The Pears Report: Energy inefficiency

Alan Pears

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 price

The 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 efficiency and energy-related emission 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 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.

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 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!

Alan Pears has worked on sustainable energy issues since the late 1970s. He is one of Australia’s best recognised and most highly awarded commentators on sustainable energy and climate issues. He teaches part time at RMIT University and is co-director of Sustainable Solutions, a small consultancy.

Sign up to ReNew‘s monthly eNewsletter and receive a free back issue!

Receive the latest sustainability news, articles, events, giveaways and special deals from ReNew magazine.

We’ll send you ReNew 133 as a free download from our webshop when your sign up has been confirmed. Please check your email account for our confirmation email.

×