A carbon price might still appear years away, but a voluntary “white certificate” market where corporations and individuals trade the benefits of reduced energy consumption could be in place by July next year. That is one of the key recommendations of the prime minister’s task force on energy efficiency, released last Friday, which calls for something of a culture shock in this country on the way it consumes energy.
The task force said a formal trading scheme should be in place by mid-2012 as one of the key policy platforms to lift the country’s energy efficiency by 30% and a voluntary market where corporations and households could gain benefit from early action could take place as early as July 2011.
The underlying goal of the task force is to replace the mish-mash of ineffective and half-hearted policies with a focused national scheme that would support a trading mechanism with strict national efficiency targets. To date, Australia has implemented less than one fifth of the key energy efficiency recommendations made by the International Energy Authority and trails the OECD so badly that, even if its policy recommendations were implemented, there is no guarantee Australia would be able to make up lost ground. In a world of high energy costs (yes, including Australia) and reduced emissions, that could pose problems.
The task force believes that the trading market would be one of the principal mechanisms that could help cut household energy costs by up to $296 a year from where they would be otherwise, reduce peak energy demand by up to 1400MW below the reference case through to 2020 and save up to $12 billion in avoided energy infrastructure costs.
The scheme would work something like this: The government might set a mandatory obligation for an energy retailer to find 40,000 units of energy efficiency savings a year — and the failure to do so would incur a penalty of $40 a unit.
A householder installing a new heating system that achieves an energy efficiency saving of 10 units would be able to sell those units to the retailer, potentially for up to $400, either directly or through a reduced purchase price from an energy services company.
The task force notes that this would be similar to what occurs for renewable energy through the renewable energy target, where households investing in solar water heaters or small solar power systems can claim renewable energy certificates and sell them to electricity retailers, or installers offer water heaters to householders at a price that is reduced by the value of the certificates.
It would mean that Australia would have three market mechanisms to support the reduction of energy use, the transition to renewable energy and reduced emissions.
The task force suggests that the RET and the energy savings initiative would not be able to achieve the current 2020 emissions reduction target by themselves, but it could better prepare the economy to respond to a carbon price.
“An explicit price on carbon will underpin and catalyse energy efficiency throughout the economy — greatly enhancing the effectiveness of proposals in this report. Energy efficiency policy is an important part of a suite of responses to climate change, but it cannot realistically be expected to do the ‘heavy lifting’ needed to deliver Australia’s greenhouse gas reduction targets.”
Energy efficiency will also help major emitters cope with emission reduction targets. The report notes that smelting and refining group Nyrstar, one of the most vocal critics of the CPRS, had identified energy savings of 11% from the first initiatives spawned from the energy efficiency opportunities program.
If the task force recommendations are adopted, it seems certain that Australian business and households are in for something of a culture shock when it comes to energy consumption, particularly those businesses (and banks) that will only invest in initiatives that increase production and ignore those that could provide a higher rate of return by reducing costs.
The report notes that Australia compares badly with the OECD average on energy intensity, and has done comparatively little in terms of programs and standards, simply because energy has been so cheap and formed such a small part of business and household expenses.
Indeed, it says there has been such limited demand that most Australian financial institutions do not even have the intellectual property and products needed to finance energy efficiency, meaning that few projects that have been proposed have gotten the finance to go ahead.
Because energy costs have been considered so immaterial, company boards have not investigated potentially very profitable energy efficiency options that would deliver a quick payback on investments. Some substantial energy efficiency upgrades that could deliver good rates of return were unable to access capital expenditure budgets as they were dumped in favour of projects that increased production but delivered lower rates of return.
The task force wants businesses to move from a position where energy efficiency is considered to be a useful means of saving money and getting good PR, to becoming part of a company’s core business and fundamental to its competitiveness, productivity and social licence to operate.
All of this will present a challenge to electricity generators and retailers, who have built up large franchises based on the simple concept that selling more electrons and building more power stations means making more money.
The task force says that, if its recommendations are taken up, the gains in energy efficiency and fall in energy consumption would also lead to lower wholesale prices, and lower profits for existing generators — possibly of between $600 million and $1.5 billion over the period 2012 to 2020.
It says, though, that over this time total generator profit is estimated at about $40 billion and “does not represent a loss to the economy”, as there is a countervailing benefit to energy users through lower energy costs. Indeed, it nominates a net benefit to the economy from the scheme of $6.6 billion.
And it notes that some companies have learned to deal with the change and focus on other metrics. The UK retailer E.ON, for instance, now states on its website: “Our business is selling energy. The more energy people use, the more money we make, surely? Except, for a forward-looking energy company with an eye on more than short-term profit, it doesn’t. Our ideal would be to have more customers. All using less energy.”
*This article originally appeared on Climate Spectator