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Energy Efficiency

Australia’s Low Carbon Opportunity

Boost Profits
Cut Emissions
Create Jobs
How to make Australia
energy efficient
The Energy Efficiency Council is the peak body for
companies that provide energy efficiency services
and products to business and government. Together,
Australia’s top efficiency experts have developed a
set of policies that would transform Australia into a Key sectors for action
competitive, low-carbon economy.
Industry
The top 200 companies in Australia use almost twice as
much energy as all households put together. Requiring these
Three big policies to transform companies to improve their efficiency by just one per cent each
year and giving them targeted financial support to help them
Australia meet and exceed this target would save over $2 billion a year
while slashing carbon emissions.
An energy efficiency target for Australia
We could meet all the growth in our energy needs over the next
decade simply by using the energy we waste now. Australia Cogeneration
should follow Europe, China and the US and set a serious A feed-in tariff and changes to the electricity market could create
energy efficiency target. The Council recommends that Australia 3000 Megawatts of low-emission cogeneration – that’s double
cut energy demand by 20 per cent below business-as-usual by the output of Victoria’s aging Hazelwood power station and
2020. around 75 per cent less greenhouse emissions per Megawatt.

Targeted investment in efficiency by electricity Commercial Buildings


distributors
Millions of Australians work in aging, inefficient and uncomfortable
Electricity bills are going to increase by as much as 42 per cent offices. Combining a new National Efficiency Scheme with a
over the next three years simply because we’re investing too sophisticated loan scheme for commercial buildings would drive
much in new and expanded electricity networks. If the network a new wave of productivity improvement in our workplaces.
companies invest just 10 per cent of this planned spending
in energy efficiency they could reduce the need for new
infrastructure, reducing energy consumers’ bills. Government Operations
If governments set up specific policies for investing in energy
A National Efficiency Scheme (NES) efficiency they could cut their emissions by 30 per cent and save
$450 million every year.
A National Efficiency Scheme (NES) would drive energy
efficiency across all sectors of the economy. The scheme would
also reduce red tape by replacing three existing state schemes More detail on these policy proposals is provided on
in New South Wales, Victoria and South Australia. pages 6 – 11.

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What energy
efficiency delivers
Energy efficiency is Australia’s biggest untapped opportunity.
The steps presented here would transform Australia into a
competitive, innovative, low-emission economy while keeping
energy affordable.
Retain and Create 75,000 jobs
“One of the fastest, easiest and When a company improves its energy efficiency it becomes more
competitive and can invest its savings on expanding production
c h e a p e s t ways to make our and retaining workers. This also creates jobs for workers

economy stronger and cleaner is including builders, plumbers, engineers and manufacturers.
HSBC estimates that the global market for energy efficiency is
t o m a k e our economy mor e already USD$164 billion each year, and it more than doubled
between 2008 and 2009 2. If Australia improves its own
energy efficient.” efficiency it would build an Australian-based domestic and
export industry with 75,000 jobs in energy efficiency by 20303.
US President Barack Obama

The biggest source of emissions reductions Capitalise on a ‘no-lose’ opportunity


Energy efficiency could deliver half the carbon cuts that Australia Australia has been missing out on a massive opportunity. While
needs to meet a strong emission reduction target for 2020. the rest of the world has been turning to energy efficiency,
We are already improving our efficiency slowly, but dedicated Australia is still dragging its feet. Between 1973 and 1998
energy efficiency policies could cut emissions by an extra 50 Australia’s energy efficiency increased by just 0.7 per cent a
Megatonnes a year1. year, compared to 1.6 per cent a year in most other developed
countries4. If Australia doubled its rate of energy efficiency
improvement it would deliver major economic and environmental
Save the economy $5 billion a year benefits.

