compensation? So why does a smaller environmental cost require generous compensation? There is a double standard here.

The way a carbon price will influence any business, household or government will be complex, because it has to compete with many other powerful forces. It will

Page 149: Pears Report Collection

Pears Report Collection

149

them. There has been some scepticism about the program: econocrats think energy-intensive business is already efficient, while interventionists think you need to mandate action to get results.

But EEO is unusual. It mandates a very thorough assessment process, requires preparation of formal business cases and Board sign-off. It makes energy efficiency a corporate and reputation issue.

After two rounds of reporting, cost-effective (i.e. negative carbon cost) savings of 93 petajoules of energy had been identified (seven to nine million tonnes a year of emissions), of which over half were being implemented and only 10 % were not to be pursued. Overall, savings of over 8 % of assessed energy use have been identified.

A survey showed that the percentage of firms with good documentation and analysis of energy use had risen from 20 % to 60 %. Existence of barriers to energy efficiency declined markedly. Having no one responsible fell from 45 % to under 5 %, while lack of senior management engagement fell from 32 % to 12 %. At the same time, most of the measures identified and implemented delivered payback periods of under two years, so there are still lots of negative cost abatement options to be found.

This is very exciting. It shows that there are real barriers to energy efficiency, even in supposedly efficient energy-intensive industries, and that carefully designed programs can change corporate culture and deliver significant outcomes. S

with variations in some states. Plumbing is being integrated into what becomes the National Construction Code. It will include not only building energy performance requirements, but also requirements on maximum lighting energy capacity and greenhouse gas emissions from hot water systems. This reflects recognition that, while building envelope performance is uniquely important because of its long life, high upgrade cost, and impacts on health and amenity, other aspects, particularly hot water and lighting, are major contributors to emissions.

Only hot water services that generate less than 100 grams of greenhouse gas per megajoule of heat delivered will be allowed. About eight litres of water heated from 20°C to 50°C (the legal delivery temperature) absorbs 1MJ. Most people interpret this to mean that resistive electric hot water services will not comply, although one-bedroom homes and ‘second’ hot water services of 50 litres or less storage capacity are exempt. This will presumably drive households towards gas, LPG, solar-electric (with at least 70 % solar contribution), heat pump (with coefficient of performance of 3 or better), or solar-gas.

While superficially this looks like a sensible ‘performance-based’ approach to regulation, it creates some issues.

For hot water services with high fixed losses (e.g. storage units, shared hot water systems and homes with pumped ring mains), a product may meet the requirement at the ‘standard’ daily draw-offs (125 and 200 litres per day). But for water-efficient or small households, fixed

losses may push actual average emissions above the 100 gram limit.

The exemption for small electric hot water services is problematic. A large proportion of apartments, units and granny flats have these units, while second units are typically installed in the largest homes, so substantial emissions may result. But there are situations where resistive hot water services can make practical, financial and environmental sense. Indeed, instantaneous electric hot water units can also avoid most standby losses.

We could require overall compliance with the 100 gram limit for appropriate delivered hot water volumes via either onsite technologies or the purchase of lifetime Renewable Energy Certificates at the time the system is purchased. This would be a comprehensive performance-based approach. The last of these options would encourage growth of the renewable energy industry by removing a lifetime’s worth of RECs from the market today for each hot water system, creating scarcity and driving the REC price higher. This is the opposite of past government approaches, issuing lifetime RECs for photovoltaics and solar hot water, which drove REC prices down and damaged the broader renewable energy industry.

EEO mid-term reportThe Energy Efficiency Opportunities program requires large Australian energy users to assess their energy use efficiency and report publicly on identified improvements and what they do about

“Have the pragmatists just tidied up some politically risky programs without thinking about the signals they’re sending?”

Page 150: Pears Report Collection

Pears Report Collection

150

Missing the mark

assistance to sustainable energy. In NSW the government has even attempted to apply retrospective change to PV legislation—setting a dangerous precedent. Recent state and commonwealth budget statements have confirmed serious cutbacks. Things are looking bleak.

Are PVs high-cost abatement?Recently we have seen intensive attacks on subsidies for PVs as ‘middle class welfare’ and ‘high-cost abatement’. There’s no doubt policy makers haven’t done well on PV policy. But it has worked both ways. The industry’s development has been hampered by ‘stop-start’ policy. Most states have chosen the more complex and less attractive net feed-in tariff over a gross feed-in tariff. On the other hand, many of the subsidies have been very generous.

But we need to put this into context. Governments have chosen to continue poorly targeted first home buyers grants that drive up house prices and reward those who build large inefficient homes as well as those who want modest sustainable homes. Industries such as car manufacturers and aluminium smelters have been treated generously. We also need to remember that the Howard government introduced, then doubled PV rebates as a blatant vote chasing strategy. Labor matched them as an election commitment. Similarly, states introduced

Alan Pears notes that, once again, lack of education about energy efficiency leads to lost opportunities.

A RECENTLY released International Energy Agency study found that 2010 public expenditure on energy efficiency in Australia was the lowest of a sample of 18 countries. How can we afford not to invest in the most cost-effective abatement option that also enhances competitiveness? Look at the lost opportunities.

In 2010 the Star rating scales for several appliances were toughened —but there was no public information campaign about the good news that appliances had improved efficiency beyond the existing scales. And first home buyer schemes continue to ignore the potential to target them towards smaller, more energy-efficient homes and installation of onsite renewables.

As we move towards the transition to digital TV, millions of old TVs are being discarded, and valuable resources lost, because governments have largely failed to establish large-scale recycling schemes. Government has run frequent TV advertisements warning people to get ready, yet they make no mention of the importance of choosing an energy

efficient set-top box or new TV.Since TV energy labelling was

introduced in late-2009, a new generation of very efficient 7 to 8 Star TVs has appeared. Not only are these more efficient than older flat screen units, but they are also more efficient than traditional cathode ray tube (CRT) TVs. But the old, inefficient flat screen products are still on the market, so informed choice of high efficiency products is not guaranteed.

This demonstrates how fragmented government action misses opportunities to capture energy efficiency potential and leaves us with millions of energy wasting items of equipment. What a lost opportunity.

In my last column I described my bemusement at the mixed signals coming from governments about sustainable energy policy. I think it’s now clear: sustainable energy policy is a low priority for governments. At the national level, the twin forces of the political need to reach budget surplus by 2012–13, combined with the ideological agenda that a carbon price will fix everything, means support for sustainable energy is expendable. In some states, the combination of climate scepticism, environmental politics and efforts to make budget savings have led to cutbacks, and have fuelled public attacks, presumably to justify reduced

Featured in: ReNew 116, July – September 2011

Page 151: Pears Report Collection

Pears Report Collection

151

“Governments have chosen to continue poorly targeted first home buyers’ grants

that drive up house prices and reward those who build large inefficient homes.”

Incentives or subsidies could also be focused on installations in areas where electricity networks are under pressure, where powerline losses are high and where solar radiation is highest. There is also a case for low-income households to be entitled to installation of PV, with repayments delivered via a charge on council rates: this would help insulate them from increasing energy prices.

There are lots of creative policy options to take PV away from being a political football. Let’s hope government has enough imagination to find a constructive path forward instead of undermining the future of the PV industry.

Nuclear backtrackingThe recent Japanese nuclear crisis has set back the plans of the nuclear industry to expand. We have seen again how a single nuclear accident can force the evacuation of large areas of valuable land for many years, while causing massive short-term economic and social dislocation. Surely nuclear generators should be required to carry insurance against such an event? Of course, if they did, nuclear energy would be much more expensive and would simply fade away. Interesting, then, to see the Japanese government providing assistance to the power company that owns Fukushima. S

feed-in tariffs to win votes. More recently, the PV rebate cost was

shifted from consolidated revenue to a charge on energy retailers—presumably to make it easier to meet the government’s deficit reduction target. Now governments have been caught as energy prices skyrocket, largely because of failure to drive energy efficiency and distributed generation by the flawed energy market structure.

So PV policy can hardly be described as well planned and consistent.

However, the positive outcome of this ad-hoc shambles has been a transformation of the PV industry. It is now geared to deliver large-scale roll-out, while prices have come down significantly. Part of this is due to the high Australian dollar, but sales and installation have been streamlined and we have ridden the dramatic economies of scale of accelerating global production.

Government now faces a dilemma. If it cuts the PV subsidies, demand may crash and it will be seen as anti-renewables. At the same time, it will be undermining adoption of a very popular emissions abatement technology. But if it keeps subsidies, what level of support is needed to keep demand high enough to build this important industry? Good question.

According to my calculations, an unsubsidised 1.5kW PV system is now close to being a zero or negative cost abatement option for a household if it

can be financed at mortgage interest rates and its output either replaces daytime electricity (on a time of use tariff) or is paid for exports at that rate. With predicted increases in electricity prices, the financial case looks good.

But this doesn’t mean finance at this interest rate will be available, or that people will act ‘rationally’ and install them without subsidies. This is no different from the behaviour of industry, who had to be forced by legislation to even look for very cost-effective energy efficiency savings that deliver rates of return of 20–50 % per annum or better. We are not very rational about future savings.

One option would be to mandate PV installation, for example on larger new homes and new apartment buildings. People building large homes are clearly not struggling to get a modest roof over their heads, and over the long term, it is a good investment for them. For apartments, the split incentive problem due to the disconnect between developer and occupant is a serious market failure.

A bank that looks rationally at the economics of PV would see that its revenue will cover any additional repayments, so it actually enhances the home buyer’s capacity to repay the mortgage. And it provides insurance against future energy price increases. So government could encourage or require banks to offer ‘bonus’ finance to cover a PV system on any new mortgage.

Page 152: Pears Report Collection

Pears Report Collection

152

Playing carbon politics

the levels of future targets (section 3.3.1). Unfortunately this won’t be enough to satisfy carbon accountants and the ACCC. And voluntary action by local and state governments and business must also be additional if they are to be empowered to lead on abatement.

The emphasis on renewable energy is welcome, with billions of dollars allocated to drive innovation and cost reduction. But energy efficiency is still seriously underdone: the foreword, from the Prime Minister, treasurer and climate change minister, does not mention energy efficiency (our most cost-effective abatement option) once.

Later in the package it’s mentioned that the Clean Energy Finance Corporation will also support energy efficiency. Other measures add up to $1.5 million of very worthwhile actions. But this is very modest compared with resources allocated elsewhere.

And, while the government has committed to expedite a national energy efficiency scheme, there are no guarantees it will implement it or set a meaningful target (see below).

The real energy warThe energy supply sector has used the carbon price to justify massive compensation. But the carbon price

Alan Pears looks at the PR in politics, carbon pricing and the changing face of elecricity supply.

WHEN is a lie a lie in politics? Julia Gillard is under enormous pressure about a semantic issue: whether a three-year fixed price carbon permit scheme applying to about 500 entities is a tax or the first stage of an emissions trading scheme, negotiated by a minority government. Meanwhile, Tony Abbott can claim that individuals and small businesses will be harassed by ‘carbon police’, that industries will shut down and that many will experience massive costs, all with no basis in fact. Indeed, we all know that the Hazelwood or Yallourn power stations will shut down eventually under either a Tony Abbott or Julia Gillard-led government.

Media can run with lead articles about the scale of impacts on industries being far higher than that estimated by Treasury, based on ‘gut feelings’ of people from within the affected industries, or selective quotes from carefully qualified consultancy studies, the detail of which no-one bothers to read. At the same time, powerful vested interests can manipulate our media with impunity.

This is a serious challenge to the governance of our society.

Government Clean Energy Future package

The government’s carbon package shows the value of a range of people with constructive intent negotiating a path forward. The outcome is much better than was developed behind closed doors by the Rudd government with its bureaucrats and consultants.

The package combines a price signal on emission of carbon dioxide and an important structural change to income tax. The large increase in the tax threshold is an equitable alternative that encourages greater workforce participation without slashing worker rights.

The package links ‘direct action’ measures to the carbon price and very (indeed, overly) generous compensation. Importantly, it does not lock us into a weak 2020 abatement target. It creates floor and ceiling prices to reduce risk for investors in abatement and limits use of international permits. It also includes a range of review mechanisms to allow adjustment where assumptions underlying the package prove incorrect, and in response to stronger global action.

Lastly, it gives us time to work out how to ensure that voluntary abatement action can be properly treated under the trading scheme. In the package, the government commits to treat household voluntary action as additional by factoring it into

Featured in: ReNew 117, October – December 2011

Page 153: Pears Report Collection

Pears Report Collection

153

“Powerful vested interests can manipulate our media with impunity. This is a serious challenge to the governance of our society.”

increases, 60 % of Victoria’s expected 27 % price increase (that is, 16 % price increase) over the next three years is due to increasing retailer charges. Apparently the extraordinarily high rate of customer churn (changing from one retailer to another) is adding major administrative and marketing costs for retailers. Indeed, Victorian households will be paying more for the privilege of being harassed by aggressive salespeople offering no real benefits than we will pay for the carbon price! Government and regulators claim this high churn shows we have a successful market. I suggest it shows we have a serious market failure, as reflected in the high rates of consumer complaints and the (now visible) extra cost. Other states can look forward to similar waste of money as their retail markets become more ‘competitive’.

The increased VEET targetAnother interesting development is the recent doubling of the target for the Victorian Energy Efficiency Target to 5.4 million tonnes of abatement. This compares with Victoria’s annual greenhouse emissions of around 125 million tonnes. It sounds impressive, until you look at the fine print. The target is for ‘deemed’ abatement spread over the lives of the measures rewarded by the scheme. So it’s more like 0.5 million tonnes each year. More PR magic. Keep in mind, the Commonwealth Government is looking at a similar national scheme, so we will need to carefully analyse any target they set. S

is really a relatively small factor in the perfect storm facing the conventional energy sector. On one hand, if it is to deliver reliable energy, it has to invest massively, leading to large increases in energy prices. On the other hand, it faces a wave of non-traditional competitors that can be rolled out rapidly and which attack the most profitable areas of revenue. And energy consumers are increasingly seeking to insure themselves against future energy price increases by adopting competing alternatives.

Consider two examples. In 2010, 384 MW of additional photovoltaic capacity was installed, tripling Australia’s total capacity. By late-May this year, another 275 MW had been added. So by the end of 2011, 1000 MW of PV power may be installed over two years, and this operates well on hot days. This undermines the most profitable operating times for power stations (including coal plant, which receives the ‘marginal’ price bid by the highest cost operating power station). So not only does PV undermine the case for network investment, but it also removes a disproportionately large chunk of profit. And it is being rolled out very fast.

On the demand side, there are many millions of inefficient low-voltage halogen lamps installed. We are just reaching the tipping point where LED and compact fluorescent lamps can provide enough light of good enough quality at an affordable price. Once supermarkets start selling these products, the impacts on demand will be significant. Replacing 10 million halogens reduces potential

demand by up to 500 MWs, plus the reduction in cooling needed to offset the heat they generate.

There are many more factors at work, such as tightening building codes, phase-out of electric hot water, radical efficiency improvements in TVs and so on.

The electricity industry has traditionally used its enormous political and financial power to block competitors. For example, the energy market rules were designed and used to block cogeneration and energy efficiency. But energy price increases and the climate issue mean that politicians are under increasing pressure to support alternatives. So past strategies will no longer work. The challenge is to become part of a sustainable energy future.

This means energy retailers need to own and operate cogeneration systems hosted by industries and sell energy services to customers, as Origin is already beginning to do. Retailers and network operators need to treat customers as partners, not passive victims to be exploited. Governments and regulators need to focus on the public interest, not maintaining the viability of the existing energy industry. And we all need to confront the reality that past poor business decisions and arrogance will come back to bite some industry participants. They will go down fighting hard, and aggressively seeking ‘compensation’ for their poor judgements, based on the well-worn argument that ‘they’re too big to be allowed to fail’.

It’s also interesting to note that, in the Australian Energy Market Commission’s recent review of expected energy price

Page 154: Pears Report Collection

Pears Report Collection

154

The great gas debate

existing industry at the cost of emerging competitors—consistent with the terms of reference issued by misguided energy ministers.

