While the Federal Government's Green Paper advocates that a cap and trade emissions trading scheme (to be known as the Carbon Pollution Reduction Scheme (CPRS)) will be the primary measure to achieve Australia's greenhouse emission reduction targets, the Green Paper also confirmed the role of complementary measures to achieve these targets. There is general consensus that many cost-effective energy efficiency opportunities may not be implemented under an emissions trading scheme alone, because of market failures and barriers which prevent the uptake of the energy efficiency opportunities that may be created by a price on carbon.
Background
In recognition of the impact of market failures, back in November 2002, the Ministerial Council on Energy commenced a program for the development of a National Framework for Energy Efficiency (NFEE). The NFEE covers a range of policy measures designed to overcome the barriers and challenges that prevent the market delivering the actual economic potential of energy efficiency, and includes policies relating to:
- residential buildings (being the National House Energy Rating Scheme (NatHERS));
- commercial buildings;
- commercial/industrial energy efficiency;
- government energy efficiency;
- appliance & equipment energy efficiency;
- trade and professional training & accreditation;
- commercial/industrial sector capacity building;
- general consumer awareness; and
- finance sector awareness (including the Energy Efficiency Exchange (EEX)).
More recently, in December 2007, these measures have been complemented by additional energy efficiency measures including expanding and enhancing the Minimum Energy Performance Standards (MEPS) program, and phasing out inefficient incandescent lighting. New NFEE measures are expected to be subjected to a Regulatory Impact Statement review, and include consideration of the provision of energy use benchmarks on energy bills, and mandatory disclosure of energy performance of residential and commercial buildings.
In the meantime, Victoria, New South Wales and South Australia are acting independently to bring in their own energy efficiency target schemes.
VEET scheme
The Victorian Energy Efficiency Target scheme (VEET) is designed to achieve the Victorian Government's commitment of reducing greenhouse gas emissions from households by 10% by 2020, and overall emissions to 60% below 2000 levels by 2050. The Victorian Energy Efficiency Target Act 2007 was passed in December 2007, and draft regulations were released on 11 August 2008 in anticipation for a start date of VEET from 1 January 2009.
The VEET Scheme will require all electricity and gas retailers, with more than 5,000 Victorian customers, to surrender Victorian Energy Efficiency Certificates (VEECs). One VEEC will equal 1t of CO2-e avoided.
The liability of retailers to surrender a certain number of VEECs will be based on the fuel type used by the retailer and market share of that retailer.
VEECs can be traded between parties registered on the scheme registry. VEECs can be banked for use in future years for up to 6 years; however, borrowing from future years is not permitted.
VEECs can be created by anyone who has been accredited under the scheme for activities that are scheduled in the regulations. Eligible activities will initially be "household" in nature, for example:
- more efficient appliance use (such as 5-star appliance versus the market average, and CFL lighting);
- switching to less greenhouse intensive fuels (such as solar hot water);
- building shell improvements (such as insulation, window treatments).
Liable retailers will be required to pay a shortfall penalty of $40 for 2009 (with future years indexed), for each VEEC required to be, but not, surrendered.
NEET scheme
The NSW Department of Water and Energy published a discussion paper in July 2008 on the introduction of an Energy Efficiency Trading scheme (NEET) which is also proposed to commence on 1 January 2009. The scheme will be based on the energy efficiency component of the existing Greenhouse Gas Abatement Scheme (GGAS) where activities that currently qualify as Demand Side Abatement Activities under GGAS are proposed to be eligible to create the new class of NEET certificates. The remainder of the GGAS will continue as it has in the past until it is absorbed into or replaced by the CPRS.
The ACT has a scheme that mirrors the GGAS; however, it is not yet clear whether the ACT government will undertake a similar energy efficiency initiative.
About 75 companies are currently accredited to undertake energy efficiency projects under the GGAS. These include major commercial building operators and industrial facilities, as well as companies involved in mass deployment to the household sector.
GGAS currently covers all electricity used by grid-connected customers in NSW. The NEET Scheme proposes the following liable parties:
- all holders of NSW electricity retail licences;
- electricity generators that supply directly to retail customers;
- market customers that take their electricity supply directly from the National Electricity Market.
It is proposed that the NEET scheme will provide an exemption for trade exposed energy intensive industries similar to the same exemptions described in the Green Paper.
Initially, the NEET scheme will only cover electricity use. However, scheme coverage could be expanded later to include other sources of stationary energy, including natural gas (to assist harmonisation with schemes in other states).
It is also proposed that the liable party's obligation under NEET to secure certificates will be based upon a percentage of the liable party's electricity sales for that year. Liable parties will be required to pay a penalty if they do not surrender sufficient NEET certificates to meet their obligation in a particular year. There is no detail of the likely penalty price. Currently, the penalty price for shortfalls under GGAS is $12.00 for 2007.
The South Australian Residential Energy Efficiency Scheme (REES) is also proposed to commence on 1 January 2009.
The REES will be mandatory for all licensed retailers of electricity and gas who supply residential customers. A minimum threshold of 5,000 customers is proposed. If a retailer holds more than one retail licence (for example, both electricity and gas licences), its liability under the REES will be assessed separately for each of those licences.
For each year of the REES, covered retailers will be required to achieve three targets in respect of each relevant licence:
- Greenhouse Gas Reduction Target (GGRT) – which requires obligated retailers to achieve a set amount of greenhouse gas savings by implementing approved energy efficiency activities in households;
- Priority Group Greenhouse Gas Reduction Target (PGGGRT) – which requires a proportion of the GGRT to be achieved in priority group households; and
- Energy Audit Target – this requires a set number of energy audits to be undertaken in priority group households.
Penalties (the option of either a civil penalty or prosecution) are proposed if a retailer fails to meet more than 90% of its target. The civil penalty is made up of a flat rate not exceeding $100 and a dollar value for each unit of shortfall. A 'make good' provision, where the retailer is required to make up the shortfall in the following year, will apply to the Energy Audit Target.
Conclusion
The implementation of state-based energy efficiency targets has not been without some criticism. Critics rgue that these schemes are exactly what the CPRS and other national measures are designed to avoid, and that state-based energy efficiency measures will lead to increased business compliance costs. As the following table illustrates there is some merit in these concerns, as there are some inevitable differences between the currently proposed state-based schemes.
|
VEET scheme |
VEET scheme (proposed) |
REES (proposed) |
|
|
Start date |
1 January 2009 |
1 January 2009 |
1 January 2009 |
|
Participation trigger |
Vic customers >5,000 |
All |
SA customers >5,000 |
|
Coverage |
Electricity and gas |
Electricity (gas in the future) |
Electricity and gas |
|
Eligible activities |
"Household" efficiency actions |
Demand side abatement rules |
"Household" efficiency actions, including priority group households and energy audits |
|
Certificate penalty price |
$40 for 2009 |
Unknown |
Unknown (up to $100) |
|
Certificate escalation |
Yes |
Yes |
N/A |
Conversely, non-government organisations have criticised both Federal and State governments for not acting enough on implementing measures to facilitate energy efficiency measures. These organisations argue that a focus on facilitating energy efficiency opportunities, as potentially one of the cheapest forms of greenhouse gas abatement activities, must be part of Australia's policy suite to tackle climate change.
It is clear that the Green Paper, and these emerging energy efficiency target measures and schemes, will represent challenging times for energy retailers, businesses and consumers. If you require further information or advice about any of the proposed schemes or complementary measures more generally, please contact a member of our Climate Change team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
