Pearls and Irritations

Election May 2022 – a new beginning for climate and energy policy?

Recent Intergovernmental Panel on Climate Change reports state that humans must not develop any more fossil fuel resources. A more recent study points out that this would still take us beyond 1.5 degrees of heating and staying within a 1.5 °C carbon budget (with a 50% probability) implies leaving almost 40% of ‘developed reserves’ of fossil fuels unextracted. The International Energy Agency has noted that allowing existing fossil fuel production capacity to operate for its economic life would drive heating to 1.65C.

Clearly effective response will be disruptive, a consequence of decades of ignoring scientific advice. Past inaction and the Ukraine tragedy means Europeans now face high energy prices. On the other hand, strategies aimed at dramatically reducing dependence on fossil fuels are being implemented. They will improve energy security and, in many cases, reduce energy costs.

Numerous studies (eg International Energy Agency, Climateworks) have shown that there is a lot of negative and low cost emission reduction potential. Repurposing subsidies and investment from fossil fuels can help to finance change. The economic, social and environmental impacts that result from less climate change – by avoiding or reducing its scale – offer enormous benefits.

In its 2021 discussion paper, the Business Council of Australia noted:

• Over the next 50 years unchecked climate change will shrink Australia’s economy by 6 per cent – a $3.4 trillion loss and over 880,000 jobs lost.
• Over the next 50 years action on climate change and choosing a net-zero economy will grow Australia’s economy by 2.6 per cent – a $680 billion increase and the creation of over 250,000 jobs.

The BCA’s support for strong emission reduction targets and strengthening the industrial emissions safeguard scheme seem to reflect recognition of these points.

There will be winners and losers. Those who act fast and take risks are likely to be winners. Those who fail to act, like recent Australian governments and many Australian businesses, can be confident they will be losers.

How Australia killed improvements to industrial energy efficiency

Australia rates 22^nd out of 25 countries in ‘industry action’ in the American Council for an Energy-Efficient Economy’s (ACEEE )latest international energy efficiency scorecard. Clearly we need stronger action.

This led me to review what happened in 2014 when the Abbott government shut down the Energy Efficiency Opportunities (EEO), the industrial energy-efficiency program. I was one of the developers of that program, and I worked on its introduction in operating industrial sites and with real-world businesses. It was widely recognised as world best policy practice at the time. Many businesses gained multiple benefits, not just energy savings.

The 2013 independent review of EEO, not available on the internet now, showed it was saving over $300 million annually at a cost of minus $95 per tonne of avoided carbon emissions, after just a few years of operation. The review recommended that the program should continue.

But the impact statement of the ideologically driven Office of Best Practice Regulation assumed that the ongoing program would deliver zero future savings. It is difficult to imagine how a program like EEO could deliver nothing after saving hundreds of millions of dollars annually in its first few years of operation.

The ongoing annual compliance costs of $17.7 million spread over about 300 large businesses with multi-billion dollar budgets outweighed OBPR’s ‘calculated’ benefits of zero. It recommended that the program be shut down – consistent with the radical right wing Abbott government and its extreme ‘economic fundamentalist’ ideology.

This decision has undermined implementation of effective industrial energy efficiency policy for nearly a decade, costing industry and Australians billions of dollars and billions of tonnes of emissions, and hobbling our ability to be part of a low carbon global future. Yet it has attracted little public debate.

Unfortunately, my recent work on industry energy-efficiency programs has shown that most of the lessons from a decade ago have been lost. Most Australian business is part of our climate and economic problems, not part of their solution.

We need aggressive action. Strengthening the industry emission safeguard scheme is a small step in the right direction for major emission-intensive industries. But most Australian business is not covered by this scheme. Further, the direct Scope 1 and 2 emissions (from direct use of energy and activities they control and purchased electricity) of most businesses are a small proportion of overall emissions associated with their activities. As a recent Commonwealth Bank report showed, most of businesses’ climate impact results from upstream activity (producing inputs) and downstream activities (including operation of products and services). These Scope 3 emissions appear as financial costs built into inputs, and as operating costs for downstream businesses and households: they are hidden costs, or ones that others outside the business pay.

Effective climate policy must require businesses to measure and report on significant Scope 3 emissions, and work with suppliers and customers to reduce them.

Most businesses need help to identify and manage their emissions. This means training, finance and investment in smart real time data analytics and flexible equipment. An updated EEO program including financing for concrete action would help. The public reporting of emissions and actions is also important to build accountability and motivate managers.

Businesses also need help to identify the multiple benefits of climate action that are mostly ignored. These include reduced food and material waste, improved process reliability and productivity, better health and safety for staff, updated products with features valued by consumers, and many others. Reports on the benefits of energy efficiency by the IEA, Australian Alliance for Energy Productivity, Climateworks, the Green Building Council and many others document the enormous opportunities.

Our energy future in context

Former PM Malcolm Turnbull argues that we need lots of pumped hydro energy storage. Andrew Blakers points out that we have many good sites for pumped hydro. The solar industry is aiming for even cheaper PV generation and the gas industry argues for hydrogen as our saviour.

Each option could play a useful role in Australia’s energy future, but we need to put energy into context. It is a ‘derived need’. No-one actually wants energy – or technology for that matter – for its own sake. They want services they value – e.g. comfort, light, food preservation and entertainment – but even the idea of necessary services is unclear. People’s perceptions of the services they think they need are framed by their past experience, not what is possible.

Stationary energy (electricity and gas) comprises just a few percent of Australian GDP. The energy sector thinks it is very important, and the fragile energy system we have designed means many people think reliable energy is important. But it is just one of a number of critically important factors needed to maintain our quality of life and productivity.

Capital investment in energy supply is also only a small proportion of total capital investment, so ‘rational’ economists and energy analysts who focus on energy issues are actually applying ‘bounded rationality’ by ignoring many other important drivers of behaviour. From a decision-maker’s perspective, it is often reasonable to treat energy as a minor issue as long as they can access the services they want.

How many people would prefer to return to a situation where they had to drive their car to a video hire store, then hire a DVD and use a specialised video or DVD player to access home entertainment? How many people who have bought homes in regional areas would move back to cities to access work, now that remote working has evolved throughout the pandemic.

The energy sector struggles to grasp the implications of changing perceptions of what ‘consumers’ actually want see for example this report on future home life.  This is partly because consumers often don’t actually understand what services they really want or what energy is actually required to deliver them.

It is an exciting and risky time, as our interpretation of our energy needs evolves and the range of available technologies spreads across previously separate sectors. An electric car is a mobile battery. A home can generate and store electricity and interact with the electricity grid. A thermally efficient home may need little or no heating or cooling. A mobile phone transforms our lives.

This is a slightly edited version of an article originally published in Renew issue 160.

Alan Pears AM has worked on clean energy and climate policy for several decades. His work spans all sectors of the economy, ranging from practical site-level projects to program development and implementation, policy analysis and education. He is a Senior Industry Fellow at RMIT University and a Fellow at the University of Melbourne’s Climate and Energy College

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