But when some time-of-use electricity tariffs are charging over 40 cents per kilowatt-hour at certain times of the day, the economics of energy storage start to look interesting for PV owners (and, indeed, anyone who can store cheap electricity and use it at high-cost times). If you have the choice of being paid less than 10 cents/kWh for PV exports at that price, the cost and energy losses of storage can be comfortably covered if the energy replaces electricity priced at 40 cents/kWh.

Already some inverter manufacturers offer the capacity to add storage and run independent of the grid. Battery technology is improving and costs are falling due to electric vehicle development.

Great gas emissions debateThe gas industry has promoted shifting to gas as the panacea to cut greenhouse gas emissions. A recent study by climate specialist Tom Wigley has challenged this. Wigley uses a climate model to explore the year-by-year warming effects of replacing half of global coal use with gas by 2050 (phased in at 1.25 % additional coal replacement each year to 2050). He

Moving to natural gas is not the ideal solution many would have us believe, writes Alan Pears. Plus, the case for running your PV system independent of the grid.

AS ENERGY expert Ian Dunlop pointed out at a recent Climate Alliance conference, humans are investing billions of dollars in exploration for more fossil fuels, when we cannot burn those we already know about without risking runaway climate change. Yet this investment is considered ‘conservative’ by many financiers.

Our energy market policy experts consistently overprice emerging sustainable energy technologies and underestimate their potential for growth. This is seen as prudent, even though it increases risk of overinvestment in outmoded technologies that could become stranded assets no one wants.

Study after study undervalues the benefits of sustainable energy. For example, a study for the Clean Energy Council on feed-in tariff pricing for PV power concluded it should be less than 10 cents per kilowatt-hour, when solar advocates argue for retail price equivalence. This study ignored the avoided and deferred energy infrastructure costs. It used an annual

average percentage of net exports to estimate the avoided demand on hot days. And so on. Yet work like this is considered ‘safe’, because it makes ‘conservative’ assumptions. It makes assumptions that work against sustainable energy.

The problem is that what has been ‘conservative’ is now risky financially and for the climate. If we under-invest in innovation and over-invest in high-emission solutions, we are wasting money and building future liabilities. We need to rethink our energy policy analysis approach, before the hole our energy policy people have been digging gets even deeper.

PV and feed-in tariffsAs usual, policy makers have accepted ‘conservative’ analyses like the one above, that claim limited benefit from photovoltaics (PV). In contrast, a more thorough analysis by Melbourne University’s Energy Institute and Beyond Zero Emissions, in which the hourly net output of the PVs was modelled, gave a very different result: PV is reducing energy prices for everyone.

Efforts by policy makers to cut FiTs assume that PV owners have no choice but to sell their excess power to the retailer when they generate it. They still fail to see customers as partners in a sustainable energy future. Their focus is to prop up the

Featured in: ReNew 118, January – March 2012

Page 155: Pears Report Collection

Pears Report Collection

155

“The only way to achieve significant reduction in net warming by 2050 from cutting coal use seems to be

through replacing it with zero emission options.”

At 2.5 % leakage, the breakeven point is around 2055. At 10 % leakage (a high scenario), it is 2140. Not good. So the net climate benefit of replacing coal with gas over the next century is very sensitive to the overall efficiency of production and use of gas relative to coal, and the extent of methane leakage.

If gas is to help achieve a sustainable energy future, the industry must change. It must drive efficiency improvement in gas production and usage hard, so that gas consumption at many sites actually declines. For example, combining onsite efficiency improvement with cogeneration can reduce total site gas consumption while replacing imported electricity.

The industry should use renewable energy for production and transport where possible. It must aim for zero methane (and CO2 from gas fields) leakage, and accept independent monitoring for credibility.

Gas companies should also buy offsets to balance all emissions in their supply chains, while encouraging consumers to buy offsets to balance emissions from gas usage.

They must invest in zero emission options such as biogas, renewable synthetic gas and possibly hydrogen. Lastly, coal seam and shale gas must prove they won’t damage our underground water resources.

Then the gas industry might be able to claim a transitional role in the path towards a sustainable future. S

includes a range of options for methane leakage from gas production from 0 to 10 %. This provides some interesting insights.

Wigley’s work is much more useful than the Worley Parsons industry study, which uses warming factors averaged over 100 years: this understates the significance of the short-term impacts of methane leakage and simplifies the complexities of atmospheric processes.

There are actually two independent factors at work in Wigley’s study. First, there is the effect of a reduction in coal use, which cuts emissions of CO2 and methane leakage from coal mines, reducing warming. But it also reduces air pollutants such as oxides of sulphur and carbon particulates, which reduces their short-term cooling effects. Wigley’s paper suggests this loss of cooling will offset most of the reduction in warming from cutting coal use until mid-century, when the long-term effect of reducing CO2 begins to swamp the air pollution effect.

Reduction in coal use could happen independent of gas use, driven by strong energy efficiency improvement, rapid adoption of renewables or even economic collapse. Indeed, the only way to achieve significant reduction in net warming by 2050 from cutting coal use seems to be through replacing it with zero emission options, because of the loss of the air pollution cooling effect.

Second is the impact of increasing gas consumption, which depends on how much methane leaks during production, the amount and type(s) of energy used for

processing, liquefaction and regasification (if sold as LNG), transport, and the efficiency of gas usage compared with the coal it replaces. Wigley assumes all extra gas is used at 60 % efficiency to produce electricity that replaces 32 % efficient coal-fired electricity. He ignores LNG (liquified natural gas) production and transport (which, according to the Worley Parsons industry study data adds 22 % to gas CO2 emissions). So Wigley’s assumptions are generous to gas.

If we consider CO2 emissions only, replacing coal with gas does reduce net warming progressively from the first year, due to its lower greenhouse intensity and higher assumed efficiency of use.

The change in methane warming impact depends on the balance between the reduction in leakage from coal mines relative to the extra leakage from gas production. A net increase in methane leakage gives net warming, particularly in the first few decades after the methane is released, as methane is a very greenhouse-active gas over this period.

In Wigley’s study, the reduction in cooling from sulphur oxides and particulates as coal use declines, offsets the reduction in warming from gas replacing coal (at 1.25 % additional substitution per year) until 2050. As I pointed out earlier, this air pollution effect will happen whatever causes a decline in coal use, not just gas.

Overall, the loss of air pollution cooling offsets the reduction in warming through gas replacing half of coal usage to 2050, even with no methane leakage from gas.

Page 156: Pears Report Collection

Pears Report Collection

156

Energy efficiency on the agenda

not exist, creating conflict between the various market signals and regulations. This is inefficient policy that is costing Australia dearly in both financial and environmental terms.

Let’s hope the final White Paper is a big improvement on the draft.

Big car and SUV buyersIt seems that most large cars and SUVs are bought by business (Richard Blackburn, The Age online, 4 Feb 2012). Private buyers prefer small cars. Since business vehicles receive tax deductions, this means the community is subsidising purchase and use of fuel guzzlers. But it’s worse than that. Business (and governments) typically own their new cars for only 40,000 to 100,000 kilometres, then sell them. Secondhand car buyers can only choose from what’s available on the secondhand market, so they use these large vehicles for the bulk of their typically 250,000 kilometre lives. So buyers of new high consumption vehicles actually lock-in a legacy of ongoing higher fuel use and running costs for future owners.

Public transport fundingThe latest strategy by the road lobby in Melbourne seems to be grade separation of railway crossings, so that traffic is not affected by increasing frequency of trains. This seems to be described as rail funding, yet it does nothing for rail performance. As a rail user, it seems there is potential for boom gate closure times to be reduced by modern sensor technologies instead. It’s

Improved energy efficiency and better public transport funding are essential to cut greenhouse gas emissions. Is a public transport levy the way to go? And could aircraft fly lower to cut emissions? Alan Pears explores the issues.

MARTIN Ferguson’s Department of Energy and Resources released its draft Energy White Paper in late-2011. Comments are due by mid-March, and I encourage people to make submissions. It’s a disturbing document. For example, energy efficiency, considered by most studies to be a major contributor to climate abatement, is relegated to Chapter 6 section C, p. 170), which is not a good sign.

The introduction to the quite good but modest section on demand-side issues states: “Historically energy policy and market development in Australia have had a strong supply-side focus, suggesting that there could be further potential to realise cost-effective demand-side efficiencies through an integrated market framework.”

This comes after five chapters of supply-side, growth-focused, self-congratulatory material that shows the government hasn’t learnt this lesson. The paper quotes Bureau of Resources and Energy Economics growth projections that Australian primary energy consumption will rise by 30 % and

electricity consumption by 42 % by 2035. Yet electricity consumption has been declining for the past three years.

The paper proposes three objectives:• provide accessible, reliable and

competitively priced energy for all Australians;

• enhance Australia’s domestic and export growth potential;

• deliver clean and sustainable energy.The impact on business and household

budgets is the total cost of energy, not the price per unit. A recent UK study estimated that 88 % of world primary energy consumption was wasted, so energy efficiency improvement has the potential to transform our energy requirements and costs.

But this is not used to frame the approach.

If the second objective relates to energy production and use, it seems potentially incompatible with sustainable development of our overall economy and energy (the third objective), which might involve reducing energy consumption and exports.

The ‘old paradigm’ energy industry is facing increasing costs, low rates of return and long transition times. Energy and climate commentator Giles Parkinson recently said the energy industry is facing its ‘Kodak’ moment, as a new paradigm sweeps through.

The paper’s response to the energy market mess seems to be to create additional, separate markets and regulations to ‘fix’ a problem that need

Featured in: ReNew 119, April – June 2012

Page 157: Pears Report Collection

Pears Report Collection

157

State government and climate changeIndustry environmental newsletter CE Daily (27 Jan 2012) has analysed the number of times the Victorian Premier and key ministers have used the term ‘climate change’ in press releases and parliament during 2011. The results are disturbing. Premier Baillieu used the term once, in a media statement about location of the Climate Change Authority in Melbourne by the Commonwealth Government. Energy Minister Michael O’Brien used it once in parliament, when quoting a Labor MP. Climate Change Minister Ryan Smith used the term only once in parliamentary debate and in two press releases.

The climate sceptics within the Victorian State Government seem to be winning. It reminds me of the Faulty Towers saying: “Just don’t mention the war!” We live in a bizarre world. S

not hard to monitor the changing speed of a train approaching a station, and to lower boom gates if there is a risk of the train overshooting, instead of lowering them when the train is a long way from the crossing.

We should also be looking at the broader economics. If railway crossings reduce the number of cars in use by increasing congestion, that potentially brings societal economic benefits that may offset the congestion costs. It shifts more car usage to public transport and other options, and the money not spent on grade separation could be used to expand the public transport system.

Public transport funding should be revisited, possibly with a property levy, offset by free public transport entitlements. The levy size would be linked to the quality of access to public transport. My logic is that if someone lives near good public transport, but doesn’t use it, they are depriving someone else of their right to access this service.

In return, each household and business could be entitled to some free public transport usage. This would link funding to service improvement, creating an incentive for operators and government to support public transport. And it would encourage those close to public transport to use it.

A solution for low-emission air travelWhen British climate commentator George Monbiot wrote Heat in 2006, he found feasible low-emission solutions for most aspects of modern life—except air travel. Indirect emissions from contrails (cloudy trails), cirrus cloud formation and pollutants emitted from jet engines amplify the direct warming due to carbon dioxide from aircraft fuel by three to five times, according to the IPCC.

British research that seems to have

been missed by climate researchers (Victoria Williams and Robert Noland Transportation Research Part D, 2002 and 2005) has found that creation of contrails and cirrus cloud is very sensitive to the temperature and humidity of the air flown through. If the air is warm enough (typically below 6000 to 7000 metres) these effects are avoided, and the main impact is due to fuel burning, much of which could be avoided by using sustainably-sourced renewable fuel. Many propellor-driven planes already fly at this altitude. It does mean passengers may experience a bumpier ride and it slightly increases fuel consumption. It does not mean we can keep flying as much as we want, because it limits usable air space and the large direct emissions from air travel or the amount of renewable fuel they would consume would still create major environmental pressures.

o Could flying at a lower height reduce aircraft pollution?

Phot

o: w

ww

.q40

0ne

xtge

n.co

m

Page 158: Pears Report Collection

Pears Report Collection

158

Energy efficiency ignored again

back, distributed generators should have the right to sell power to neighbours at whatever price they can negotiate: that’s how markets are meant to work. So the retail price is the right benchmark for pricing FiTs. Further, there is a legitimate argument for additional subsidies of distributed generation as an emerging technology that competes with powerful entrenched interests. I proposed that a FiT that provides the same price for exports as for consumption has many advantages.

I also made a submission on the proposed National Energy Saving Initiative. I argued that we need two kinds of certificates, as we have for renewable energy. This will allow flexibility to ensure the scheme really works to deliver outcomes and reward reductions in peak demand and other benefits beyond energy savings.

Passing the buckThe Australian Government’s failure to set up a proper accounting system so that businesses, local and state governments and households can qualify their energy efficiency and renewable energy action as ‘additional’ to the carbon target is now visibly backfiring.

The new Victorian and Queensland governments have slashed programs on energy efficiency and renewable energy because, under the carbon pricing scheme, reducing emissions would simply leave more room under the carbon cap for other states to increase their emissions.

Under the carbon target, reducing

Energy efficiency measures have huge potential for delivering climate change abatement, and yet they are often overlooked in the debate on climate policy. Alan Pears explains.

MANY people watched the recent ABC documentary and panel show on the climate change debate. It was interesting to hear that both Clive Palmer and Nick Minchin were prepared to support renewable energy—if it were cost-effective. However, apart from a couple of passing mentions in the panel session, a sustainable energy option that already meets their criteria for cost-effectiveness and climate change abatement was ignored.

Most international experts, including the International Energy Agency, expect energy efficiency to deliver a third to half of all energy-related abatement over the next 20 years. Yet, if it’s mentioned in Australian climate policy discussion, it’s almost always an afterthought.

It’s not that policy people and commentators don’t think energy efficiency is a good thing, but it’s not ‘top of mind’—mostly they have to be prompted. And they tend to see it as a fairly small contributor to solutions. One British study recently estimated that 88 % of all energy used globally is wasted before it delivers a useful service: so the potential for efficiency improvement is enormous.

There seems to be some kind of deep

cultural driver for Australians to focus on supply-based solutions. I really don’t know how we can overcome this, because it is so pervasive.

At least there is some money (thanks to the cross benches, especially the Greens) in the Clean Energy Futures package for energy efficiency—although much less than for low-emission energy sources. But we will have to withstand yet another attempt by econocrats to cut energy efficiency programs because they fail the ‘complementary to carbon pricing’ test. That won’t be easy, and it will divert our efforts from delivering results to defending the validity of energy efficiency—yet again.

My recent submissionsI’ve been busy recently producing a few submissions to government inquiries (see links at the end of this article).

My submission to the draft Energy White Paper is in two parts: part 1 is my annotations on the whole document, while part 2 is a 20-page submission summarising my key points. My main recommendation is that they start again with a new and more inclusive process that reflects a ‘whole of government’ perspective and engages households and services sectors as well as big industry.

In my submission to the Victorian Competition and Efficiency Commission inquiry into feed-in tariffs (FiTs), I pointed out that the whole debate is focused on the wrong issue: it’s not about how much PV saves the energy industry. If we step

Featured in: ReNew 120, July – September 2012

Page 159: Pears Report Collection

Pears Report Collection

159

“If energy efficiency is mentioned in Australian climate policy discussion, it’s almost always an afterthought.”

Germany are able to produce high-quality, diverse housing using this approach.

For tradies involved in appliance maintenance, smart appliances and mobile phone cameras increasingly allow remote diagnosis and accurate identification of models, so they can spend less time travelling, and may even be able to carry a lot fewer spare parts.

My key point was that we need some creative ideas because present approaches to transport are not working very well. I hope the debate continues and more ideas flow! S

Alan’s recent submissions Draft Energy White Paper, bit.ly/APearsDEWP Victorian Competition and Efficiency Commission Inquiry into Feed-in Tariffs, bit.ly/APearsVCEC National Energy Saving Initiative, bit.ly/APearsNESI

emissions is now the Federal Government’s responsibility. See www.vcma.org.au for detail on the problem and the solutions. How can such a perverse situation be allowed to occur?

Feedback from a readerIn my previous column, I included some thoughts about public transport funding. One reader has responded to my comments. I’m pleased, as I was hoping to provoke some discussion. [Ed note: the reader’s letter appears on p. 17.]