Energy efficiency saves money simply because it uses less of a


valuable resource. Even without climate change, urgent action A climate change response of appropriate
on energy efficiency makes sense. ClimateWorks Australia urgency
estimated that if we improved the energy efficiency of our
economy, by 2020 Australian homes and businesses would save Action on energy efficiency is urgent, particularly with both
$5 billion every year. major political parties delaying a carbon price. Australia will fail
to meet just a modest 2020 greenhouse target if energy demand
continues to rapidly increase, even if we aggressively replace or
retrofit existing electricity generators with cleaner alternatives.
Energy efficient technologies exist today that can reduce our
demand for energy and buy us time to transform our energy
system.

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1
ClimateWorks Australia 2010, A Low Carbon Growth Plan for Australia
(Figures for annual savings are in 2020 unless stated otherwise.) page
2
HSBC 2009, Climate Annual Index Review September 2009
3
ACTU & ACF 2008, Green Gold Rush
4
IEA 2004, Oil Crises and Climate Challenges: 30 Years of Energy Use in IEA
Countries
The Big
Picture
Energy Efficiency - half the greenhouse solution Energy Efficiency - a wise investment
It’s a fact. Energy efficiency is the biggest, cheapest and fastest Efficiency is not only the cheapest way to cut emissions – it
way to cut greenhouse emissions. Energy efficiency could deliver actually saves us money. This means that even in the absence
half of Australia’s abatement between 2000 and 2020. However, of climate change we should take action on energy efficiency
Australia is improving its energy efficiency slowly. If we increased to strengthen our economy. ClimateWorks Australia found that
that rate of improvement, by 2020 we could cut emissions by an energy efficiency could save the economy $5 billion a year.
extra 50 Megatonnes a year. That’s more greenhouse savings
than we’d get from taking every Australian car off the road! This means that Australia will have to pay more to tackle climate
change if we fail to take up the obvious potential of energy
The International Energy Agency estimates that energy efficiency efficiency. For example, energy efficiency in the building sector
will deliver 65 per cent of worldwide carbon cuts in the energy could save $38 billion every year by 2050, partly by avoiding
sector by 2020, and 54 per cent by 2030. This means that in more expensive ways to cut emissions6.
2020 energy efficiency could have almost twice the impact of
renewable energy, nuclear power and clean coal combined. It’s However, energy efficiency is not free. Like any wise investment
a similar story in Australia. The Australian Bureau of Agricultural it requires an outlay upfront to deliver good returns. Once these
and Research Economics estimate that energy efficiency will returns have paid back their original investments the savings go
account for 55 per cent of Australia’s cuts in greenhouse gasses straight to the bottom line.
over the next 40 years5.

Figure 1: The proportion of global abatement from different sources, from IEA World Energy Outlook 2008

45
Gigatonnes of CO2

550 450
Policy Policy
Scenario Scenario
40 9% Nuclear
14%
CCS
35 23%
Renewables

Energy Efficiency
30 54%

25

20
2005 2010 2015 2020 2025 2030
do-nothing 50ppm 450ppm

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5
Gurney, A., Ford, M., Low, K., Tulloh, C., Jakeman, G. and Gunasekera, D. 2007,
page Technology: Toward a Low Emissions Future, ABARE Research Report 07.16
6
Centre for International Economics 2007, Capitalising on the building sector’s potential
to lessen the costs of a broad based GHG emissions cut. Centre for International
Economics, Sydney.
Energy Efficiency – acting now to prepare for a
carbon price
Even if Australia introduced a price on carbon tomorrow, we
would still need strong energy efficiency policies. The European
Union has had an emissions trading scheme since 2005 and also
has more ambitious energy efficiency policies than Australia. As
there are many barriers to energy efficiency, we need several
key energy efficiency policies. These policies are separate from
a carbon price and are compatible with either Labor’s delayed
Carbon Pollution Reduction Scheme or the Coalition’s proposed
abatement purchasing scheme.

