Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2004 - 2005
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
ENERGY EFFICIENCY OPPORTUNITIES BILL 2005
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Industry, Tourism and
Resources,
the Honourable Ian Macfarlane MP)
contents
OUTLINE 3
FINANCIAL IMPACT STATEMENT 3
REGULATION IMPACT STATEMENT 3
INTRODUCTION 3
PROBLEM 6
OBJECTIVES 10
OPTIONS 10
IMPACT ANALYSIS 17
CONSULTATION 36
CONCLUSION AND RECOMMENDED OPTION 38
IMPLEMENTATION AND REVIEW 39
REFERENCES 42
ATTACHMENT A - LIST OF STAKEHOLDER WORKSHOP PARTICIPANTS (Oct-Nov 2004)
43
ATTACHMENT B -Analysis of costs of compliance 45
Scope of work and approach 45
Summary of findings 49
Benefits of EEOA 55
Cost of compliance: "common energy" definition 57
Alternative energy definitions 95
NOTES ON CLAUSES 97
PART 1 - PRELIMINARY 97
PART 2 - DEFINITIONS RELATING TO GROUPS 97
PART 3 - CORPORATIONS REQUIRED TO REGISTER 98
PART 4 - REGISTRATION 100
PART 5 - ASSESSMENT PLAN 101
PART 6 - ENERGY EFFICIENCY OPPORTUNITIES ASSESSMENTS 103
PART 7 - REPORTING ABOUT ENERGY EFFICIENCY OPPORTUNITIES ASSESSMENTS
103
PART 8 - POWERS OF INSPECTION 104
PART 9 - MISCELLANEOUS 107
SCHEDULE 1- CONSEQUENCES OF CONTRAVENING CIVIL PENALTY PROVISIONS
108
ENERGY EFFICIENCY OPPOrTUNITIES BILL 2005
OUTLINE
The Energy Efficiency Opportunities Bill 2005 (the Bill) establishes the
framework for mandatory energy efficiency opportunities assessments and
public reporting of outcomes by large energy using businesses, as announced
by the Australian Government in the energy white paper in June 2004. The
Bill includes the following elements - registration of company details with
the Department; submission of a plan to undertake assessments; undertaking
an energy efficiency opportunities assessment; reporting publicly on the
outcomes of the assessment; and compliance and enforcement arrangements.
FINANCIAL IMPACT STATEMENT
The Government has appropriated $16.88m over five years from 2004-05 to
introduce the measure. Ongoing but reduced funding will be required to
continue administration of the program in subsequent years.
REGULATION IMPACT STATEMENT
INTRODUCTION
Energy is a basic input into almost every aspect of personal and business
activity. Total primary energy consumption has grown at an average rate of
2.4% per annum between 1973-74 and 2001-02, and the Australian Bureau of
Agricultural and Resource Economics (ABARE) forecasts further growth of
around 2.2% per annum between 2001-02 and 2019-20. Moreover, much of
Australia's energy is sourced from non-renewable fossil fuels - over 90% in
2001-02 (Productivity Commission 2005, p.23). Greenhouse gas emissions
produced during the burning of fossil fuels to create energy are thought to
have potentially long term and harmful environmental effects.
There are both economic and environmental benefits from improving
Australia's energy efficiency - using less energy inputs to produce a given
amount of output. While all sectors of the economy - households,
governments and businesses - have the potential to be more energy
efficient, small improvements in energy efficiency in the business sector
are likely to have much greater impacts on total energy use than changes of
a similar magnitude in the residential sector.
Business use accounts for over 80% of Australia's primary energy
consumption, as shown in Figure 1. However, a relatively small number of
businesses are responsible for the majority of this energy use. Analysis
of Australian Bureau of Statistics' (ABS) data suggests that the 250
largest business energy users account for around 60% of all energy used by
business.
Figure 1: Primary energy resources attributable to sectors, 2001-02
[pic]
Recently, the Australian Government has also been working with State and
Territory Governments through the Ministerial Council on Energy to create a
National Framework for Energy Efficiency (NFEE). NFEE aims to unlock the
significant but un-tapped economic potential associated with the increased
uptake of energy efficient technologies and processes across the Australian
economy. It is being developed cooperatively with the involvement of all
government jurisdictions and key stakeholders.