The fact that I proposed two diametrically opposite ideas on rail crossings (one to reduce road delays and the other to allow more delays due to rail crossings) shows that I was floating ideas rather than taking a position.

But to clarify my suggestion that congestion due to rail crossings could be allowed to increase as a way of limiting traffic growth, there are some fundamentals here.

Overwhelming evidence shows that if you increase road capacity, it simply fills up to a new, higher level of traffic without solving the congestion problem. Further, if your policy objective is to reduce car usage, you need to increase capacity of alternatives while also reducing road capacity. Otherwise cars come from elsewhere to fill up the freed-up (effectively lower cost in terms of travel time) space. Economists propose road pricing as a way of limiting road use, but this has equity issues.

I was trying to point out that rail crossings can act as a policy tool to limit car usage and increase pressure on road users to shift to other options. It is imperfect, but all the options have their problems. And the

money saved from avoiding construction of grade separation could be spent on extending public transport (PT) and buying more rolling stock.

With regard to the reader’s comment on my proposed PT property levy, his comment is focused on a group of workers who happen to live near good PT but work in PT-poor locations. This is a legitimate concern, but the situation is complicated. First, as congestion (or road pricing) increases, those with the cheapest or most practical options tend to change behaviour first, so this should leave more room for those who really need to use cars. Indeed, giving people who live near PT free or discounted PT travel to offset the levy cost provides an incentive to change behaviour and free up road space. The levy also creates a new incentive for PT agencies to improve and extend PT because they are rewarded with more funds. As our reader points out, we need to find more money to improve and extend PT, and this is one possibility.

The situation for tradies is challenging, but there are some options. First, as a rider on early trains into Melbourne, I’m seeing increasing numbers of tradies on PT, complete with wheelie bags of tools. Obviously this only works where there is PT, or where the tradie can travel part of the way by PT and leave their vehicle somewhere secure where PT finishes, so the trip can be completed by ute.

Second, for tradies working on new housing, there is potential to shift a lot of building construction from onsite work to housing manufactured off site. This would significantly increase productivity by reducing travel time and avoiding rain delays and damage. Countries such as

o Energy efficiency measures needn’t be complex or costly. Valvecosy is an insulated cover that reduces heat loss from domestic hot water service pressure-release valves, thus saving energy. It’s easily installed by the homeowner and is available from shop.ata.org.au.

Phot

o: V

alve

cosy

Page 160: Pears Report Collection

Pears Report Collection

160

A fundamental technology shift

denying PV owners a fair feed-in tariff encourages a shift to including storage and even going off-grid. Major appliance manufacturers such as Samsung are moving into these markets with enormous economies of scale and sophisticated retail marketing capability.

As the AGL paper points out, these developments create potentially serious challenges for social justice policy. Wealthier people are better placed to invest in PV, energy efficiency and storage to manage their costs. AGL points out that, while families with children at home comprise only 16 % of their customer base, they are 24 % of customers at risk of disconnection. Yet many are not eligible for welfare support. These families are paying the price for succumbing to building industry marketing and government incentives to buy big, inefficient houses on the urban fringe with poor access to public transport and services. So their problems go far beyond their difficulties with electricity bills.

If we focus on reducing peak demand as well as total consumption, the ‘death spiral’ can be managed. As US energy expert Amory Lovins pointed out many years ago, the electricity sector depreciates the value of its assets each year, gaining tax benefits. So as long as they don’t have to build more capacity, they can hold energy prices stable while consumption continues to decline.

As part of our attack on peak demand, we will face a choice between higher fixed charges and time of use (TOU) pricing. TOU is the lesser of two evils,

As energy generation evolves, centralised energy companies will need to evolve as well, or face extinction. Alan Pears explains.

WE are part of a vicious technology war on many fronts, as entrenched interests struggle to defend their turf. The fundamental shifts are from traditional physical, centralised technology solutions to a rapidly evolving mix of virtual, decentralised, modular, retail-focused solutions. In media, we see online versus hard copy battling. In transport, virtual transport via communications and electronic devices compete with physical transport and service provision. In water, traditional large water and sewage networks with large dams and treatment plants confront efficiency, local solutions and even waterless solutions. In energy, the battle is between traditional centralised energy systems and the combination of virtual solutions, smart management systems, high efficiency and distributed generation.

Commentator Giles Parkinson has described the crisis facing the electricity industry as its “Kodak moment’: Kodak was an early leader in digital photography, but couldn’t bring itself to cannibalise its core film business by promoting its new approach. So others did it. All existing communication, energy, water, and goods and services retailers are desperately trying to develop new business models and undermine, out-compete or absorb competition from agile, mass-produced,

consumer-focused alternatives. A recent paper from energy company

AGL (Economic Policy Working Paper 31) revived the 1980s term ‘death spiral’ as it discussed the future of conventional energy companies. Their cost structure is dominated by capital costs and assets that take a long time to build and last a long time. If energy consumption stops growing (or declines) while peak demand keeps rising, they have to spread increasing fixed costs across lower than expected sales. So they must increase prices and fixed charges to balance their books—but this makes competing options more attractive, which makes the situation even worse: the death spiral.

Policy makers are struggling to understand the emerging reality. For example, they still treat electricity networks as ‘natural monopolies’ and look at emerging technologies in terms of their impacts on the existing electricity industry. As I pointed out to the Victorian Competition and Consumer Commission, mobile phone businesses are not paid based on how much they save landline networks. So why are emerging energy solutions such as PV paid based on how much they save incumbent electricity companies?

The existing electricity industry faces a fundamental problem: the harder they work to block emerging competitors, the more they encourage new solutions and the greater the risk of pent-up demand for alternatives exploding uncontrollably when costs fall enough and technology works well enough. PV is a great example:

Featured in: ReNew 121, October – December 2012

Page 161: Pears Report Collection

Pears Report Collection

161

issues and ethical investment research in Australia since she arrived here from the US in the early-1980s. Sadly, she passed away in June. Deni has been my friend and colleague for over 20 years. She initially came to Australia to advise on energy options in the Tasmanian Franklin River battle. In the 1980s, she did leading edge studies to show the enormous potential of cogeneration. In 1990, she took on the energy and economic establishment: she produced a brilliant and thorough study that showed Australia could meet its Toronto Target (20 % reduction from 1988 carbon dioxide emissions by 2005) while improving the economy by $6 billion. She paid a high personal and professional price for challenging orthodoxy.

Deni also prepared some of the early life cycle analyses of appliances, documented the performance of ethical investments, and represented Australia on the development of international environmental information standards. And she built a great solar-efficient house at Aireys Inlet.

We’ll miss you Deni. S

as high fixed charges are regressive and disempowering. We need to use TOU as part of management of demand, to send signals and manage costs, but we need much more sophisticated and equitable approaches. Victoria’s approach illustrates the problem: consumers pay a high price from 7 am to 11 pm on weekdays. Low-income households can’t work around that structure. Alternatives with lower prices from 10 to 2 would allow them to cook a main lunch meal and run appliances. The peak does seem to pass by 7.30 pm, so prices could drop then.

Maybe options with a voluntary limit on peak demand in certain time blocks could also work. In Italy, most households have a 3 kilowatt demand limit—and they think this is pretty normal and reasonable. The Bushlight remote power scheme for Indigenous communities includes negotiated load shedding hierarchies. Their approach shows it’s possible to work with consumers to set priorities to limit peak electricity demand.

As sustainable energy costs decline, there is an increasing financial case for government to deliver social welfare by providing energy efficient equipment and PV systems instead of or as well as traditional energy price reductions. Housing financiers should allow extra funds for higher building efficiency, efficient equipment and PV in their mortgages, and encourage people to consider smaller, more adaptable housing.

Future carbon pricesConventional wisdom of economists has it that carbon prices will increase as emissions targets tighten. Some politicians claim this will drive increasing costs to the economy. This is simply wrong.

First, tighter emissions targets will mean we emit less, so we will have to pay for fewer tonnes of carbon dioxide, offsetting the higher unit price. For example, Treasury expects the greenhouse intensity of Australian electricity to decline by

around three-quarters by 2050 (Table 5.18, p. 103, Treasury modelling report)—so a carbon price four times higher would have the same overall impact on the electricity price as today.

Second, where we invest in energy efficiency, we save not just carbon cost but also the cost of the energy we would otherwise have consumed. For example, saving 10 % of a household’s electricity use offsets its electricity-related carbon cost.

Third, driving innovation harder cuts the carbon cost. A rarely quoted analysis in the IPCC’s 2007 mitigation report (IPCC WG3 Report Cross-sectoral chapter) indicates that more aggressive innovation could cut the 2050 carbon price by 60 % for a given target. Why? Innovation means higher energy and resource efficiency, cheaper renewable energy and lower cost renewable and recycled materials. So investment of income from carbon pricing in innovation will pay off.

Vale Deni GreeneDeni Greene has been a pioneer in sustainable energy, environmental

o Energy generation is steadily becoming more decentralised, with more and more buildings being fitted with photovoltaic systems.

Page 162: Pears Report Collection

Pears Report Collection

162

How blocking change can backfire

investment on the customer side of the meter. So they focus on expensive ‘smart’ grids. Energy policy people are largely captive to the world view of the electricity supply industry, so they allocate money where they’re told it’s needed. Variable demand is apparently a ‘problem’ that has to be dealt with by supply-side measures. So it’s left to international businesses, like Samsung, and renewable energy firms selling distributed energy solutions to develop consumer-side solutions.

Yet again, energy policy makers will be surprised when these demand-side solutions take off, as consumers yet again act to protect themselves from the disempowering, costly strategies of the existing supply industry and policy makers focused on maintaining a welfare system for the industry.

Let’s hope that the inquiry into electricity pricing can expose this bizarre situation and change it.

The global contradictionEminent scientists such as James Hansen have pointed out that, to limit climate change, we cannot afford to burn more than a small proportion of the fossil fuels that businesses already ‘own’. Yet the search for more continues—with public subsidies.

Governments need to phase out incentives to search for more fossil fuel resources, and shift those funds to driving energy efficiency, renewables and innovation. Of course, it is difficult to do this when those industries are so powerful. But we are tipping money down the drain and making our future

Communities and smart consumers drive change as policy makers and industry lag behind. Alan Pears explains.

THE gas industry is now seeing how, when powerful interests block action, it can hurt a ‘transition option’. As climate science provides increasingly dire warnings, more people now say we can’t afford to just reduce emissions through use of gas and other weak strategies such as marginally more energy efficient buildings. We have delayed action for too long. Now we need to jump to zero emissions and beyond zero emissions solutions. As electricity consumption continues to decline, Origin Energy has realised this has big implications for their gas-fired power generation strategy. It is also a game changer for electricity networks. So the opposition to policies such as the Renewable Energy Target is not surprising.

This is not a new phenomenon. I recall talking to a representative of a building industry association who was complaining about the varying state-level building energy requirements and the rapid rate of change. I pointed out to him that his association was to blame for the mess. They were so effective at blocking change at a national level that the community was left with no option but to drive change at the local level where they had sufficient influence.

Going back a hundred years, the gas industry tried to block the introduction of

the much more efficient mantle gas light from Germany: at that time gas lights were just like kerosene lamps, and relied on the luminosity of the flame to produce light. A local hardware shop began importing the mantles, and the gas industry lost its battle. However, this had a silver lining for the gas industry. It was losing market share to the electric light for street lighting. But the new mantle light reduced gas light running costs and provided a brighter light. The roll-out of electric street lighting was delayed by decades, and the gas industry was saved. We live in a complicated world! And many powerful industries just don’t seem to learn from history. They need to ride the wave, not try to block or ignore it.

Smart consumers that could interact with dumb gridsI and others have been advocating for smart demand-side systems that integrate storage, renewables and smart, efficient equipment. These could manage a consumer’s interaction with existing ‘dumb’ grids and save a lot of money. Yet, in Australia, there has been little interest from the energy industry or researchers. Enormous amounts of money are being thrown at ‘smart’ grids by the Federal Government, for example the $100 million Smart Grids Smart City project. Little is spent on ‘smart’ consumers, however. I must be naive, because I haven’t been able to work this out.

But recent discussions about drivers of over-investment in networks have made sense of this. Network owners get paid based on investment in their networks, not

Featured in: ReNew 122, January – March 2013

Page 163: Pears Report Collection

Pears Report Collection

163

‘least cost’ solutions. However, if the target is too easy, this elegant policy approach becomes a boom and bust nightmare. Almost every trading scheme seems to suffer this problem. The original MRET target was met several years before its deadline. Australia’s carbon trading scheme requires the regulator to set the cap five years ahead, so it can’t respond to unexpectedly low or high prices. The world is awash with cheap Certified Emissions Reduction credits. Even the original NOx trading scheme in the US suffered from much lower than expected prices.

You would think policy makers would have realised that any cap or target scheme needs a mechanism to automatically revise the target if prices fall outside a specified band for more than a set period. This would certainly help to avoid the politics and uncertainties caused by reviews of targets, like the present RET review. Then participants could be more confident of future prices and more stable market conditions. Why is this so hard? S

challenges even more difficult.The expansion of Australia’s coal

industry is another example. Our industry is investing record amounts in expansion. Yet the International Energy Agency forecasts that, for a global 450 ppm CO2 path—with around a 2 °C temperature rise—global coal demand would decline by a third from today’s level. Further, New Scientist (11/10/12) points out that US coal producers, who face declining local demand, are gearing up to export coal. Is our coal industry digging a hole for itself, as well as the climate?

Electricity inquiryPM Julia Gillard has finally taken the action that governments since the mid-1990s have failed to take. She has exposed the energy ‘club’ to public scrutiny by establishing a senate inquiry with wide-ranging terms of reference. Unfortunately the timeframe of the inquiry is short, because CoAG must move quickly to influence the next round of price setting for network and transmission funding. But at least it’s happening.

Hopefully the inquiry will take the opportunity to review the fundamentals of energy markets, such as the objective of the National Electricity Market, and put in place ongoing mechanisms to refocus the electricity industry—and its policy makers. My submission is on the inquiry website.

The Hansard records of the inquiry’s hearings are very illuminating. The energy sector’s position is “we’re working on this, so leave us alone and we’ll sort it out”. Everyone else, from business to social justice advocates, says major changes are needed. Of particular concern is the admission by energy policy makers (e.g. Department of Resources, Energy and Tourism, DRET), industry participants (e.g. National Generators Forum) and industry lobbyists (e.g. Energy Supply Association of Australia) that no one really understands the drivers of falling demand.

I know of no other industry with an

annual turnover of tens of billions of dollars that knows so little about how its customers behave and think. How can the Australian Energy Market Operator (AEMO) sensibly forecast electricity demand? How can DRET publish its imminent Energy White Paper? How much could this lack of data cost the economy through poor investment decisions?

Virtualisation continuesIn September, Myer commented that it would be closing down some stores due to the increase in online shopping. In South Korea, global supermarket chain Tesco has been trialling virtual supermarkets on underground railway stations. Think of the energy saving potential and the implications for the real estate and building industries. And the time saved by consumers! Virtualisation is certainly a big player in the journey towards a sustainable world.

The challenges of setting targetsMost policy makers love the idea of creating market mechanisms with caps or targets, to allow the market to pursue

o A virtual Tesco store in a subway in Korea where shoppers scan and buy groceries that are then delivered to their homes.

Phot

o: T

esco

PLC

Page 164: Pears Report Collection

Pears Report Collection

164

If I ran an electricity network…

and their relationship to electricity prices (Hansard 25/9/12). How can the department advise its minister, Martin Ferguson, on energy policy without doing this?

Those outside the mainstream energy sector were unanimous that the problems are serious and will require substantial change. For example, demand management expert Dr Paul Troughton estimated that $16 billion had been spent unnecessarily on electricity supply (Hansard 27/9/12, p. 67).

The depth of the cultural problem in the energy sector is reflected in a comment by Australian Energy Market Commission (AEMC) chair, John Pierce, in the hearings (Hansard 25/9/12). He drew upon a football analogy, suggesting that the energy sector was just one specialist player, and that there were other specialist players responsible for environmental, social and other policy areas. He suggested that it was ridiculous for other players to try to tell a specialist player how to play as part of a team. He saw the role of AEMC as focused on economic efficiency: others should deal with other issues. He saw AEMC’s role as being “to inform other parts of government what the effect on this efficiency objective is of things they are thinking about…”

He, like others in the energy sector, interpreted the energy market objective in very narrow economic terms and saw no role for energy policy people to help other agencies to develop joint policy. No wonder energy policy conflicts with other policies.