The major delay to a carbon price means that energy efficiency


is now critical. Global carbon emissions must peak soon and
start coming down to limit global warming to 2 degrees Celsius.
The Australian Government has a number of policies to ensure
that 20 per cent of energy will come from renewable sources
by 2020. However, even with more renewable energy, emissions
from fossil fuels will still increase if energy demand continues
to increase at its current rate. Energy efficiency policies would Smart Example: California
reduce the growth in energy demand, putting Australia on track The State of California requires energy utilities to invest in energy
to meet its international greenhouse targets. efficiency when it is cheaper than expanding supply. California’s
utility energy efficiency programs aim to halve the growth in
Energy Efficiency - making power cheaper for demand for electricity and natural gas between 2004 and 2013,
reduce household energy bills and deliver net savings of $10
everyone billion.7
Energy prices will rise by up to 42 per cent over the next three
years, because the monopolies that manage the electricity
grid are planning to spend more than $40 billion over 5 years Australia’s National Electricity Market does not encourage
to expand the grid. This is the largest single investment in the investment in energy efficiency. The National Electricity Market is
electricity grid, ever, and these costs will be passed straight highly regulated, and the grid is managed by regional monopolies.
through to consumers. The regulations aren’t perfect and the current system actually
prevents sensible investment in energy efficiency and small
Energy efficiency and cogeneration could save the distributors generation systems.
billions of dollars and lower the price of electricity for all users.
There are two ways to deal with demand and supply for Even in the absence of climate change these flaws should be
electricity. One is to spend millions on more generators and tackled as they distort the energy market, increasing energy
expanding the electricity grid to meet increasing demand. The supply costs for households and businesses. To reduce
other is to lower demand by investing in energy efficiency and Australia’s emissions by five to 25 per cent by 2020, we have
local generation. Energy efficiency and distributed generation to make some vital changes to the National Electricity Market.
can often solve the problems of increasing power demand much Australia’s energy market is different to California’s, which
more cheaply than the options that boost centralised generation means that we need to combine a National Efficiency Scheme
and infrastructure. with requirements for distributors to invest in energy efficiency.

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California Public Utilities Commission and California Energy Commission 2006
Energy Efficiency – California’s Highest Priority Resource page
Overarching Policies
and Energy Market Reform
Energy efficiency is critical to Australia’s future but, like anything
worthwhile, it not simple. It requires investment and well-designed
policies.

An Energy Efficiency Target for Targeted investment in efficiency by


Australia electricity distributors
The Prime Minister has committed to place Australia at the Where there is a need for new capacity in the electricity grid,
forefront of energy efficiency improvement in the OECD. This distributors can either invest in augmenting the grid or in energy
aim should be quantified as a clear energy efficiency target. efficiency and distributed generation. Currently, the rules of the
Other major economies have already set ambitious energy National Electricity Market strongly favour investing in more
efficiency goals: expensive networks and centralised supply. However, investing
in energy efficiency and distributed generation would often
The European Union set a target to reduce provide the same results at much lower costs.
EU primary energy use by 20 per cent below
business-as-usual by 2020. The cost of augmenting the grid is passed straight on to
electricity consumers which means that families and
businesses are bearing the cost of an outdated approach
The US has announced its intention to
to energy. We need to urgently reform this system. Energy
USA reduce energy demand by 15 per cent
efficiency and distributed generation could significantly lower
below business-as-usual by 2020.
the cost of energy supply.

China reduced the energy intensity of its


The electricity network operators are planning to spend more
economy by 14 per cent between 2006
than $40 billion over the next five years on the grid. The
China and 2009 and has set a new goal to reduce
Government needs to support and mandate that they spend
the greenhouse intensity of the economy
just 10 per cent of this amount on demand-side measures. Those
by 40 to 45 per cent by 2020.
network operators that fail to deliver this level of investment in
demand-side measures in 2010-2012 should have a levy placed
on their regions, which an independent body would invest in
The Energy Efficiency Council recommends that Australia energy efficiency to offset network expansion and reduce their
should aim to drive all energy efficiency that saves the economy customers’ bills.
money. Experts estimate that the cost-effective potential for
energy efficiency in Australia would be equivalent to reducing
stationary energy demand by 20 per cent below business as
usual by 2020, similar to the European target.

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A National Efficiency Scheme

5. Encourage major energy efficiency retrofits, rather than


small, incremental projects. Typically, incremental projects
only add up to minor savings, but ‘whole site’ upgrades can
cut energy use by 30 per cent or more.