The Australian Government released its Energy White Paper, Securing
Australia's Energy Future, on 15 June 2004. This policy framework aims to
deliver the energy investment needed to ensure secure and environmentally
sustainable energy supply to 2030. A major challenge to Australia's
economic growth and living standards will be to meet a projected 50%
increase in energy demand while moving to a low emissions future by 2020.
The Energy White Paper recognised that improvements in energy efficiency
will be a key step towards meeting this goal.
Over the past decades the Australian Government has assisted companies to
identify energy efficiency opportunities through a variety of voluntary
programs. The recently concluded Energy Efficiency Best Practice (EEBP)
program provided Australian Government assistance worth over $10 million to
companies that wished to work towards greater energy efficiency. Industry
and Government worked together to identify cost-effective energy efficiency
opportunities and overcome barriers to their implementation. Initially
focused on benchmarking and information reports, the program evolved to
concentrate on practical and hands-on assistance to help organisations in
energy efficiency related implementation, innovation and capacity building.
Some State Governments have also implemented or are currently formulating
initiatives focussing on energy efficiency in business. For example, the
Victorian Environmental Protection Agency's Energy Efficiency in Industry
Program, requires emission licence holders to identify, and implement
energy efficiency improvements meeting a financial payback threshold. The
program is expected to generate annual greenhouse gas reductions of
1.15 million tonnes per annum and energy savings of approximately
$25 million per annum from 2006 onwards (Marsiglio 2005).
These programs have shown that a significant number of privately cost-
effective energy efficiency improvements had been overlooked by the
participating firms. As a result, the Government announced in the Energy
White Paper that a mandatory energy efficiency opportunity assessment
measure (subsequently named the Energy Efficiency Opportunities program) be
introduced.
Under the measure, the very largest energy users in Australia (those using
more than 0.5 petajoules (PJ) a year - the ABS estimates around 250 firms)
will have to assess the potential for improving the energy efficiency of
their operations, and report publicly on the outcomes. Firms will be free
to make decisions on investments identified via their normal business
processes. The government will act to ensure the assessments are rigorous
and comprehensive, and to disseminate the lessons learned to the wider
business community. Public reporting will be designed to provide the
markets with useful information while protecting the reasonable commercial
interests of firms.
The aim of the Energy Efficiency Opportunities program is to stimulate the
business sector to take a more rigorous approach to energy management. It
aims to ensure company executives place a high priority on addressing
energy costs and energy management practices.
This Regulation Impact Statement (RIS) sets out the Government's options
for implementing the Energy Efficiency Opportunities program, given that
the decision to proceed with a mandatory energy efficiency opportunities
program has already been taken.
Policy approval was contained in Securing Australia's Energy Future when
the mandatory EEOA was announced. Subsequent advice from the Australian
Government Solicitor confirmed that legislation was required to implement a
mandatory scheme. The only feasible options were in relation to the form of
the regulatory requirement. As a consequence, the only feasible options
are Option 2 (Mandatory Scheme with minimum performance standards) and
Option 3 (Mandatory Scheme without minimum performance standards). Even
though Option 1 (Voluntary Scheme) will be discussed in the Options
section, it is deemed not feasible given the decision already taken.
PROBLEM
The Challenge
The Government's energy policy framework aims to deliver the energy
investment needed to ensure secure and environmentally sustainable energy
supply to 2030. A major challenge to Australia's economic growth and living
standards will be to meet a projected 50% increase in energy demand while
moving to a low emissions future by 2020. The Energy White Paper
identified that improvements in energy efficiency will be a key step
towards meeting this goal by moderating energy demand and emissions.
The Energy Efficiency Gap
In Australia, both the level of energy efficiency (measured in terms of
primary energy supply per dollar of gross domestic product) and the rate of
improvement since 1973 are lower than other major industrialised countries.
While the relatively lower price of energy in Australia may explain some
of the difference, Australia has lower rates of energy efficiency
improvements than countries with similar energy prices, such as Canada and
the USA.
More generally, experience in Australia and overseas has shown that there
is often a gap between best practice energy efficiency, and actual
practice. While some technically feasible energy efficiency improvements
would not be economically viable, there is also evidence that firms often
do not take up energy efficiency opportunities that are privately cost
effective. This is known as the energy efficiency gap.