As Australia looks for leadership on energy policy, Alan Pears rates the recent Energy White Paper as a fail. Find out why.

SINCE my last column, we have seen the release of the final Energy White Paper and the report of the Senate inquiry into electricity pricing. The final White Paper was substantially improved from the draft. But it still rates a ‘fail’.

The core scenario on which future energy policy is based is the International Energy Agency’s (IEA) ‘New Policies’ scenario, which is pretty much our past growth trajectory. The IEA’s ‘450 ppm scenario’ to limit global warming to around two degrees is largely ignored. The brief discussion on page 204, titled ‘Integrating a Changing Climate into Energy Planning’ focuses on climate adaptation and climate impacts on energy infrastructure. The overall position is that cutting emissions is not the responsibility of the energy sector, but is dealt with by other government agencies and CoAG councils!

So the Energy White Paper 2012, Australia’s energy transformation fails to confront fundamentals such as the IEA view that, if we are to limit global temperature increase to near two degrees Celsius, global coal consumption will decline by 30 % by 2035 and that less than a third of the fossil fuel industries’ proved resources could be burned without exceeding climate limits.

The White Paper encourages people

to explore different scenarios with the online eFuture model, developed by CSIRO. Unfortunately, this only allows consumption growth scenarios to be explored.

Among other things, the paper argues that fossil fuels are not being subsidised, and that the generous taxation incentives simply reflect the varying risk profiles of different activities. An interesting interpretation.

As usual, energy efficiency is dealt with last, in 16 of the 227 pages of text.

Overall, this will be an interesting document for historians to look back at when they try to explain to future generations how misguided our society was, and why we failed to manage climate change.

Senate inquiry into electricity pricing This report is a thoughtful discussion of the shambles that is our electricity market. It has some useful recommendations and is well worth a read. But the Hansard records of the inquiry hearings are much more entertaining.

Hansard shows how, on one hand, the existing energy sector is unanimous that there have been problems but that they are well on the way to fixing them, so they should just be left alone. On the other hand, they blame each other for the problems and express concern about the lack of information on which to base decisions. For example, the head of the Energy Department’s energy division admitted that his department had done no analysis of demand-reduction activities

Featured in: ReNew 123, April – June 2013

Page 165: Pears Report Collection

Pears Report Collection

165

“I would install regional electricity storage systems, which I could use to store low-cost electricity and sell it at premium prices.”

grid capacity to provide low-cost backup.For the existing business, I would

develop more sophisticated network pricing schemes so that PV, other distributed generators and energy efficient consumers gain benefit from avoiding demand or exporting electricity at times and places of most use to the network. This would encourage PV owners to consider orienting their panels to generate more in the afternoon or to install storage to allow them to complement the grid. This might be done through adding to existing feed-in tariffs at certain times of day or by offering rebates on energy bills based on actual avoided peak demand/exports at critical times.

Remote management of specific equipment such as pool pumps and air conditioners and voluntary limits on peak demand, in exchange for discounted prices, could also be part of the new business model.

Partnerships with welfare groups, community groups and other businesses, as well as separate subsidiary businesses, will be necessary to overcome lack of consumer trust in network operators, cultural barriers and limited internal marketing and sales skills within the network business.

Some elements of this model depend on changes to energy market rules. But government policy makers should be supportive, as the alternative is higher consumer energy costs and potential business failures among network operators. S

While the inquiry and its recommendations are a very useful step, the big question is whether the energy sector will retake control of the agenda through management of the detail of ongoing changes. Or will they review their approach so it meshes with other government policies?

If I ran an electricity network…Electricity network operators are the whipping boys of the industry, with some justification. But how could networks become part of the solution instead of part of the problem?

At present, the core business of an electricity network is seen as ensuring reliable and safe supply of electricity to consumers from large power stations and measurement of electricity use for billing purposes. They have no direct links to consumers and their culture is based on building and maintaining poles and wires. Regulators treat networks effectively as regional monopolies—although as I have pointed out before, this is incorrect, as they compete with distributed generation, energy efficiency, fuel switching and demand management—so they are able to exert unfair market power. Networks are also paid based on the size of their assets and the amount of electricity supplied through their wires.

The main risk networks now face to their businesses is that use of their capital-intensive networks will decline, while peaks become more significant. Unless regulators agree to them extracting higher charges from consumers or separating payment from electricity flows, this will reduce their profitability.

So if I ran a network, I would broaden its activities into the competitive areas of the energy markets, both wholesale and retail, as well as the energy services market.

I would install regional electricity storage systems, which I could use to store low-cost electricity and sell it at premium prices. This technology could be located strategically to also store exports from PV and other distributed energy systems locally, before they complicate the operation of the main network. This would allow ‘smart’ consumer technologies to interact better with existing ‘dumb’ grids, reducing the need for high risk investment in networks.

I would seek a licence to bid demand management into the wholesale electricity market and set up a subsidiary business to develop this market capacity.

I would minimise additional investment in the existing network so that depreciation and other allowances in tax rules would allow reducing returns from them to be managed.

I would set up another subsidiary business to sell in-home and in-business displays and smart controls, onsite electricity storage, PV and stand-alone power systems, initially for fringe-of-grid customers, people in high fire-risk areas and where networks are under stress. This would include allowing consumers to share use of backup generators and storage within local areas. This could include leasing these technologies and providing ongoing fee-based maintenance and monitoring services, so that those with onsite equipment need not be deeply involved in running their energy systems. It might also include using under-utilised

Page 166: Pears Report Collection

Pears Report Collection

166

Energy inefficiency

efficiency and energy-related emissions reduction to cancel permits—and so make such activities ‘additional’ abatement beyond the carbon cap.

Basically, unless this is done, cutting an individual’s emissions simply frees up permits under the fixed cap for others to pollute more. The carbon permit pie stays the same size, but the voluntary energy efficiency or renewable energy action means that person’s share of the permit pie is reduced, leaving more room for others to pollute. This is an accounting problem, not a justification to stop cutting emissions, but it has provided an easy excuse for conservative state governments to opt out of abatement activity, forced progressive businesses and councils to shift to buying international offsets (‘abatement leakage’), and disempowered the community.

The fundamental problem is that while voluntary action in Australia to cut energy-related emissions is good for the global environment, it is not recognised in our carbon scheme’s accounting approach. Efforts of groups such as the Voluntary Carbon Markets Association (www.vcma.org.au) failed to force the government to fix this glaring accounting problem. The Climate Change Authority is meant to address this in its review, but they have many other big issues to address.

What makes it more frustrating is that the government has established the Carbon Farming Initiative which fixes this problem for agriculture and forestry. Their carbon storage actions create additional tradeable certificates. But apparently energy is not important enough to deserve fair treatment.

According to the International Energy Agency, energy efficiency is the key to carbon abatement—but that’s not evident in a range of recent reviews in Australia, writes Alan Pears.

THE Australian Energy Market Operator (AEMO) was instructed by the government (under pressure from the Greens) to prepare a comprehensive 100 % renewable scenario for the National Electricity Market. This was released recently.

Unfortunately AEMO still seems to be trapped in a supply-side straightjacket. They use demand projections that all involve ongoing growth, so the benefits of declining demand are ignored. In their scenarios, the annual peak demand will shift back to winter evenings because of the impact of PV on summer demand. Major contributors to winter evening electricity peak include lighting (residential and commercial), heating, cooking, TVs and electric hot water. All of these loads can be dramatically reduced by energy efficiency and demand management measures. Time-of-use pricing will drive this trend even faster.

AEMO also presents the cost of the renewable scenario relative to prices now, rather than relative to where prices would head anyway under the more costly business-as-usual scenario. This just perpetuates the false debate about the cost of renewable energy, although the AEMO report still shows a renewable future is affordable.

AEMO has done Australian society a

disservice by failing to factor in realistic energy efficiency potential. If the energy supply industry uses these scenarios to plan investments, it will be badly burnt financially. And guess who will pay…

The role of the carbon priceThe recent crash in the EU carbon price reflects a combination of lower economic (and fossil fuel) growth than expected, as well as the impact of overly generous exemptions and lack of political commitment. This situation is the outcome of being generous to powerful interests during its development, on top of the traditional inability of economic modellers to factor in market failures and innovation when projecting future emissions. The GFC has contributed too.

It highlights the reality that, while a carbon price is important, it is just one element of an effective response to climate change. We do need ‘direct action’—but serious commitment, not the Coalition’s unrealistic and misleading approach.

The linking of Australia’s carbon scheme to the EU means their politics will drive our carbon price and it will be much lower than expected. Given the broad business support to keep the carbon pricing scheme, a future Coalition government should drop its commitment to remove it. Business needs the policy stability created by carbon trading, and the low price leaves plenty of room to adapt. But ideology is a powerful force.

Within Australia, a key failure in the design of our carbon pricing scheme has been the government’s refusal to build in mechanisms for voluntary energy

Featured in: ReNew 124, July – September 2013

Page 167: Pears Report Collection

Pears Report Collection

167

as the retail power price at the time of export) or being allowed to sell excess PV power to neighbours via existing power lines for a very small charge. After all, most local PV transfers would be well within capacity limits. Alternatively, we should be allowed to run our own low-capacity cables to neighbours.

Government regulators should limit the size of socially regressive and anti-competitive quarterly fixed charges. It seems that some within the electricity industry (including some regulators) see higher fixed charges as a way of discouraging competition from distributed generation and energy efficiency.

As a matter of interest, the Victorian regulator, the Essential Services Commission, has a specific objective in its legislation to ensure the financial viability of the industries it regulates—that is, the electricity supply industry. So, by law it must oppose competition from energy efficiency and other measures that threaten the incumbent businesses. Clearly this must be changed.

Some community groups are mobilising in this space (such as Solar Citizens www.solarcitizens.org.au)—join in! S

CoAG’s evaluation of energy efficiency programs: behind closed doors

In April 2012, the Council of Australian Governments announced that national and state governments would review 74 energy efficiency and carbon reduction programs to ensure that they were ‘complementary’ to carbon pricing and compliant with CoAG’s principles for efficiency, effectiveness, equity and administrative simplicity. The results were meant to be released at the April 2013 CoAG meeting.

We have already seen some state programs cut under this process. One victim was Victoria’s Environment and Resource Efficiency Program. This required about 250 larger business energy and water users to conduct audits, prepare action plans and implement measures identified that had payback periods shorter than three years. In practice, this scheme was delivering around $90 million of savings at an average payback period of under a year: that’s better than 100 % annual return on investment, and a carbon cost well under minus $100 per tonne of CO2 avoided. Yet business cheered when the program was shut down. We live in a strange world.

CoAG did release two papers on the outcomes of the review process. The papers do not provide any information on which programs will continue, be shut down or modified. They do tell us that 61 of the 74 programs have been reviewed, and that 34 measures will continue, 15 have been discontinued and 7 rationalised. Eighteen await decisions. Interestingly, 49 measures were found to be both complementary to carbon pricing and to meet the CoAG principles. Another 18 measures have been shut down or have reached completion. An additional 88 measures have been identified for review, 50 of which are federal programs.

One of the reports states that about half of the reviews have been published, but provides no web links or other information on where these can be accessed.

This situation is most unsatisfactory. We do not know which programs are being closed or continued, nor why some measures were found to comply but have still been shut down. We are not told what the other measures already shut down are, nor what the additional 88 measures to be reviewed are.

This whole process is a serious failure of transparency. It adds to the uncertainties faced by the energy efficiency industry and potential beneficiaries from programs. Energy efficiency has a hard enough time without this kind of treatment. According to authorities such as the International Energy Agency, energy efficiency is our key carbon abatement option over the next few decades. Australia seems determined to make sure this doesn’t happen here.

PV owners stand up for your rights!Over a million Australian households are now private electricity generators—more than 10 %! Yet they get a raw deal. Now is the time to tell your local MP that you demand a fair deal.

This means prompt and competent service and billing from retailers and network operators. It means either being paid a much higher feed-in tariff (the same

Page 168: Pears Report Collection

Pears Report Collection

168

Poles and wires welfare

that consumers benefit at the full retail electricity price if they save electricity or switch to gas.

On the one hand, the rate paid to PV owners should be higher than the retail price, because this is ‘green electricity’ being fed into the grid, which is worth more. On the other hand, it is fair that the PV owner pays for use of the part of the network they actually use: that is, the very small part of the network used to deliver the PV-generated power to whoever uses it. However, this latter is very different from saying that they should be paid only the wholesale electricity price, or close to it, which assumes they use the whole network and transmission system and deserve no credit for reduced powerline losses.

In theory, such an arrangement should force networks and retailers to introduce cost-reflective tariffs. But they have enormous market power and will not do this unless they are very carefully supervised, and independent analysis is done to cross-check their pricing approaches.

To avoid cost impacts on the grid beyond the neighbourhood level, a network could choose to install local energy storage to absorb the excess PV output at appropriate times. This storage could also enhance network profits if used to store cheap electricity for sale into the grid at times of high prices. So the cost of storage to solve the PV problem could be offset by the potential for greater profits.

Who pays to cover fixed costs?The argument for higher fixed charges to cover network capital costs is also

The Productivity Commission fights against protection in all other industries—why not in electricity? asks Alan Pears.

THE 2012 Senate inquiry into electricity costs delivered a damning report on the performance of energy policy makers and regulators (see my column in ReNew 123).

Now the Productivity Commission has issued its own 820-page report. It is even more scathing.

Just about every criticism made in submissions to the Senate inquiry has been supported.

Statements include:“These flaws require a fundamental

nationally and consumer-focused package of reforms that removes the interlinked regulatory barriers to the efficiency of electricity networks. Reforms made in late-2012, including improvements to the regulatory rules, better resourcing of the regulator and greater representation of consumers, have only partly addressed these flaws.”

“Delays to reform cost consumers across the National Electricity Market (NEM) hundreds of millions of dollars.”

“There is, in effect, no point in simply fixing a punctured tyre if the car has no engine.”

I couldn’t have said it better myself…It seems to me that the commission had to take a strong stand.

There is such widespread agreement that the energy market is a mess that to make apologies would be to undermine the future of the

Productivity Commission’s broader agenda of competition and privatisation. To their credit, they have made strong recommendations with delivery dates.

Yet electricity industry welfare remainsUnderlying the commission’s thinking, there is still a deep tension between open and fair markets and an assumption that the incumbent industry must be protected so it can recover its costs. So new market entrants such as solar electricity must receive only the value the incumbent industry places on their input, and pricing structures must allow incumbents to maintain their viability. This is simply a welfare scheme of a type that the commission fights against in all other industries.

The gas industry is not paid according to what it saves the existing electricity industry when someone switches to or from gas cooking. Online media are not paid what they save the hard copy media. And so on.

A classic example of the ‘welfare’ approach is the commission’s conclusion that rooftop solar should, in the short term, be paid only what it saves on generation and, in the longer term, what it saves the networks. In the meantime, it proposes that retail electricity prices should be deregulated: a licence for the incumbent industry to use its market power to block emerging competitors.

The value of rooftop solarRooftop solar should be allowed to sell power to neighbours independent of the grid, or be paid the retail price at the time it exports, in the same way

Featured in: ReNew 125, October – December 2013

Page 169: Pears Report Collection

Pears Report Collection

169

models. I wish I could get excited about this, but the reality is that this was obvious a decade (indeed, several decades) ago.

The questions remain. Will a national scheme actually be introduced against the opposition of vested interests whose business models are falling apart along with purist economic policy designers? Will a weak target be set, creating yet another ‘boom and bust’ sustainable energy market? Will the scheme be designed to deliver real savings? Will it integrate incentives for avoiding peak demand and storing energy?

Don’t hold your breath. S

flawed. As the industry itself tells us, much of the network infrastructure is old. Logically, this should mean its capital value is heavily depreciated, so fixed costs are low for much of the grid. But the buyers of networks paid inflated prices, so their fixed costs are high. Why should consumers pay this cost?