6. Focus on genuinely new projects, rather than projects that


companies were going to do anyway. In industry this means
focusing on projects with a payback period longer than
two years. In commercial buildings, this means projects
that deliver a significant improvement in NABERS Energy
Ratings.
A National Efficiency Scheme (NES) should be established
7. Encourage applicants by simple, clear rules that help
to invest in energy efficiency in households, industry and
businesses, including:
commercial buildings when it is cheaper than spending on new
generation. • Simple application processes with minimal red tape

• Clear rules about how companies secure the incentive


There are a number of options for the NES, including a certificate-
based scheme and a grant scheme. Whichever option is chosen, • Quick assessments of business applications that include
the NES must: a rapid assessment of eligibility and a detailed second-
stage assessment
1. Provide incentives based on the amount of energy a project
actually saves, including electricity, gas, coke and diesel. • Multiple funding rounds each year

2. Apply to all parts of the economy, but focus on industry and • Establish support services to assist companies to apply
commercial buildings, as these sectors have the greatest for funding.
potential for energy savings.
Schemes like the NES have been operational for many years
3. Be run by an independent body that includes impartial in the US and Europe. Australia already has three state-based
energy efficiency experts. This will ensure a fairer system efficiency schemes: the New South Wales Energy Saving
and give people confidence about the long-term stability of Scheme (ESS), Victorian Energy Efficiency Target (VEET) and
the scheme. South Australian Residential Energy Efficiency Scheme (REES).
Other states are considering their own schemes, too. Introducing
4. Balance simplicity and compliance by providing part of a single, national scheme would be far more efficient and would
the incentive up front and part after measurement and cut compliance costs for retailers and other businesses.
verification.

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Strengthening
Industry
Industry uses a huge amount of energy. Just 220 companies, Mandatory minimum goals to improve energy
mainly in manufacturing, mining, and construction, use more efficiency
than 40 per cent of the energy consumed in Australia. This
means there are enormous opportunities to save energy in Every large company has opportunities to improve their energy
industry. One company recently found that they could save 5.4 efficiency. Requiring the 200 largest energy users to improve their
Petajoules of energy at a single site. That’s enough energy to energy efficiency by just one per cent per annum would ensure
power 100,000 homes. that everyone plays a part in reducing Australia’s emissions. In
countries like the Netherlands, efficiency goals improved the
When a large company tackles energy waste, they cut greenhouse efficiency of industry by over 20 per cent in just ten years.
gasses, save money and become more globally competitive.
Since 1994, Dow Chemicals has cut its global greenhouse gas
emissions by 25 per cent and saved US$9.2 billion through Fair financial support
energy efficiency.
Supporting companies to go beyond minimum targets will deliver
It’s easy to assume that big companies don’t need support to major benefits to the economy. The government shouldn’t fund
become energy efficient because it is an obvious economic efficiency projects with short payback periods because they
benefit. However, many companies lack the expertise, culture already deliver such large benefits to corporations. However,
and systems to reap these savings. Recent research by 200 the government should use the National Efficiency Scheme
corporations found opportunities to cut their energy use by over to support industrial projects that involve R&D or have longer
60 Petajoules, saving $736 million and cutting Australia’s total payback periods. This support should be scaled back over
emissions by over one per cent – a staggering result. time.

This is just the tip of the iceberg. ClimateWorks have estimated


that energy efficiency and cogeneration in industry could save Creating internal energy efficiency funds
over $2 billion a year in Australia while cutting greenhouse A system should be set up to encourage companies to invest in
gasses by 22 Megatonnes. energy efficiency. The Council recommends a five per cent tax
levied on companies’ energy bills, with companies who spend a
certain amount on efficiency projects exempted.

Standards for new or expanded operations


There are currently no requirements for new mines and plants
to be energy efficient. Companies that are planning new or
expanded operations beyond a certain size should be required
to assess all the opportunities for energy efficiency that have a
payback of less than four years. These opportunities should be
disclosed to their board and shareholders.

