Stop wasting energy, there's money in it

Sydney Morning Herald
Saturday 28/11/2009 Page: 7

Cutting energy waste maybe the only thing we can all agree on at the fag end of a divisive debate about the best way of tackling climate change in Australia. As it happens that is the most productive area we could possibly focus on, environmentally and economically. One proposal that may emerge from the carbon pollution reduction scheme now before Parliament is the creation of a prime ministerial task group to develop a broad-based market mechanism to promote energy efficiency in 2010. Ho hum, you say? No money in it? Wrong.

Energy efficiency is the fastest growing carbon abatement market of all, according to HSBC's recent Climate Annual Index Review. HSBC estimated that the global market for energy efficiency in 2009 was$US164 billion ($178 billion) and would grow to more than $US600 billion by2020.

Clean coal versus renewable energy versus nuclear gets all the headlines. But the International Energy Agency expects 63% of the world's emissions reductions by2030-needed to meet an inadequate 450 ppm carbon dioxide stabilisation target will come from energy efficiency. A 2007 Australian Bureau of Agricultural Resource Economics study estimated energy efficiency would directly account for 55% of Australia's carbon abatement by 2050.

This is what energy experts call plucking the low-hanging fruit. Last year McKinsey & Co ranked carbon abatement strategies from cheapest to dearest, and showed many energy-efficiency strategies have a negative cost-that is, they make you money. In the commercial property sector, for example, McKinsey & Co says we can save $130 for each tonne of carbon dioxide pollution avoided.

This puts into perspective the debate about whether Australia meets its international emissions reduction obligations at home or by importing carbon credits-for example, paying to leave rainforests standing in developing countries while continuing to burn coal here like there's no tomorrow. Energy efficiency strategies are the cheapest abatement of all.

At the household level, this means "50 ways to beat the new green tax", as touted by one newspaper this week during this week's parliamentary negotiations. Too right. Let's change our globes (didn't we already?), hang out our clothes and wash the dishes by hand - or at least fill the dishwasher before turning it on. Such steps seem obvious but are we really going to beat climate change by killing the standby switch? Rightly or wrongly, it feels trivial.

Technology won't do the hard work for its. Mark Lister, from the Alliance to Save Energy, says in almost all cases the energy efficiency dividend from use of better technology over the years has been taken up as increased consumption. Demand continues to grow at about 2% a year - higher than population growth. Though we have more efficient fridges than we did a decade ago, they are bigger and there's a spare beer or wine fridge out the back. Add in air conditioners and plasma TVs, McMansions and SUVs, and you get the idea. Things have got worse, not better, in housing and transport.

Meanwhile prodigious amounts of energy are wasted by business, which dwarf anything householders can come at. Rob Murray-Leach, chief executive of the Energy Efficiency Council, says Australia is well behind Europe and the US. Historically, low energy prices have made its sloppy in our energy use-although it gets complicated when you start trying to put figures around sloppy. At its lead and zinc smelter at Port Pirie, for example, the Belgian company, Nyrstar, last year found annual savings of $5.5 million after doing an assessment with the federal energy department.

Or take the Moomba gas plant in South Australia, where Murray-Leach says Santos found it could reduce energy use by a third - enough to power 100,000 homes. In commercial buildings, energy efficiency retrofits routinely achieve energy savings of 40-50%. The profits, often measured in payback periods counted in years, are real but are too small for most property investors to bother about.

The visiting TEA energy efficiency chief, Nigel Jollands, who recently called our commercial building standards "appalling", hopefully gave a wake-up call to an industry that pats itself on the back every time it announces a new green star rated office building but has been lax on maintaining and improving the existing stock. The potential savings in this sector are guaranteed.

One Sydney company, EP&T, which has partnerships with the likes of Westfield, Colonial, GPT, Macquarie and Investa, is launching a service in which it stumps up the money for retrofits and reaps a return from the savings. That's not to say energy efficiency is easy. It's the ultimate marathon, as constant technological improvement increases potential savings against "business as usual" - itself a moveable feast. Plus it's a marathon with obstacles. Worst of all, our national energy market encourages participants to increase energy use.

Then there are cultural issues, information and skills deficits and downright pig-headedness or what economists call "bounded rationality"- when people don't behave optimally, in this case refusing to save money. Another obstacle would be the pollution reduction scheme itself. Currently structured, it would increase energy prices a little, shortening pay back periods from efficiency improvements. But demand is stubbornly price-inelastic.

Worse, according to energy expert Richard Dennis from the Australia Institute, the scheme would create structural impediments to a fair allocation of the return from investment in energy efficiency. "Say a large commercial property owner spends a lot of money on energy efficiency. It's true that they capture the savings in electricity - their bill will fall - but it's their electricity generator who will make money from sale of spare permits."

What is needed (and what could be introduced next year) is a complementary mechanism to the planned scheme to create an economic incentive to pursue energy efficiency - particularly in the commercial and industrial sector, because the carbon trust is meant to promote voluntary energy reduction in the household sector.

Mark Lister says a full policy response to climate change - as proposed in the US under the Waxman-Markey emissions trading scheme would have three strands, a "white certificate" scheme to promote energy efficiency, alongside "green" certificates under the renewable energy target regime, and "black" pollution permits as outlined under the CPRS. That's for next year.