These were business decisions: shareholders, not consumers, should pay the price of poor decisions. And governments that have chosen to inflate the value of their network assets need to take responsibility for their decisions, not solve their problem by killing energy innovation and cost reduction.

The commission needs to step back and imagine what a truly competitive energy services sector might look like, and frame its policy recommendations accordingly.

Debating (again) a national scheme for energy savingsIn recent years, several state-based schemes that create energy retailer obligations to deliver greenhouse gas abatement via end-use consumers have appeared. These include the NSW Energy Savings Incentive (based on the previous Greenhouse Gas Abatement Scheme), the Victorian Energy Efficiency Target (promoted as the Energy Saving Incentive) and South Australia’s REES. The Victorian and NSW schemes use trading mechanisms.

Debate about such schemes has a long history, which is worth considering as we debate the Federal Government’s recent report on the costs and benefits of a National Energy Savings Initiative (NESI).

In 2003, the NSW Government introduced its Greenhouse Gas Abatement Scheme—the world’s first emissions trading scheme. Abatement certificates could be created through a variety of actions, including energy efficiency.

In 2007, Democrat Senator Lyn Allison (a long-term advocate for energy efficiency) proposed a similar national scheme. This was considered by a Senate Inquiry. I made one of 17 submissions, and also presented evidence. It was very clear that many influential people in the Canberra bureaucracy and politics were strongly opposed to such an approach. In my evidence, I warned that if the Federal Government didn’t act, individual states would, and we would have to clean up the mess in the future.

The inquiry concluded that the (then) proposed Carbon Pollution Reduction Scheme would deal with this issue within a broader framework. It didn’t. So the Victorian and South Australian Governments introduced schemes in 2009.

In its conclusion, the inquiry commented that “An energy efficiency scheme set up in isolation from other climate change strategies may increase the cost of securing emissions reductions…“ It’s strange how energy efficiency has to ‘fit in’ while energy market policy is allowed to conflict with policy on climate change. In practice, the present carbon trading scheme doesn’t effectively address energy efficiency either.

The 2010 Prime Minister’s Energy Efficiency Task Group proposed a national scheme. But powerful econocrats argued that carbon pricing would make such a scheme unnecessary, while energy retailers, who would carry the obligation, were not excited by the idea of paying to undermine their profits from energy sales. So it was to be “investigated”, not implemented.

Three years later, we have a paper reporting on (very conservative) economic analysis that shows substantial net economic benefit from a national scheme based on the NSW and Victorian

o The Productivity Commission 820-page report makes strong recommendations for change but maintains its support for protection of the incumbent industry. Find the report at www.pc.gov.au/projects/inquiry/electricity/report

Page 170: Pears Report Collection

Pears Report Collection

170

Desperately seeking policy

latest estimate is that by 2035 our net oil import bill would be over $40 billion and, by 2050, over $50 billion each year (assuming $100/barrel).

Some personal experiences and their implications for policyI finally decided to replace my early-1990s fridge and old (but still comparatively efficient) TV in recent months.

The TV replacement was easy. I used the energyrating.gov.au website, then tweaked the brightness of the display to cut energy use to 25 watts for an 80 cm TV. My old 51 cm TV (by far the most efficient available when I bought it) used 55 watts.

The fridge was a different matter. I have been waiting since 2004 to buy the European A++ fridge I’d discovered being made in Turkey. I finally gave up and chose the most efficient 320-litre fridge available in Australia, rated at 300 kWh per year after finding I could not buy a similarly sized A+++ fridge made by the same manufacturer that’s available in Europe (see www.topten.eu). It is rated at 172 kWh per annum (around 210 kWh for Australian test conditions). The manufacturer’s Australian representative told me they had no plans to sell that more efficient unit (with a bigger freezer) here.

My new fridge is still quite impressive. It has a variable-speed compressor, hydrocarbon refrigerant and eutectic panels in the freezer that stabilise its temperature. But why am I condemned to waste energy because I live in Australia?

In comparing my new fridge’s performance with the old one, I have

Along with climate policy and energy market messes, a fridge purchase makes Alan Pears ask: are we condemned to waste energy because we live in Australia?

WE SEEM to be on track to shift from the well-proven ‘polluter pays’ approach to carbon emissions (and other forms of pollution) to a ‘pay the polluter’ approach, using public funds. The government will limit how much will be spent, so we may not even meet our international emissions reduction obligations, let alone our equitable share of abatement as estimated based on science.

Luckily the combination of grassroots action, technology change and the structural changes being driven by our over-valued Australian dollar is damping emissions growth to some extent. And, under international and local pressure, the government may become desperate enough to reform energy markets to promote energy efficiency and even stop its attacks on renewable energy.

There are some potential positives from the shift away from using the carbon price as the ‘silver bullet’ to fix everything. As I explained in my last column, this led to serious cuts in energy efficiency programs, failed to confront our deeply flawed electricity market and disempowered voluntary local action by households, businesses and local and state governments.

However, a carbon price is a basic

element of any effective climate response. It provides a (fairly imperfect) signal to emitters and investors, while also generating revenue to support adaptation, innovation and stronger abatement—forms of ‘direct action’.

Developing countries and energyI recently came across a very interesting paper published by the World Academy of Sciences for the Advancement of Science in Developing Countries (Sustainable Energy for Developing Countries 2008, www.twas.ictp.it/publications/twas-reports). Two points really stood out.

First, the $137 billion increase in developing country oil import costs in 2005 exceeded the value of all official aid ($84 billion) to those countries. So if we can help them to reduce oil dependence through sustainable energy strategies, we can improve their wellbeing while also reducing pressure on oil prices and cutting greenhouse gas emissions.

Second, to provide access to the 1.5 billion people currently without basic electricity services would increase global electricity consumption by only around half a percent.

Since most of these people are in rural areas, small-scale renewable energy systems and energy efficiency are the most sensible solutions. A major sustainable energy transition could transform their lives and help to reduce sustainable energy costs for the rest of humanity.

Australia could also do with a strategy to reduce oil dependence. The Bureau of Resources and Energy Economic’s

Featured in: ReNew 126, January – March 2014

Page 171: Pears Report Collection

Pears Report Collection

171

power across property boundaries, or the capacity of smart businesses to find ways of getting around such limits by, for example, moving fully charged batteries to where electricity is needed.

In low-density areas on the fringe of networks, the ‘thin pipe’ will compete with stand-alone energy solutions. In existing areas, it may not be a lot cheaper to maintain a thin-pipe solution instead of a higher capacity one. But changes such as increasing development density and depreciation of network asset values may allow network owners to develop viable business models.

Apartment buildings, offices, retail and small-to-medium industry may provide ongoing markets for network owners. But they are also potential competitors if they gain the right to sell power to neighbours.

Nothing is clear cut in today’s rapidly changing situation. S

found that its efficiency and variable-speed compressor cut my peak demand by around 100 watts. Using the Productivity Commission’s recent estimates, this saves my electricity suppliers around $30 each year in infrastructure investment. It’s saving me around $75. Since I had to buy a new fridge anyway, and I paid no more than I would have for a less efficient one, I’m avoiding CO2 emissions at a cost of minus $300/tonne!

My old fridge went off to the Phoenix Fridge recycling program, where its refrigerant CFCs can be recovered and its components recycled.

But I have reduced my utilisation of the existing electricity supply assets, depriving their owners of revenue. Should I be charged more for this? See below.

AEMC contempt for 2 million votersThe Australian Energy Markets Commission has released a new report. In the introduction, the report states: “Effective consumer participation can contribute to more efficient markets…” AEMC should check its economics text books. Informed, empowered consumers are fundamental to the efficient operation of markets. Yet after 15 years, it’s still not happening.

The report argues that owners of rooftop PV should be charged more for reducing utilisation of energy supply assets. Can it point to any other market where this happens? Do gas suppliers compensate the electricity industry when people install a gas heater to replace an electric one?

Those who install and use large air conditioners and halogen lights have benefited from large subsidies for many years, yet no action has been taken to make them pay.

The AEMC is taking on over two

million PV-owning voters on behalf of the incumbent businesses. When will our political leaders in CoAG and the Standing Committee on Energy and Resources step in to sort them out?

Will a ‘thin pipe’ approach help electricity networks to survive?The latest idea to help electricity network owners adjust to our rapidly changing technologies is to use low-capacity wires combined with distributed energy storage, generation and smart controls—instead of building capacity to supply peak demand.

This is similar to the ‘green grid’ approach that was proposed by solar identity Dale Butler at the 1993 Australian Solar Conference for fringe-of-grid electricity.

It sounded really sensible to me when I originally heard it. It still does, especially given cost reductions and technology improvements.

A typical all-electric home might use 10,000 kWh a year—if it could smooth its demand perfectly over time, it would only need supply capacity of 1.2 kW: most homes have supply cables with capacity of 10 to 20 kW. My latest calculations suggest a three-person best-practice all-electric home with all ‘mod cons’ could now use around 2000–2500 kWh per year. That’s a ‘smoothed’ demand of under 300 watts.

But is this the salvation of network owners? The answer depends on many variables. If a cluster of consumers can share back-up generation and storage, they may not need the grid at all. This back-up generation could be a small cogeneration unit, a fuel cell or output from hybrid cars.

So the challenge for network owners is to diversify their activities. Their market position will be sensitive to policy on whether non-networks can transfer

u This Samsung refrigerator (model RB31FEJNBSS) wasn’t available for Alan to buy, so he had to make do with their SR319MW model.

Page 172: Pears Report Collection

Pears Report Collection

172

Peak demand and ‘enoughness’

providing what their clients ask for, and don’t like being blamed for shortfalls.

But modern energy solutions allow us to limit expectations of the traditional electricity supply system and, instead, place some responsibility on consumers. Such expectations would need to be phased in, with issues faced by tenants and financially stressed people recognised and transitional costs addressed. Incentives and support mechanisms, not just pricing, must be used. The alternative may be a mess, as those who are active, informed and have access to capital will look after themselves while others suffer.

This should be a core focus of energy reform policy.

Energy Issues PaperIn mid-December 2013, the government released an Energy Issues Paper and called for submissions by 7 February 2014. This process is a lead-in to release of a Green Paper in May and an Energy White Paper in September.

The Issues Paper seems to be focused on a list of short- to medium-term problems that the government thinks it needs to address. As far as it goes, this is useful, although the way issues are presented seems to disproportionately reflect the views of incumbent energy organisations and some policy makers.

Hopefully the Green Paper will take a broader view. Let’s face it, when the phrase ‘climate change’ does not appear in an energy policy document, our policy makers are struggling to be credible.

And I wish energy policy people would

Why should we expect unlimited access to energy when we can take responsibility for how much energy we use? asks Alan Pears.

THE JANUARY 2014 extreme weather in southern Australia reignited debate over the role of air conditioners in driving peak demand. A few issues have emerged.

A thoughtful study by Ric Brazzale of the REC Traders Association reframed debate about how useful PV is in managing peaks. Since electricity data from the Australian Energy Market Operator (AEMO) does not include PV output, because it happens on the consumer side of the meter, Ric recreated the real demand profile by adding estimated half hourly PV output to the AEMO demand profile. This showed actual peak demand occurred earlier in the day, when PV was producing much more electricity.

This challenges the simplistic approach usually taken, of just looking at PV output at the time of the AEMO peak. Ric also pointed out that PV helped to significantly reduce average prices on peak days below those before the Black Saturday fires. Of course, reducing peaks and peak prices undermines generator and network profits, which is seen as a bad thing by the incumbents and some policy makers.

As demand-response bidding, energy efficiency and energy storage progress, summer peaks will become less of a problem—and less profitable for the electricity industry. I can only wonder how much cheaper electricity costs would have

been if the networks had invested in these solutions instead of more powerlines.

As the owner of a small high-efficiency air conditioner operating in a well-insulated and shaded room, my peak cooling load in the heatwave was around 300 watts during ‘cool down’ on arriving home, and around 125 watts at times of extreme heat. That’s much less than a plasma TV or six halogen lamps.

‘Enoughness’All this brings me to an issue raised in the 2013 book Smart Utopia? by Yolande Strengers. She asks why the electricity industry is expected to provide unlimited power supply at all times.

This piqued my interest. In industry, I have found that the engineers who provide services such as steam and refrigeration often run grossly excess plant (and waste a lot of energy) in their quest to provide as much energy as users ask for, even if the request is unreasonably high. In the 1980s, I found the electricity industry shared this culture.

There is certainly a historical reason for this: without our modern energy options (which allow us to reduce and shift demand), many activities were critically dependent on reliable electricity supply. Indeed, many activities still are, but need not be.

The political price of supply shortages has traditionally been high, as daily life, health and business activity have been affected: heads of electricity agencies can lose their jobs, politicians can lose power. Engineers have a professional pride in

Featured in: ReNew 127, April – June 2014

Page 173: Pears Report Collection

Pears Report Collection

173

UltraBattery uses supercapacitors to mediate between the battery and the load, to extend battery life and reduce losses. Research on graphene also seems likely to improve supercapacitor performance.

One example of this potential is in the installation of induction cooktops in existing homes. Most induction cooktops have ‘boost’ modes that can use over 3 kW per pot, so manufacturers can claim they heat up quicker than gas. This potentially high peak demand can require upgrading of wiring back to the circuit breakers or even back to the street. But the amounts of energy required are not particularly large, so quite small amounts of storage would make a difference. For example, to boil two litres of water on an induction cooktop consumes less than a quarter of a kilowatt-hour.

A proviso is that the benefits must be balanced against the losses in the storage system.

When you look at the fine detail, the economics of appropriately designed distributed storage solutions could be much better than many expect. S

learn to differentiate between the price of energy and the cost of delivering energy-related services. Price matters much less if you are efficient and can avoid periods of high prices. The policy focus on price distorts energy policy towards measures that increase long-term total costs and social and environmental impacts.

Standing Council on Energy and Resources delays demand management bidding, yet againA major criticism by the 2012 Senate Inquiry into the electricity industry, and by the Productivity Commission’s 2013 report into electricity networks, was the glacially slow progress on implementation of demand-side action. The Parer Review of 2002 and other studies have repeatedly highlighted the need to get the demand side of the market working. So it was very disappointing to see the ministers from states and commonwealth on the Standing Council on Energy and Resources decide at their December 2013 meeting to delay, yet again, rule changes to support implementation of a demand-response bidding scheme.

The only winners from this delay seem to be incumbent electricity generators and network owners. And some more demand management in the January heatwave would have been handy.

Sydney car tripsThe bizarre outcomes of a car-based society were reinforced for me recently by some NSW transport statistics. Apparently 22 % of all Sydney weekday car trips are to ‘serve passenger’. That is, they are unpaid chauffeuring trips, where the driver doesn’t actually want to go to the destination.

What is the cost of this planning failure in terms of time, inconvenience, congestion, parking issues, pollution, health and lack of independence? Surely

it is time that local and state governments ensured our cities supported low car-dependency living? This would be much better for the young, old, parents, disabled, carers, poor and obese.

Emerging opportunities for energy storageI wonder who will be first to actively promote an easy-to-add-on storage and smarts package for existing rooftop PV owners? This makes good business sense because hundreds of thousands of PV owning households are getting only 8 to 10 cents per kilowatt-hour for their exports, while paying 30 to 50 cents for energy in peak periods. These people are already committed to PV and frustrated with the efforts of the electricity industry and its policy makers to undermine their financial returns.

A second area for storage that I haven’t seen discussed is at the micro-level, building storage into appliances, or integrating (or plugging in) storage into local wiring within a building. This limits peak demand charges, offers potential savings on upgrading wiring and reduces wiring resistance losses in existing buildings.

Advances in supercapacitors may play a key role here. New Mazda cars use them instead of batteries for energy recovery and storage, and the CSIRO-developed

o Small-scale energy storage would make a difference in the wiring required and peak energy demanded by appliances such as induction cooktop.

Page 174: Pears Report Collection

Pears Report Collection

174

The war on renewable energy

There may be a role for local governments to take over existing grids and manage a transition to microgrids. Network operators can offer services such as maintenance, monitoring and sale of equipment to make a profit—as I suggested in my column in ReNew 123. I hope there’s a nice big cheque in the mail in recognition of my advice!