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Unleashing cogeneration
Cogenerators are on-site generators, which are typically fuelled An Ombudsman, Standard Connection Rules
either by gas or renewable fuels. Cogeneration is more than and Annual maps
twice as efficient as conventional coal and gas generation,
because it uses the heat that it generates for services like hot The Government should develop standard rules for connecting
water and air conditioning. Cogeneration also saves the energy cogeneration to the grid, including a method for determining
that is normally lost in long-distance transmission, and can the cost of connecting to the grid. This should be enforced by
deliver critical services in stabilising the grid if energy is also an ombudsman and supported by an annual map of the costs
coming from sources like wind and solar. and benefits of connecting cogeneration at different points in
the grid.
However, there are some barriers that prevent us all benefitting
from cogeneration. Connecting cogeneration plants to the grid
can be expensive, arbitrary and drawn out. Companies that own Fair rules for selling and distributing electricity
cogeneration equipment generally don’t get paid for the services
Some of the rules of the electricity market prevent cogenerators
that they deliver in stabilising the grid. Regulations designed for
being able to sell and distribute electricity. These should be
large generators can be inappropriate and burdensome for small
addressed by creating ‘virtual private wire’ rules that allow
generators.
cogenerators to use the grid to move electricity, and allowing
We need dedicated policies to liberate the potential of co- distributors to sell electricity directly to customers.
generation in industry, commercial buildings and communities.
Expanding gas infrastructure
In many areas of Australia the gas infrastructure can’t support
Recommendations for cogeneration cogeneration. The Government should use the Future Fund to
invest in the expansion of the ‘backbone’ gas supply network.
A feed-in tariff
Cogeneration provides many benefits to society, but barriers
to implementing cogeneration mean that governments need to
provide an incentive for the first 3,000 MW of cogeneration that
is established in Australia.

Payment for network benefits


Cogeneration can also provide location-specific benefits, saving
distributors from having to augment grid infrastructure. Paying
cogenerators for these benefits will encourage them to deliver
these services.

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Transforming
Commercial Buildings
A major retrofit of Australia’s existing commercial buildings over
the next decade could save $1.4 billion a year9, cut building
emissions by 30 per cent, and create 27,000 jobs10. While we National Efficiency Scheme
should make all new buildings efficient, focusing on retrofitting
The National Efficiency Scheme should provide incentives for
existing buildings will have a much bigger impact, as these will
companies that improve the energy efficiency of their buildings.
account for two thirds or more of the building stock in 2030.
The incentive should encourage whole-of-building upgrades
‘Retrofit’ programs need to focus on integrated building and provide greater incentives for more ambitious upgrades.
upgrades. Combining a bundle of measures together, like chiller
replacements and lighting refits, is financially attractive and
delivers deep cuts in emissions. If property owners have to do
Performance Disclosure
these upgrades separately it is harder to finance them. The Australian Government is currently introducing vital
legislation that will require commercial property owners to
Investing in building energy efficiency delivers excellent rates of disclose the energy efficiency of their buildings at the point of
return. Investa recently improved one of its Sydney properties lease and sale. We can strengthen this by requiring governments
to 4.5 NABERS stars, cutting energy use by 51 per cent at and private sector tenants to display efficiency ratings for their
almost 50 per cent rate of return. However, there are barriers tenancies in their foyers.
that impede many companies from retrofitting. Currently, the
benefits are split between landlords, tenants and other parties
in the National Electricity Market, and there are skill gaps and Support for Innovation
problems with financing upgrades.
While we can make major improvements in energy efficiency
using current technologies and practices, developing low and
zero-carbon buildings requires innovation. Governments should
Key recommendations for commercial innovate in their own buildings and provide R&D funding for the
private sector.
buildings
Access to capital Capacity Building
Energy efficiency is like any wise investment - it delivers excellent Retrofitting Australia’s buildings will create a huge number of
returns but it’s not free. This means that companies need to find jobs, but this means up-skilling existing workers and training
suitable finance to invest in energy efficiency. The government new workers.
should trial a number of schemes that provide building owners
with simple access to finance, including revolving funds and
Property-Assessed Clean Energy loans.

