The Demand Manager - News Focus, Edition 2 March 2008

Demand Management and Australia’s Future Carbon Plans

Well, it’s a new Government in Canberra, elected on the promise of a big change in dealing with the challenge of climate change. One of the Government’s first symbolic acts was to ratify the Kyoto Protocol, but as with everything in life, the devil is in the detail.

To clarify his own understanding of the issue more than anything, Demand Manager’s Jeff Bye set out to formulate a dummy’s guide to what the future of demand management might look like under the Rudd Labor Government.

Government’s generally have three weapons in their arsenal for tackling climate change; market mechanisms, funding programs and regulatory initiatives.

Market Mechanisms

One of the chief promises of the new Rudd Government has been the establishment of an Australian Emissions Trading Scheme (AETS), targeting a 60% reduction in greenhouse gas emissions by 2050 based on 2000 levels. Such schemes are often referred to as ‘market mechanisms’ since they allow the market to find the best ways of reducing emissions.

Professor Ross Garnaut has been commissioned by State and Territory Governments to prepare a study on medium to long-term policies to tackle the challenge of climate change. The Federal Government has confirmed its participation in the Review.

One of the key tasks of the review is to put forward a discussion paper on a set of principles and design features for an efficient and effective AETS to commence in 2010.

Chief amongst his early suggestions is the formulation of an emissions ‘trajectory’ which would map the path to future emission reduction goals. The discussion paper also suggests that permits be auctioned off in the first instance, with the revenue raised to be directed back into improving the capacity of the economy to reduce greenhouse emissions.

One of the issues which seems to have been settled early and without much discussion is the exclusion of so-called Demand Side Abatement (DSA) activity from any future emissions trading scheme. The Garnaut Discussion Paper lends just two paragraphs to energy efficiency.

Allowable under the NSW Scheme, DSA is seen as an outlaw in emissions trading circles because it can lead to a double-counting effect – reducing 1MWh of electricity consumption through DSA, for instance, could allow the end user to create a carbon credit at the same time as the generator has reduced their emissions by an equivalent amount.

As such, under the current proposals for the AETS, demand management activities will be ineligible to create carbon certificates. Naturally, this has put a lot of the demand management industry off-side, particularly after the industry has grown from under 5% of total NGACs created in 2005 to over 18% of the NGACs created in 2006.

As the Carbon Reduction Institute stated in their submission to the AETS Working Group: “Essentially, by ruling out DSA activities, millions of ordinary Australians are ruled out of participating in emissions reductions in their homes and businesses.”

According to the AETS Timetable, a Federal Government Green Paper is due out in July 2008 with a proposed framework for the Scheme inviting comments.

The Green Paper will also outline the transitional arrangements proposed for existing schemes such as the NSW Greenhouse Gas Abatement Scheme and the Federal Government’s Greenhouse Friendly program which are envisaged to feed into the AETS in the future.

Funding Programs

In the lead up to last year’s election, the Labor Party outlined some $1.75b in Federal Government funding promises to reduce Australia’s greenhouse gas emissions.

Typically, larger funding promises were made for climate change programs targeting the renewable energy, clean coal and transport sectors, with three $500m funds to be established, compared with a ‘Clean Business Fund’ worth $240m to be created to promote energy efficiency in the commercial and industry sectors.

The three major strands of the Clean Business Fund, including $50m budgeted for the 2008/09 financial year, will include:

• A $90m Green Building Fund which will subsidise 50% of the cost of retrofitting existing commercial office buildings for greater energy efficiency, up to a maximum of $200,000 per building;
• $75m for the ‘Re-tooling for Climate Change’ program, which will see grants of between $10,000 and $500,000 provided to small and medium sized manufacturers to cover up to a third of the cost of the energy and water saving measures;
• A $75m ‘Climate Ready’ program which will provide dollar-for-dollar support for the development of clean technologies in Australia.

Regulatory Initiatives

Along with market mechanisms and funding programs, regulatory initiatives can deliver significant improvements in end use energy efficiency. Throughout the election campaign, a number of regulatory initiatives were announced, including the following:

• Ensuring transparency between jurisdictions with national rating tools for sustainable design;
• Requiring disclosure of environmental ratings for appropriate types of large commercial buildings at the point of sale – to be gradually phased in;
• Increasing the current 6-star rating scheme for appliances to a 10-star scheme with an expanded list of products, including TVs;
• Accelerating the 1 Watt standard for standby power consumption;
• Expanding new Greenhouse & Energy Minimum Standards (GEMS) for products such as digital set top boxes, computers and home entertainment systems.

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