This is not news. In its 1991–92 annual report, the State Electricity Commission of Victoria pointed out that residents in rural towns cost 50 % more to supply than they paid, while rural outlying homes cost double what they paid. Most state governments have maintained these subsidies for political reasons.

The retailer sector is also undergoing rapid change. A number of community groups are serious about setting up not-for-profit energy retailing businesses. And some new business models are appearing, such as the (presently) Victoria-only PowerShop. Check out the blog on PowerShop’s website for some interesting views on the direction of energy markets.

The Productivity Commission and the Federal Government are keen to see more privatisation of the electricity industry. PV, shifting off-grid, investment in large renewable energy projects, energy efficiency and demand management all do that: so why is the government opposed to them? The government’s Green Paper is due out in May, so it will be interesting to see what position it takes.

With neighbouring Asian countries investing millions or billions of dollars in renewable energy and energy efficiency, Alan Pears reflects on Australian policy in 2014.

LIFE is certainly interesting in Australia in 2014. What is most tragic is that our leaders seem to be uninterested in having transparent, balanced processes to work things through to a consensus position that is in the interests of society.

Every inquiry or audit seems to be stacked with partisan people, and has inadequate process to allow consensus to be built. Every announcement is full of PR spin and provides little information, much of which is selected to support a particular view. This is a serious challenge for democracy. Of course, in the energy sector, we’re used to this kind of behaviour.

Science also seems to be in disrepute. We are paying a high price for the lack of scientific training of our leaders and their advisers.

I visited China recently for an APEC sustainability workshop. I was the only westerner present at the invitation-only session, which made me feel very honoured. I was given the task of explaining Australia’s renewable energy policy to the attendees: they were all completely bemused. I then had to sit and listen as they took turns telling the group about the hundreds of millions or billions of dollars they were all investing in renewable energy and energy efficiency.

Appliance efficiencyA recent report on Australia’s appliance energy efficiency program (at www.energyrating.gov.au) provided some great news, however. From a base year of 2000, the program is cutting greenhouse gas emissions by 13.5 million tonnes annually at a cost of minus $119 per tonne avoided (based on purchase and operating costs over appliance lifetime per tonne of emissions avoided). By my estimate, it is saving $3.2 billion on energy bills each year, $2.7 billion of which is saved by households. That’s around $300 per household on average. Just think, the average annual energy bill of $2000 could have been $300 higher! If we look at carbon pricing as part of a broader package, it is quite clear we can deliver a lot of abatement at zero or low cost by using a combination of policy tools.

Electricity developmentsThings are moving fast. On the one hand we have even more aggressive attempts to kill renewable energy and energy efficiency. But on the other hand, the incumbent industry is beginning to fragment and shift, as players come to accept the futility of trying to hold back the tide.

Apparently the Western Australian and Queensland governments, and the networks they own, are now subsidising fringe-of-grid consumers by more than a billion dollars a year. Two of their network operators have announced that they will help people in these areas go off-grid. It will save their governments a lot of money.

Featured in: ReNew 128, July – September 2014

Page 175: Pears Report Collection

Pears Report Collection

175

would have offset much of the claimed RET cost for consumers.

So when we look at claimed costs for the RET, we see they are small compared with the outcomes of many other decisions, some taken by governments, and others by existing industries. On this basis, the RET looks like good value for money. It is also positioning Australia for a better, more competitive future.

In any case, how many Australians outside the energy sector would see the RET over-achieving as a bad thing? For decades, surveys have shown that most Australians want an efficient, renewable energy future. Governments and the industry has chosen not to deliver what we want. This is their chance to catch up.

We must remember that change usually brings challenges, creates winners and losers, and can even create some short-term costs. But just think where we would be if the government had helped Telstra’s landline business to block the rollout of mobile phones and the internet. S

RET reviewThis review’s design is a clear declaration of war on renewable energy by government on behalf of the incumbent electricity industry. It will be very interesting to watch the attempts to manipulate economic analysis and policy objectives to fit the outcome.

I have made a submission to the Inquiry pointing out that renewable energy policy operates within a broader context, and that, when this is considered, a stable RET is a sensible and financially responsible policy—as concluded by the 2012 Climate Change Authority Review.

From the limited information available, the Emissions Reduction Fund will cost around $12 per tonne of avoided emissions. This alone justifies a RET if its net cost is under 1.2 cents per kilowatt-hour—which most agree it is. While the incumbent industry wants to shift to a (lower) target based on the actual percentage of 2020 electricity sales, keeping the existing fixed target is very important for investor certainty. The industry itself has argued strongly for a fixed target in the past, when that option suited them. They can’t have it both ways.

Indeed, the uncertainty created by this review has unnecessarily increased the cost and difficulty of meeting the 2020 target by undermining investment. That extra cost should not be counted against the RET: it is an outcome of poor policy.

A 2009 report by the Australian Academy of Technological Sciences estimated that air pollution from coal-fired power stations cost Australians 1.3 cents per kilowatt-hour. The RET reduces this cost.

The decline in electricity demand is largely due to a range of separate factors and policies implemented by government such as successful energy efficiency programs (which are saving consumers much more than any RET cost); the

high exchange rate driven by the mining boom that has made Australian industry uncompetitive; and big increases in electricity prices caused by unnecessary investment in electricity network infrastructure. So why is the RET blamed for these impacts on the incumbent electricity industry?

The electricity industry is supposed to be a competitive market. The incumbent industry can choose to invest in renewable energy and other emerging technologies to make profits from the RET—as they have done in the past, and WA and Qld network operators seem poised to do. They can even write off losses from existing infrastructure against profits from new activities.

The present high electricity costs are outcomes of their decisions. Independent consultant Bruce Mountain estimates that networks need not have spent about $20 billion of the $40 billion invested over the past few years. If they had saved this money, electricity prices would be at least a cent per kilowatt-hour cheaper: this

o In contrast to the ‘war on renewable energy’ in Australia, China is planning to install 14 GW of solar this year. This building is in one of the Chinese eco-cities currently under development, as described in ReNew 127.

Page 176: Pears Report Collection

Pears Report Collection

176

Future global energy giants

fuel energy policy advisers have underestimated the significance of these benefits and overestimated the amount of energy needed in predicting export demand for their products. So they are repeatedly surprised as their profits decline.

Future global energy giantsIt’s easy to get bogged down in the short-term battles for success in both climate change policy and our rapidly changing, cut-throat energy markets. But it is interesting to take a broader view.

We need to remember that energy is a ‘derived need’. That is, what we actually want are services, rather than energy. Receiving those services may involve consumption of more or less energy of different forms at different times, depending on technologies and behaviour. So the amount of energy we actually need can be very different from, and much less than, what we now use.

Businesses that help avoid the need for energyBusinesses that sell high-efficiency, smart, flexible ways to provide services linked to energy will be winners. That’s appliance and equipment manufacturers, retailers and installers, builders, building product suppliers, financiers, internet-based businesses and specialist advisers who can market attractive packages. This could include smart systems that manage energy use to match availability, minimise costs and work with storage and onsite renewable energy. Integrating their energy-related offerings with other non-energy services will amplify opportunities. Finance schemes, home performance monitoring, maintenance contracts and

Alan Pears considers the interesting future for energy providers and energy efficiency in Australia, and globally.

ENERGY and climate policy are certainly entertaining at present. The dominance of crude politics over reality continues.

Australia becomes a world leader at being a climate laggard by dumping its carbon price. Electricity companies apply further restrictions and charges to rooftop PV (but not to air conditioner owners). Governments use shonky economic analysis to justify dumping carbon pricing, the Energy Efficiency Opportunities program, Victorian Energy Efficiency Target and, possibly, the Renewable Energy Target. And the PUPs gambol.

Meanwhile, electricity consumption continues to decline, gas prices accelerate upwards, global coal prices continue to fall and it looks as though we may have a record hot year globally. Then, Senator Ricky Muir turns out to be a renewable energy enthusiast: maybe when camping he uses renewable energy? Or perhaps he’s just an ‘ordinary Australian’: most of us support renewable energy.

Is it time for energy efficiency to shine?President Obama and PM Abbott have apparently agreed that the November G20 meeting in Brisbane will discuss energy efficiency as a proxy for climate policy. There are also whispers around Canberra that ‘energy productivity’ (more economic output per unit of energy consumed) is gaining support.

The International Energy Agency has declared energy efficiency to be the biggest ‘source’ of energy for OECD

countries. IEA also sees energy efficiency as the biggest and lowest cost contributor to climate response.

So maybe the signs are looking good—at last. It would be really nice to stop bashing my head on brick walls after 35 years!

But I’ll believe it when I see it. Unfortunately, many policy makers still believe that since energy efficiency is often cost-effective, the market will just adopt it, maybe with a bit of extra information. But it’s not that simple, and most effective energy efficiency policies involve measures that are unpopular with deregulatory, ‘small government’ thinking and powerful vested interests.

Why are developing countries shifting away from fossil fuels?Fossil fuels create problems for developing countries, including China, despite the development benefits they bring. A US Agriculture Department study estimated that the $137 billion increase in oil import costs for developing countries in 2005 exceeded the official aid ($84 billion) they received.

Many governments subsidise energy, adding to budget pressures. Then there’s the indoor and outdoor air pollution, health impacts, fuel spills, inequity, fuel theft and more.

Governments are realising that improving energy efficiency, renewable energy and distributed energy systems can help solve all these problems. Shifting to efficient renewables (e.g. LED lighting powered by solar) reduces energy costs, improves quality of services, cuts the need for fossil fuel subsidies and reduces import bills. And it also happens to cut their greenhouse gas emissions.

Australian Government and fossil

Featured in: ReNew 129, October – December 2014

Page 177: Pears Report Collection

Pears Report Collection

177

existing expertise and large amounts of capital are well positioned, as they can leverage these to gain market share in emerging markets. Countries with large renewable energy and mineral resources (both recovered and virgin) and whose governments support their development could also benefit—if they can capture a fair share of the returns from their exploitation. Australia’s solar resources offer opportunities: as Ross Garnaut has suggested, we could become a sustainable energy powerhouse by utilising our enormous renewable energy resources.

Countries and businesses that can produce forms of renewable energy suited to export and storage, and businesses that can link these to existing and new energy-consuming equipment that delivers valued services, will be well positioned.

Supply chains that can deliver sustainable transport solutions, in particular, will grow. Electric vehicles (including public transport and low-speed vehicles) will benefit from improving battery technologies and expanded renewable electricity generation. Technologies that use heat or electricity to produce renewable liquid or gaseous fuels for export and that are usable by existing vehicles will be of increasing interest. Oil-producing countries may be able to use their existing cashflow to fund such developments to maintain their market position in a zero-emissions world.

Just as discovery of oil and gas in Bass Strait and the North West Shelf transformed Australia’s energy prospects and industrial development, the new renewable energy revolution will create surprises. Countries traditionally seen as importers of energy, such as Japan, could become energy giants, and threaten existing major energy suppliers.

There’s a message here for Australia, as we could be a big winner in the global race towards an energy-efficient, renewable energy future. But it would mean cannibalising our existing energy industries, a bit like the situation Kodak faced when it developed digital photography. Kodak lacked the courage to embrace the future. Will we? S

optimised insurance packages are just a few possibilities.

Solution providersBusinesses that combine distributed energy, energy storage, energy efficiency and smart management are also looking good, especially in developing countries and at fringe-of-grid in developed countries.

Many niche markets are actually quite big. For example, many developing country electricity grids suffer frequent blackouts that impact on business productivity and quality of life. Many now use small petrol and diesel generators to cope, but this is expensive, dangerous, noisy and polluting. Energy-efficient equipment combined with storage, onsite low-emission electricity generation and grid-interactive capabilities can solve these problems.

Even larger markets will become available as our electricity industry shifts to time-of-use pricing or other pricing options, and all consumers, not just those with solar, see stronger signals to manage the amount and timing of energy use. For example, in NSW, afternoon to evening time-of-use prices are now over 50 cents per kilowatt-hour—a strong incentive to reduce usage from the grid at those times. And, if adopted, ‘capacity charges’ (which involve charging consumers for the peak supply capacity they use instead of the amount of electricity they consume) will drive more rapid adoption of storage and smarts to limit peak demand at a consumer level and avoid high costs.

Energy suppliers to energy-intensive industriesAt the other end of the scale we have energy-intensive industries that are global in scale: miners, mineral processors, metal processors, chemical companies and large-scale manufacturers and their like. Traditionally, they have sought large amounts of cheap and reliable energy.

But their world is changing. ‘Ores’ from landfill sites, wastes and replacement of existing building and equipment stock provide an increasing resource that can be more concentrated than that from traditional mining. For example, one tonne of old mobile phones contains 400 grams of gold, 80 times as much as is present in a tonne of typical gold ore (www.ict-footprint.com/whats-new).

3D printing, biomimicry, green chemistry, dematerialisation, material switching and other changes are also transforming the fundamentals of energy-intensive industries. 3D printing supports decentralised manufacturing and involves building up a product, instead of wasteful machining; green chemistry allows new materials to be created that are stronger, lighter, more effective or improve process efficiency; and dematerialisation uses less (or no) material to deliver a given service.

So it’s not at all clear how much energy these industries will actually need in the future, but it will be a lot less than conventional analysts predict.

Nevertheless, the bulk energy supply sector will still have a big market. But what forms of energy will it supply?

There are synergies between the oil industry’s drilling expertise and countries with large geothermal energy resources: sophisticated drilling capabilities are critical. The Pacific ‘ring of fire’ countries and others near boundaries of tectonic plates seem well positioned to access enormous amounts of reliable energy. The Philippines has been developing geothermal technologies since the 1970s, while Iceland has already attracted energy-intensive industries to use its geothermal and hydro energy resources.

Companies that can mobilise and adapt

o Ring of Fire countries

Page 178: Pears Report Collection

Pears Report Collection

178

The end, not beginning, of an era

energy solutions can deliver practical, lowest cost solutions.

While Australian governments and the energy industry wallow in denial, the International Energy Agency, World Bank and numerous leading economists have joined climate scientists and the sustainable energy industry to support this transformation and proclaim that it is practical.

As former Saudi oil sheikh Ahmed Zaki Yamani said in the 1970s (www.bit.ly/NYT-AZY), ‘the stone age didn’t finish for lack of stone’. We have now moved beyond fossil fuels, although we can acknowledge that they have provided a useful technological base on which we are building our sustainable energy future. The shift away from fossil fuels is reflected in the industry’s increasing difficulty in accessing capital.

Why do new energy-efficient houses need cooling?Last year, CSIRO’s field evaluation of 5 Star homes reported some interesting findings. One big issue was a widespread lack of compliance, due to near-total failure of enforcement by governments and local councils. Another important finding was that, although the efficient homes had much lower heating energy use, their cooling energy use was not lower. The reasons for this outcome are complex, but it’s time we addressed them.

One reason may be that the default settings for cooling use in the NatHERS calculator seem to underestimate cooling. The thermostat temperatures and user behaviour patterns were set many years ago, based on quite limited information. Research has shown people typically use

Alan Pears explains why coal seam gas is not the answer and, when it comes to energy-efficient homes, why the cooling side of the equation needs some attention.

COAL seam gas (CSG) has been widely promoted as a game changer that will drive a gas boom. It’s not. It’s a desperate attempt to prop up the fossil-fuel era. It is also a conflict between the established energy industry (backed by governments) and just about everyone else, including state governments desperate to win votes.

However, the predictable failure of CSG will shift the balance in favour of sustainable energy: efficient, smart, renewable, distributed energy-service solutions.

The gas industry and the Federal Government are throwing everything at supporting CSG. Even the east coast ‘gas crisis’, caused by companies building natural gas plants in Queensland without locking in their gas supplies, has been used to try to justify more CSG development.

The reality of CSGThe CSG reality is that very large numbers of gas wells must be drilled and networks of pipelines built, conflicting with tourism and agriculture, placing underground water resources at risk, exposing people, animals and plants to toxic chemicals, and potentially leaking methane, a very active greenhouse gas.

In addition, the wells don’t produce gas for very long, and they must then be

managed for an unknown period to limit impacts on the local environment and underground water resources. And it’s not cheap gas: in fact, high international prices are needed for it to be profitable.