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9
ClimateWorks Australia 2010, A Low Carbon Growth Plan for Australia
page
10
Davis Langdon 2009, Retrogreening Offices in Australia, Davis Langdon Research
Report, Davis Langdon
Making governments
energy efficient
If Australia’s governments become energy efficient this would
be a win-win for taxpayers and the environment. Governments
in Australia collectively waste $450 million in energy every year11. Recommendations for government
If the public sector invested in energy efficiency they could cut
their emissions by 30 per cent while saving taxpayers money. operations
The Auditor General found that the Australian Government alone Commit to a clear funding path for energy
could save $75 million each year if it just met its own modest efficiency
energy efficiency targets12. However, the Government’s financial
procedures for borrowing private capital, seeking funds from the Agencies need access to capital to invest in energy efficiency
budget and retaining savings can make it difficult for agencies to through revolving funds, third party finance or similar.
obtain funds for sensible energy efficiency investments. Governments should generally provide access to capital
equivalent to 25 per cent of their annual gas and electricity bill
Governments in the US and Europe that are successfully each year, and the Federal Government should provide access
improving their energy efficiency either invest in energy to $75 million in finance per annum over the next 5 years. If
efficiency using their own funds or the private sector invests on governments can make clear investment plans over 5 to 10 year
their behalf. This upfront investment is then paid back through timeframes it will allow industry to meet government and private
energy savings, so that budgets remain positive. In just one sector demand.
decade the US public sector invested US$21 billion to improve
the efficiency of schools, hospitals and other buildings.
Mandate agencies to upgrade their efficiency
The State governments in Queensland and Victoria have started
All government agencies should improve their top energy-using
to invest in energy efficiency and are reaping the benefits. For
sites by 2012, accounting for 30 per cent of their energy use,
example, Logan Hospital in Queensland cut its electricity use
and by 2020 cover off on their remaining major sites, to cover
by 19 per cent, with a return on investment of 18.6 per cent. We
80 per cent of agency energy use. Department heads should be
need to expand these programs and we need other governments
accountable for achieving these targets.
to urgently follow their example.

Appoint one agency to lead on energy efficiency


Energy efficiency needs to be coordinated across the whole
Government, and resources allocated to assist agencies to
implement energy efficiency. Ideally the lead agency would be
based in finance or building management departments.

Public Reporting
All agencies must publicly report their progress on an annual
basis, and publicly disclose NABERS energy ratings for all
owned or leased offices over 1000m2.

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11
ClimateWorks Australia 2010, A Low Carbon Growth Plan for Australia
12
Australian National Audit Office 2009 page
7 Steps to make Australia energy efficient
The Energy Efficiency Council recommends action in seven key policy areas. These measures would save the economy billions of
dollars every year, reduce electricity price rises and are essential if Australia is going to meet its international commitments to reduce
greenhouse emissions by 2020.

Target Cut energy use by 20 per cent below business as usual by 2020

Scheme Introduce a National Efficiency Scheme (NES)

The Grid Targeted investment in efficiency by electricity distributors to reduce expenditure on the grid

Strengthen • NES support for projects with longer payback periods


Industry • Mandatory efficiency targets for the top 200 energy users

Unleash • A feed-in tariff


Cogeneration • Changes to electricity markets

Transform • NES support for whole-of-building retrofits


Commercial • Innovative finance for energy efficiency retrofits
Buildings • Mandatory display of energy ratings

Improve • A clear funding path for energy efficiency


Government
Operations • Mandatory requirements for agencies to improve their efficiency

Sponsor Members of the Energy Efficiency Council

Energy Efficiency Council


Suite 2, 490 Spencer Street, West Melbourne, Victoria 3003
Phone: (03) 8327 8422
Email: info@eec.org.au Web: www.eec.org.au
ABRN 136 469 291 and ABN 63 136 469 291

The Energy Efficiency Council is based in a 5-star NABERS rated office in Melbourne
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