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Australia ignores energy efficiency, burns money

Australia struggles to keep up in the efficiency race. Flickr/adambowie

Energy efficiency is globally seen as the biggest and best option for cheaply reducing greenhouse gas emissions and dealing with rising power bills.

But in Australia it still struggles for recognition and funding.

To put it mildly, this is a bizarre situation. We are throwing money at the wrong end of the system - energy supply - and locking-in increased greenhouse gas emissions.

A recent International Energy Agency study of public spending on energy efficiency in 2010 put Australia last in a sample of 18, including developed countries.

In 2004-05, $1 billion was spent on Australian energy research and development. Of that, only $35 million was spent on energy efficiency.

Energy supply companies tell us they will have to spend $100 billion over the next decade upgrading and expanding energy supply infrastructure. But in other countries, energy efficiency investment is avoiding the need for such large investments.

The reality is that an energy efficient Australia could use less than half as much electricity, and quite a lot less gas than it does now. And it would save money.

So why aren’t we doing this?

Who’s afraid of energy efficiency?

There are some powerful forces blocking progress on energy efficiency.

The rules of the energy markets were written by, and for, large, centralised energy suppliers.

Energy efficiency, demand management and distributed generation are natural competitors for energy networks. But they have to compete and negotiate with networks that have monopoly power.

Powerful financial signals, cultural forces and strategic agenda drive energy policy makers, networks and energy regulators to shut out energy efficiency from “the main game”.

Last year, in its submission to the Prime Minister’s Energy Efficiency Task Force, International Power (owners of our dirtiest brown coal power station, as well as other electricity supply assets) made it plain.

They would oppose energy efficiency measures because they destroy the value of their assets.

Why? Because the rule makers set up the market so this would be the case. We have the wrong energy market rules.

We now have multi-billion dollar businesses set up to comply with the wrong market rules: so they don’t want them changed – or at least, not too quickly.

The solution is simple. The government should tell energy generators, retailers and network owners that it will continue to ramp up financial pressure until they are spending a reasonable proportion of their money on reducing demand, consistent with international best practice.

For economists, efficiency is like Santa

Then there’s the dominance of econocrats in Australia’s energy and climate policy scene.

They are taught that people and businesses are superhuman and completely rational, and that they will therefore invest in all energy efficiency that is cost-effective. So it follows that there will be little or no untapped energy efficiency potential.

Indeed, this was the conclusion that the 2005 Productivity Commission inquiry into energy efficiency reached. These people are energy efficiency sceptics.

The Energy Efficiency Opportunities program forced large Australian industries to look at their energy efficiency.

To these economists’ surprise they identified 8.3% savings potential with an average payback of less than two years and a carbon abatement cost of less than minus $100 per tonne.

According to their training, such savings simply cannot exist. Indeed, they write policy and allocate resources on the basis that such benefits do not exist.

The rebound effect, or why we can’t resist airconditioners

Economists will also warn you about the rebound effect (sometimes called the Jevons Paradox).

This mechanism suggests that if you save money through energy efficiency improvement, you will spend the savings on using more energy; by buying air travel or aluminium ingots, for example.

Overall no energy is saved.

This is a good example of the cultural bias that dominates Australian economic thinking.

There is no reason that people must spend their savings on energy-intensive activities.

It is true that there is a “flow-on” effect when people save energy. But if we are smart, we can use it to amplify the savings, not undermine them.

Ignoring efficiency is like burning money

One of Julia Gillard’s biggest problems in explaining the benefits of a carbon price is that many of the people briefing her don’t really believe there are economic benefits from abatement.

They believe action will hurt, and that it’s a matter of compensating those least able to cope with the pain.

Meanwhile, in other countries, businesses and households are making money while they cut emissions. They are positioning themselves to be winners in the green revolution through energy efficiency and innovation.

If energy efficiency is to fulfil its potential, we need a serious policy shake-up.

We must invest as much in reducing demand as we do in supply side infrastructure.

And we must make sure that we give people incentives to avoid “rebounds”.

When people save money from efficiency, we should make it easy for them to spend it on more savings and climate abatement instead of adding to our problems.

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