The gas industry has blamed ‘cowboy’ operators for problems. But how do they respond when a responsible operator like AGL is found to have methane leaks from nearly a tenth of its CSG wells in NSW? (www.bit.ly/SMHCSG)

The NSW Chief Scientist has published a thorough report on CSG. While she finds it is possible to manage CSG responsibly, she spends quite a bit of her 24-page report outlining the difficulties in ensuring strong regulation and enforcement, funding to deal with problems during and after production from wells, and strong governance mechanisms.

It seems obvious that these requirements cannot be met by any Australian Government. Voters know that no present government can lock in comprehensive environmental regulation and enforcement to ensure future governments manage derelict wells for decades or longer. We simply do not have the governance capacity to properly manage the long-term impacts of CSG.

CSG is more trouble than it’s worth. We have wasted too much time failing to address climate change to be able to enjoy the luxury of using fossil gas, especially leaky CSG, as a transition energy source. The global carbon budget is just too tight.

Moving onAt the same time, technology development, economies of scale and emerging creative financing solutions mean that efficient, smart renewable

Featured in: ReNew 130, January – March 2015

Page 179: Pears Report Collection

Pears Report Collection

179

cooling costs. Improved building quality and user education are needed.

Of course, this does not mean that 5 or 6 Star homes are a bad idea. If they are built properly and well managed, their peak cooling energy requirements are small, and hourly cooling cost is low, especially when combined with a high efficiency (5 to 7 Star) air conditioner.

We need to further strengthen regulations and enforcement, sort out the under-emphasis on summer performance in the rating scheme and educate home operators. We should also take advantage of the feature in rating tools that allows an energy rater to look at performance of each room or zone during weeks of hot and cold weather. Then designers could identify and address problem rooms.

Also, summer is the time when a typical rooftop PV owner may have excess free electricity. Using some of this for cooling to be comfortable (especially once we get batteries to store daytime generation for evening cooling) need not create load problems for the grid. S

lower thermostat settings (see www.bit.ly/SETSACER). A 2008 South Australian study proposed changes, but these have not yet been formally regulated.

When estimated cooling energy is too low, it has little impact on the energy rating. In climates that require both heating and cooling, designers are more likely to focus on building features that reduce heating.

This under-emphasis on hot weather performance in the energy rating scheme means features like dark-coloured roofs and absence of eaves have unrealistically low impact on rated summer performance. In cooler climates, the overall annual outcome can even improve the Star rating, as benefits from more winter solar gain outweigh worse summer comfort!

The energy rating is also averaged over the whole building. So some rooms may perform poorly without adversely affecting the overall energy rating. And the rating is for total annual heating and cooling. Separate heating and cooling ratings would ensure the home performs adequately all year.

The nature of modern building designs is having its impact, too. The upper storey of a two-storey house has no links to the stable temperature of the ground, and is exposed to higher solar radiation. If glazing is not very carefully designed and managed, it becomes a ‘solar oven’—although the amount of energy required to cool it is not very large if it is well insulated.

More broadly, we need to realise that a high thermal performance home (with good insulation, draught proofing and well-designed glazing) requires very little additional heat to

raise its internal temperature above the outdoor temperature—in both winter and summer. Extra internal mass or phase-change materials can help to stabilise the temperature, but climate change is increasing overnight summer temperatures and the duration of hot spells, so thermal mass is becoming less effective.

Careful design is increasingly important, especially glazing and adjustable shading, so that summer sun can be screened out.

Air leakage and poor management of ventilation is another culprit. When an exhaust fan or rangehood is running in hot weather, it is actually bringing in a lot of hot outdoor air—equivalent to a cooling load of 2 kW or so. On a hot windy day, having a window on one side of a house open, even a little, can combine with exhaust fans, fixed ventilation in a laundry or another open window on the opposite side or upstairs to create heat input of up to 5 kW. So, leaky open-plan homes with doors to permanently vented laundries and bathrooms left open can have high

o Showing the extent of a coal seam gas development; this one in Chinchilla, Queensland.

Imag

e: M

ax P

hilli

ps; h

ttp:

//bit.

ly/2

c2LL

JB

Page 180: Pears Report Collection

Pears Report eCollection

180

Electricity industry potential

and administrative costs for the small consumers in these sectors.

Despite several hours of searching, I couldn’t find out how much industry pays for electricity and gas—from publicly available information (!)—so these numbers are rough. But it seems that a profitable electricity business needs to focus on retail customers (residential and business), not big industry.

The potential profit margins, and the number of places in the supply chain where margins can be added, are greater for retail customers. In contrast, big industry is quite capable of negotiating low electricity prices—or even subsidies.

Opportunities—and risksThere are both big opportunities and risks for the electricity industry in this complex retail space on the consumer side of the meter.

Businesses selling onsite energy efficiency improvement, generation and storage to retail customers compete against high electricity prices—unless the electricity retailers can fool regulators into allowing them to charge high fixed fees… So, it’s not surprising that PV businesses have targeted residential and, increasingly, commercial customers. It’s also not surprising that attractive financing packages and buyer-friendly installations are important.

Broader issues such as what services customers really want, trust in providers, packaging of overall deals and social and environmental impacts of options will increasingly influence decisions that drive electricity demand.

The electricity sector is broadening, with yet more complexity in store. Alan Pears examines the opportunities and risks.

OUR definition of the electricity sector has broadened in recent years, but it will become even more complicated. If we step back and look at the fundamentals, we can see why. As I’ve noted before, people (and businesses) don’t want energy (or electricity)—they want energy-related services, such as lighting, cooking, heating, clothes washing and internet.

The overall costs of an electricity-related service are comprised of both supply-side and consumer-side costs. These include:

• supply-side costs of the electricity used, reflected in the retail price and fixed charges for the electricity

• consumer-side costs of electricity supply infrastructure, such as wiring, onsite generation, storage and electricity management systems

• consumer-side costs to purchase and install energy-consuming equipment

• ongoing consumer-side costs of maintenance and ‘consumables’, such as provision of cable TV and internet services, repairs, detergent, etc.

Estimating the consumer-side costsSince no one else seems to have attempted to estimate the costs on the consumer side of the meter, here’s a try.

The 2010 ABS survey of household expenditure on goods and services shows average weekly household energy bills

were then $32.52 (more like $40 to $50 now). But the weekly average purchase and non-energy-related operating costs of appliances, IT and AV equipment, internet and phone amounted to $93.26. Of this, $36.78 covered appliance purchases and $44.97 covered the payments to providers for internet, pay TV and phone usage.

So, in 2010, direct energy costs comprised only about a quarter of the total household cost of providing energy-related services (excluding spending on building features such as insulation, house design and draught proofing, but still including heating and cooling appliances and running costs).

We should also keep in mind that each appliance purchase locks in energy use for a decade or more; $1000 spent on a new fridge can lock in $1000 of energy waste over 15 years if you choose ‘worst on market’ instead of best.

The big money for businesses and the big savings for consumers are not in supplying energy, but rather in the provision of smart, energy-efficient and renewable energy appliances, equipment and associated services on the consumer side of the meter.

More profit in retail electricityBased on the Bureau of Resources and Energy Economic’s 2011–12 energy data and my best guesses at electricity prices for each sector, residential consumers provide 43 % of electricity revenue, but use only 28 % of the electricity. Business retail electricity consumers pay around 45 % of total electricity costs while using around 35 % of total electricity. This reflects the high network usage

Featured in: ReNew 131, April – June 2015

Page 181: Pears Report Collection

Pears Report Collection

181

from economic development. And, with asset values of fossil fuel producers and traditional energy utilities crashing, their problems will grow as investors shift their money to safer options. Already, those who have not yet divested from fossil fuels have lost a lot of money.

Existing Australian policies and regulatory requirements, despite being fairly weak by world standards and poorly enforced, are driving step changes in new building and appliance efficiency. Product manufacturers (mainly from overseas) are providing more efficient products because of global demand. And business must respond to higher electricity and gas prices by improving energy efficiency.

So, no government can provide policy certainty in energy. At the same time, declining demand (due partly to energy efficiency improvement) and increasing support for renewables at many levels, means excess supply capacity will remain unless incumbent energy businesses close down a lot of existing obsolescent or high-production-cost plants. And if this happens, governments will face criticism for allowing it, given that it will likely increase consumer energy prices!

Meanwhile, the Australian Government and its policy makers are preparing our next Energy White Paper. The Green Paper, published in late-2014, provides little basis for this policy document, as most of it was simply irrelevant to the fundamentals of the situation (see my submission at www.ewp.industry.gov.au). Of course, official government energy policy is usually out of touch: its main aim seems to be to support ongoing economic growth (based on past directions) and reassure incumbent industries and their investors. So it will be interesting to see what the White Paper actually says, and what government actually does.

I don’t know of anyone who can predict where this will lead. But it is a risky time for owners of large fossil fuel assets and investors in any large energy project that takes five years or more to implement. So, my money is on modular and smart solutions that can generate cash flow quickly, through incremental rollout. S

Potential for the appliance and building industriesMany markets, including appliances, building, property, installation, insurance, IT and telecommunications, will influence the future of our electricity sector, as much as or potentially more than the energy industry itself. Players in these markets understand customers better and can move very fast. They are bigger and more powerful than the energy industry. But, at present, they are fragmented.

Once the appliance industry focuses on energy issues, they will see many opportunities. For example, adding built-in micro-storage and smart controls to an induction cooktop, dishwasher, oven or air conditioner cuts installation costs by avoiding the need to upgrade wiring capacity within a house and/or offers better quality services. This ‘added value’ will offset the extra cost—and help cut peak demand costs. Indeed, such micro-storage may also help overall household management of electricity.

There is potential for an appliance manufacturer to partner with a major builder and renewable energy business to offer a house full of high-efficiency new appliances, ‘smarts’ and PV system for ‘free’ (actually paid off via your mortgage) in a new home package. Some banks could even offer a discounted interest rate for such a home.

The appliance manufacturer would gain an ongoing relationship with a household to leverage future sales and get valuable

feedback on appliance performance, reliability and user behaviour. The builder would save on wiring and gas plumbing costs, while offering home buyers a very attractive package. This model could easily roll out to low-income households.

Meanwhile, the traditional energy sector, protected by outdated policy frameworks, looks at the supply side of the meter, where scope for profit and customer benefit is much smaller.

Where to on energy policy?State and local governments, reflecting what I call ‘competitive democracy’ are filling the vacuum created by bizarre national government policies, by supporting renewable energy projects and, in some cases, energy efficiency, as they seek electoral popularity. In some cases, concern about climate change even drives policy!

Global factors are driving closure of Australian energy-intensive industries that are too small to compete globally or rely on outdated technologies. Indeed, free trade agreements and other government policies are making this problem even worse for energy suppliers by driving industry closures.

Global oil, coal and gas prices have fallen—driven by a complex combination of excess (but high-cost) supply and lower-than-expected demand. It seems that many economies really are decoupling energy growth (and greenhouse gas emissions)

o The big opportunities for appliance manufacturers are in value-adding to their products, such as built-in micro-storage in induction cooktops. This could cut installation costs by avoiding the need to upgrade wiring capacity and potentially also cut peak demand.

Page 182: Pears Report Collection

Pears Report Collection

182

The policy bizarre

Paper submission is at www.ewp.industry.gov.au; the White Paper does not change the relevance of my comments on the Green Paper. My submission on Australia’s 2020 emissions targets is at www.dpmc.gov.au/taskforces/unfccc and my submission on the national carbon offsets standard is at www.environment.gov.au/climate-change/carbon-neutral/ncos/review

At least there do seem to be some signs that progressive state governments are beginning to move to fill the vacuum created by our truly remarkable national government.

Reframing appliance energy efficiencyTo date, Australian appliance energy efficiency policy has focused on new appliances and, within that, on information (via labels) and mandatory minimum performance standards. Despite extremely limited resources, lack of high-level political support and white-anting by anti-regulatory econocrats, this has been a fairly successful approach. As I pointed out last year (www.theconversation.com/energy-smart-appliances-cut-australian-power-bills-by-billions-25816), a typical Australian household is saving around $300 on annual energy bills and the overall cost has been minus $119/tonne of CO2 avoided. Not bad value!

But we can do a lot better. Here’s my recipe for success.

First we need to sharpen and broaden our approach to new appliances. We need simplified labels on a wider range of products such as lamps and fans. Instead of the present label, these would carry simplified Star ratings only, but also carry a QR scan code, so a smartphone user can access background information. For

Is Australian energy and climate policy beyond rational discussion? Alan Pears reviews recent developments and presents his recipe to improve the effectiveness of appliance Star ratings.

I CAN’T write this column without discussing the ongoing debacle that is Australian energy and climate policy, although I would much prefer to ignore it.

The Energy White Paper (EWP) has been published (www.ewp.industry.gov.au). It was as awful as I predicted. Anyone who relies on it for business planning will likely lose a lot of money. It is completely out of touch with reality: its focus is on growing fossil fuel exports, ongoing privatisation and outdated approaches to reform of electricity and gas supply.

One potentially significant element of the EWP was the proposal to develop an Energy Productivity Plan. In principle this is a very good idea, as it could drive energy efficiency and improve cost-effectiveness of energy utilisation. But don’t hold your breath. There is no timeframe, no clear institutional framework, nor any firm resource allocation. And the kinds of policy measures needed to implement such a plan are anathema to our present Australian Government and the powerful interest groups that dominate energy policy.

We have also had a consultation on the National Carbon Offsets Standard. This is not exactly riveting stuff for most people, but it is very important. It sets the rules on how businesses (and their

products) and households can be certified as being ‘carbon neutral’. Unfortunately, the consultation paper forgot to discuss GreenPower, while it focused, instead, on the fine print of the fundamentals. It did not confront the issue of how to ensure voluntary abatement action be treated so that it is ‘additional’ to other abatement action.

From a narrow carbon accounting perspective, almost all Australian voluntary abatement action, including installing rooftop PV, energy efficiency improvement and buying GreenPower, does not reduce Australia’s greenhouse gas emissions. It simply makes it easier for the government to meet its weak target and leaves more room under the target for others to emit more. This is, to put it mildly, disempowering!

We’ve also seen the first auction under the Emissions Reduction Fund. The average price polluters were paid to offset emissions was $13.95/tonne. However, few of the funded measures will deliver direct abatement through reducing emissions. Most involve storing carbon or not clearing land. And a fair proportion of this won’t occur before 2020. An unknown amount of it is just a continuation of activities that were already being supported under the previous government’s Carbon Farming Initiative. Environment Minister Hunt continued to use creative economic analysis to suggest this was cheaper and more effective than carbon pricing.

Australian energy and climate policy is just so bizarre that it is beyond rational discussion, I’m afraid. If you want my more detailed views on all this, my submissions are available at the relevant government websites. My Energy Green

Featured in: ReNew 132, July – September 2015

Page 183: Pears Report Collection

Pears Report Collection

183

have little incentive to do this.Lastly, we need to be thinking in life

cycle terms. Apple, for example, includes full life cycle analyses of all their products on their website. For efficient products such as iPads, embodied emissions comprise over half of life cycle impacts. Operating energy use is only 15 %.

More broadly, one Australian study suggested that effective recovery and recycling of waste materials, particularly metals, would cut Australian greenhouse gas emissions by over 5 %. And the concentration of valuable rare metals and other materials in wastes can be tens of times higher than in ores we now mine. Failure to capture and use these valuable resources and energy savings is just dumb.

But when neo-classical economic theory and powerful incumbent groups drive policy, it’s not surprising that we end up with dumb policies. S

products with relatively low energy usage, it can be difficult to justify a ‘proper’ energy label. But a rating that’s simply printed on packaging has minimal cost. This approach could also be applied to many products like digital photo displays: Choice found that the worst of these were serious energy wasters, but no one knows which are the good ones.

We also need to incorporate automated diagnostic monitoring into new appliances, so they tell us if they are not working properly. This is not hard for modern products that include sophisticated monitoring and computing capabilities. One example that does this is the Siddons Bolt-on heat pump hot water service.

We need to sort out the consistency of messaging via labels. A 4 Star fridge is very efficient, while the best TV or air conditioner is 7 Stars. Our 6 Star homes would be illegal in many countries. No wonder people are confused. And lack of effective promotion of what labels mean allows confusion to be misused by salespeople. For example, a home salesperson might tell potential buyers that a house is 6 Stars, so they don’t need to think any more about energy efficiency. Unfortunately that’s not the case.

Our mandatory performance standards are generally weak, as shown by the wide range of Star ratings of products on the market. We could adopt stronger approaches. For example, the Japanese ‘top runner’ program requires all products to be at least as efficient as today’s best performer within a few years. Or we could just say that anything using more than twice as much energy as ‘best on market’ is illegal!

We need to look beyond new products. Many people buy secondhand products, but there is no information on their energy performance. As a basic step, requiring energy labelling consumption data to be included on appliance specification plates

seems obvious. At least the secondhand retailer or enthusiastic buyer could gain access to the information. We could go further and require all registered secondhand sales agents to place clear information on energy use on appliances they sell—using the information on the specification plate as a source.

We also need to remove old, inefficient equipment from the stock. Old, often faulty fridges can use up to eight times as much energy as modern equivalent products. Many industrial boilers are up to 50 years old, and appallingly inefficient. Replacing (and recycling the materials from) these items would deliver big environmental and economic benefits, while cutting consumer energy costs. But we need to be able to identify such disasters. This can be done by analysing energy usage data, but it will require some effort by governments and energy companies. At present, energy suppliers

g The graph illustrates the difference in energy use for reverse-cycle air conditioners in cooling mode for 1.5 Star to 7 Star appliances (for single-phase units under 3.6 kilowatt input). EER=energy efficiency ratio: units of cooling per unit of electricity used. An EER of 3 is 1.5 Stars, each increase of +0.5 in EER earns an extra Star.

Recycling 1% Transport 4%

Customer use 15%

Production 80%

o Power consumption of an iPad Air 2 and, left, life cycle emissions covering transport, use, production and recycling. Source: apple.com

Mode 230 V

Sleep 0.26 W

Idle—display on 3.21 W

Power adapter, no load 0.09 W

Power adapter efficiency 80 %

0

1

2

3

4

5

6

0 2 4 6 8 10 12 14

Annu

al c

oolin

g ef

ficie

ncy

EER

Maximum cooling output kilowatts

7 Star a/c 2.5 kW output, max running cost 11 cents/hour

1.5 Star a/c 2.7 kW output, max running cost 22 cents/hour

1.5 Star a/c 7.1 kW output, max running cost 60 cents/hour

4.5 Star a/c 7 kW output, max running cost 39 cents/hour

HINTS: • Clean the a/c filter regularly so the fan works properly • If you run a ceiling fan with the a/c you can set the thermostat temperature 2-3°C

higher and save 20% • Protect the outdoor a/c unit from direct sun and make sure it is well ventilated

1.5 Stars

3.5 Stars

5.5 Stars

Page 184: Pears Report Collection

Pears Report Collection

184

Changing states

money; in fact, it may have increased costs to taxpayers. Under Labor, the assistance was funded by revenue from the carbon price. It must still be funded, but now through consolidated revenue, gained from taxes or borrowings eventually repaid by taxpayers, or offset by reduced services. On top of this cost, we must also pay for ‘direct action’. Simple slogans can be very misleading.

The good news is that the cost of managing climate is proving to be far lower than expected: many measures, such as energy efficiency and some renewables, are even profitable. The polarised politics of ‘carbon taxes’ and ‘direct action’ is dumb and distracting. We need both a price on carbon emissions and also direct action, along with other measures.

Empowering people to cut emissionsI and others from the Voluntary Carbon Markets Association spent a lot of time trying to get Labor to modify its carbon trading model to empower individuals, business, and local and state governments to cut emissions. Our basic concept was that all voluntary abatement should be matched by the government cancelling Kyoto permits (allocated by the UN based on our national target). This would ensure our efforts were recognised as globally ‘additional’ abatement beyond government-driven measures.

For example, if Australia has a target of 500 million tonnes (Mt) of emissions in a given period and households are expected to emit 60 Mt, this means other emitters are able to emit 440 Mt (440+60=500 Mt). But if households (or some other group)

Alan Pears looks at the rapid changes in electricity policy, provides some practical perspectives on carbon pricing and discusses some good news about the national appliance energy efficiency program.

WE ARE seeing some interesting developments in clean energy at the state level as the states (predictably) move to fill the hole left by the national government.

Victoria has announced it is developing an Energy Efficiency and Productivity Strategy, to be released this year. It has also announced development of its Renewable Energy Roadmap intended to re-establish Victoria as a “global renewable energy leader”. In Western Australia, former head of the Institute of Public Affairs (a conservative lobby group), now Energy Minister and Treasurer, Mike Nahan has flagged a central role for solar. Meanwhile, the ACT and South Australia continue to lead the pack.

In contrast, the electricity industry continues its struggle to come to terms with the significance of energy efficiency and demand-side management. The Australian Energy Margket Operator (AEMO) has just released its latest Statement of Opportunities (SOO). It predicts higher consumption and peak demand than previously, reflecting stabilising prices, loss of momentum in energy efficiency policy and slower PV growth—with no discussion of the importance of actively driving demand management harder to avoid this. Its low-demand scenario suggests planned

generation is adequate to beyond the next decade, while its medium scenario requires investment to provide 5780 MWh of additional supply over the next decade, 3.2 % higher than 2014–15 consumption. AEMO does, however, flag that next year’s SOO will include analysis of demand management. That could dramatically change the outlook.

Energy companies continue to lobby for the right to apply anti-clean energy measures such as high fixed charges and low feed-in prices, while moving into the solar PV market!

The Energy Networks Association published a paper in August proposing a range of options, including grid connection fees, network exit fees, payment for grid access and payment for risk of stranded assets. It continues to assume that network operators are entitled to make a profit and that their shareholders should be protected from losses. The age of entitlement continues.

Carbon pricingWe need some practical perspectives on carbon pricing. Although I wouldn’t call a carbon price the ‘centrepiece’ of climate policy—as Labor has claimed in the past—it is important because it sends a signal to change, particularly to investors. And the revenue a carbon price raises can fund other abatement action. To cut emissions we now face a choice between ‘polluter pays’ (pricing emissions) and ‘taxpayers pay the polluter’ (the Emissions Reduction Fund).

By removing Labor’s carbon price, but leaving in place assistance measures, this government has not saved Australians any

Featured in: ReNew 133, October – December 2015

Page 185: Pears Report Collection

Pears Report Collection

185

including the requirement that any additional regulations be offset by reductions in related areas. And undoubtedly the Office of Best Practice Regulation will continue to do its best to delay and block new Mandatory Energy Performance Standards, which it opposes on ideological (neo-classical economic) grounds.

State energy policiesI’ve recently been spending some time in South Australia and the ACT. This has led me to ask what makes them so different in their approach to sustainable energy? Could it be that the lack of powerful coal and resources industries makes it easier for them to be more progressive?

It will also be interesting to see how the Victorian Government responds to a scathing study by the Brotherhood of St Laurence that shows the state’s retail electricity market model is a disaster. It delivers remarkably high profit margins for retailers, while many disadvantaged people pay the highest prices. This is the model lauded by many in the electricity industry as the template other states should use! S

voluntarily cut their emissions by an extra 10 Mt in that year down to 50 Mt, the government should cancel 10 Mt of permits. The target would then effectively be 490 Mt so other emitters still have a target of 440 M t (440+50=490 Mt). If the government doesn’t cancel permits, other emitters would now be able to emit 450 Mt and Australia would still meet its 500 Mt target (450+50=500 Mt). So those other emitters would be ‘free riding’ on the voluntary efforts of households. And from a global perspective, Australia’s emissions would not be reduced below the 500 Mt it was originally allowed to emit; the planet would not see a reduction in emissions as a result of the efforts of households and their efforts would not lead to additional abatement beyond what the Australian government has previously agreed to.

After a carbon price was introduced, conservative state governments justified cutting abatement action with the excuse that their actions would not be additional to national action—so there was no point in a state having its own climate target or actively pursuing emissions reduction. We had warned the national Labor government, but they did not want to hear: the arrogance of policy makers swamped our efforts.

Recently, one of the emissions trading scheme (ETS) architects, Martin Parkinson, gave a speech (reported by Gareth Hutchens, The Age 30/6/15) in which he acknowledged that they had failed to engage and empower the community. Hutchens wrote:

“[He] never gave enough weight to the fact, when designing the trading scheme, that voters wanted to feel they were making a contribution to emissions reductions, and emissions trading systems do not provide them with that feeling because they are too abstract. ‘We got so hung up on the [idea that] we’ve got this really big problem that we have to deal with, and we’ve got to do it at least cost to

the economy, so we delivered a least-cost way of doing it,’ he said.”

The situation is even worse now. The present government is using our money to pay polluters to cut emissions (including subsidising things they were already doing). And abatement actions that households, businesses, and local and state governments take which fall outside the Emissions Reduction Fund (like installing rooftop solar or saving energy) allow the government to use our investments to make it easier to meet its weak and globally irresponsible abatement targets.

Positive news for energy efficiencyThe Council of Australian Governments (CoAG) has announced that the national appliance efficiency program (GEMS) has survived a review, and will even be expanded because it is so cost effective. This is a relief for the many who were concerned that this review was yet another government attempt to undermine progress in clean energy. The Alternative Technology Association (ReNew’s publisher) played a key role by making a comprehensive submission.

The program faces other hurdles,

o Pricing carbon pushes energy generation towards cleaner methods, reducing emissions.

Imag

e: W

orld

Res

ourc

es In

stitu

te

Page 186: Pears Report Collection

Pears Report Collection

186

About Alan Pears: the ‘determinedclean energy and climate advocate’

Association. While his two-year stint at teaching

developed valuable communication and educational skills, Alan found the school environment too limiting and so he moved on to a role at The Learning Exchange in East Malvern—a centre providing networking services for people to learn from each other, and a key hub in Melbourne’s emerging community development movement. He was there until late-1977, working with a wide array of remarkable people and inspired by many emerging ideas.

Alan’s energy journey began with a request by community activist Maurie Crow, on behalf of the Conservation Council of Victoria’s Conservation of Urban Energy group, to write a piece for a major submission that explained how the community movement played a core role in developing a sustainable energy future. This submission turned into the seminal book Seeds for Change: Creatively Confronting the Energy Crisis, published in late-1978. Researching, discussing, co-writing and editing substantial parts of this book provided Alan with a thorough apprenticeship in many dimensions of energy that has underpinned much of his work ever since.

ALAN Pears AM has been a leading contributor to the development of Australia’s sustainable energy and energy efficiency policies, programs and projects since the late-1970s, and a passionate climate response advocate since the late-80s. His efforts and vision are underpinned by qualifications in mechanical engineering and education, and formative work experience across all sectors of the economy. His expertise is regularly called upon by governments and agencies, businesses, community organisations and the media; variously as consultant, mentor, award judge, advisor, reviewer and commentator. He is esteemed by his peers and has presented at international conferences. His achievements in this arena have been acknowledged with numerous industry awards and, in 2009, with his appointment as a Member of the Order of Australia.

To list Alan’s involvements and achievements during a career so far spanning four decades would take several pages. As many of these are on the public record, what follows instead is a potted history of the formative context and influential moments of his working life.

From an early age, Alan was interested

in understanding how things worked, and making them work better. Not surprisingly, then, he studied mechanical engineering at Monash University in Melbourne, where he honed his skills and analytical approach. Meeting a diversity of people during his studies and in his fieldwork made him realise he was also interested in the ‘people’ dimension of organisations, and to question his suitability to the traditional engineering/industry culture.

So, on completing his engineering degree, Alan immediately enrolled for a Diploma of Education to get a fast-track broad education. He also sat-in on sociology and psychology subjects. In 1974, he became a secondary school science and maths teacher. In his science classes, he taught about solar energy, and the OPEC oil crisis focused him on the emerging alternative energy literature from the UK, Europe and the US. A housemate who worked for one of the Whitlam government’s Australian Assistance Plan social development groups encouraged him to explore social and community development, and so he began attending meetings at the Alternative Technology Workshop—predecessor to the Alternative Technology

Page 187: Pears Report Collection

Pears Report Collection

187

project evaluation panel and Victorian Government Expert Reference Panel—and on the boards of ClimateWorks, the Energy Efficiency Council and Climate Alliance. He has authored and co-authored numerous academic journal articles, book chapters, commissioned reports and information/educational resources and, of course, 19 years’ worth of columns for the ATA’s ReNew magazine.

Alan is currently a Senior Industry Fellow at RMIT University, and an Associate Consultant with Buro North—a leading agency ‘creating better futures’ through design.

After publication of Seeds for Change, Alan developed a high profile as a community representative and educator in the emerging debate about Victoria’s energy future. This activity was funded by his part-time work as a tutor in physical sciences at the Lincoln Institute of Health Sciences in Carlton.

In late-1980, Alan was offered the job of managing the recently established Energy Information Centre, run by the Gas & Fuel Corporation—at that time a progressive organisation that was researching and marketing renewable energy and efficient appliance options, selling home insulation and building low-energy display homes. Alan and his team ran a comprehensive schools education program, operated an energy caravan that toured Victoria, and provided many households with detailed advice on energy-efficient home design and appliances, and other aspects of energy.

Mid-1983, Alan and his team were transferred to the Department of Minerals and Energy, as the recently elected Cain Labor government aggressively pursued a sustainable energy agenda. Broader roles in program and policy development followed. Initially, Alan focused on software development and training staff for the Home Energy Advisory Service, a world-first computer-based home energy assessment and retrofit program. He also played a key role in development and delivery of appliance energy labelling, and is credited with suggesting the idea of a Star rating label. He worked in Victoria’s public service until February 1991.

One of Alan’s frustrations during these years was the weakness of education on the potential of renewable energy, especially solar cells. Most demonstrations used a single PV cell to run a small device, like a model windmill—really a toy, not an example of a world-changing technology. Inspired by the first Darwin–Adelaide solar car race, Alan calculated the size of the solar panel required to drive an efficient model car at speeds of around 25 km/h—comparable with the speed of the radio-controlled cars that were becoming popular. In exchange for his speaking at the Alternative Technology Association’s annual general meeting, two ATA members built a working prototype, Alan was then able to fund a team of educators, led by Ted Mellor (who had built a full-sized solar car with his students), which led to the creation of the annual Model Solar Car Competition. This event still runs at Scienceworks every year and has introduced thousands of students to solar energy in an exciting and creative way.

In the intervening 25 years, Alan has contributed to the development and implementation of many of Australia’s most successful policies, programs and projects in the sustainable energy arena. In this he has drawn on his engineering and design skills, on his people and teaching skills, on his passion for improving things to make them better, and on his ability to marshall the resources required to make this happen. He has been a senior consultant, university lecturer, member of numerous advisory panels—including the ARENA

Page 188: Pears Report Collection

Alternative Technology Association The Alternative Technology Association (ATA), is a not-for-profit organisation that has been promoting the use of renewable energy, water conservation and sustainable building since 1980. The ATA has thousands of members across Australia who are actively walking the talk in their own homes.

ATA also publishes two magazines ReNew: technology for a sustainable future and Sanctuary: modern green homes, available from newsstands across Australia.

Become a member of the ATA and you gain access to a large support network of knowledgeable people and receive a range of privileges to help you achieve your sustainability dreams.

Your ATA membership also provides you with a number of benefits:

Free advice service, with answers to tricky questions provided by the ATA’s experienced advisors.

Discounts from the ATA Shop and a range of sustainable products and services.

Invitations to local branch activities. An opportunity to network and exchange information with like-minded individuals.

Quarterly issues of ReNew and/or Sanctuary magazines; packed with practical information on the latest and greatest in sustainable technologies.

Updates on the ATA’s local, national and international projects

For more information go to: www.ata.org.au or call (03) 9639 1500

Published by the Alternative Technology Association © 2016

1636 Urban off-grid; six light-filled renos; self-reliance in retirement; recycled timber; picking a site with potential; green home ideas & products; smart tech and more

ISSUE 36 • SPRING 2016 AUD$11.95 • NZ$12.95

SANCTUARYMAGAZINE.ORG.AU

A Daikin US7 super efficient 7-star rated reverse-cycle air conditionerOffer open to Australian and New Zealand residents only, details p61

WIN

INSIDESix stunning ‘back room’ renovations9.4 Star home on the coastShould I quit the grid?

SUSTAINABLE HOUSE DAY SPECIALPLUS Tips for greening your courtyard & balcony