Determining the exact size of the energy efficiency gap in Australia is
very difficult. A comprehensive estimate would require information on
current energy use by each business in Australia, as well as each
businesses rate of time preference, to determine the appropriate payback
threshold to use. Up to date information on available energy efficiency
technology would also be required. Obviously, this would be an infeasible
task. Instead the best available estimates of the energy efficiency gap
are those compiled by extrapolating from sector-specific case studies and
audits to determine the average energy efficiency gap in particular sectors
of the economy. Some of the drawbacks to this approach, including other
modelling issues are discussed under the 'benefits' section for option 2 in
the impact analysis component of the RIS.
Table 1 shows the average energy efficiency potential (expressed as a
percentage reduction in current energy use) across sectors in the
Australian economy compiled by the Sustainable Energy Authority of Victoria
(SEAV). Energy efficiency potential in the industrial sector ranges from
3.4% to 11.2% of current energy use, with an average of 6.4%. Potential
rates of energy saving are even higher in the commercial sector, primarily
due to improvements in commercial building design.
Table 1: SEAV estimates of Energy Efficiency Potential by sector
|Sector |Average EEP % across sector (range of sub-sectors) |
|Agriculture |5.0 |
|Industrial |6.4 (3.4 to 11.2) |
|Commercial |10.4 (7.3 to 14.1) |
|Residential |13.0 |
Source: Productivity Commission (2005) p.84
Experience with the EEBP and other Government programs suggest that many
businesses could save 10 to 30% on their energy costs without reducing
productivity. For example, a malting company identified ways to reduce
energy consumption by 43%, (predominantly in kilning) and the roll out of
these ideas to 6 sites achieved 13% savings against their total budgets. A
brewery implemented savings which will reduce refrigeration energy
consumption by 35%, or $500,000 per annum. A paper manufacturer identified
over 120 energy saving opportunities to achieve a cumulative 10% saving on
energy costs.
The Final Review of the EEBP program found that the cumulative net benefit
of the program from identified potential energy efficiency actions by
business was over $55 million and over 1.5 million tonnes of greenhouse gas
emissions could be prevented.
Is there a role for Government intervention?
The existence of an energy efficiency gap may appear counter-intuitive.
Generally, firms would be expected to take up cost-saving energy efficiency
opportunities without any need for government intervention. Firms which
use large amounts of energy would have a particular incentive to increase
energy efficiency and reduce their input costs.
However, empirical evidence has established that an energy efficiency gap
exists. There are a number of possible explanations for the energy
efficiency gap. These include:
. Market failures, including imperfect information, split incentives and
externalities;
. Organisational failure and behavioural norms; and
. Other reasons, including hidden costs.
The orthodox economic position is that Government intervention is only
warranted to address the first category, market failures (especially in
this case, information failures and environmental externalities). However,
organisational failure and behavioural norms that are widespread in the
market and produce outcomes that confound orthodox expectations of what the
market should be delivering are also arguably market failure.
Anecdotal evidence from previous Australian programs supports the
Government's view that large energy users do in fact appear to lack
information about energy efficiency opportunities within their own
organizations, and are thus failing to take advantage of potentially
privately cost effective investments.
The other, and equally important problem to which this program is directed
is the ability of such a measure to help address environmental
externalities associated with emissions. The Government explicitly stated
in the White Paper that it is committed to a strong, secure and sustainable
energy sector. However there is no single solution that will address the
Government's desire to encourage substantial investment in the
infrastructure needed to support growing energy demands, while at the same
time moving the sector towards a low-emissions future.
The energy efficiency opportunities program is a crucial element of the
Government's multi pronged strategy of growing the economy while reducing
energy demand and the economy's greenhouse footprint. It needs to be re-
iterated that the program merely seeks to enhance information flows to
decision makers at the individual entity level, but does not mandate an
adoption of an energy efficiency investment if the firm does not consider
it to be privately cost effective. No mandated target reduction in energy
use is involved. This approach strikes a sound regulatory balance by
helping to address organisational information barriers, which may then lead
to lower energy use and reduce environmental externalities when, and only
when, it is of benefit to the individual business entity.
In developing the approach to energy policy set out in Securing Australia's
Energy Future, the Government decided to put greater emphasis on energy
efficiency in the business sector in preference to other options such as
emissions trading or mandatory renewable energy targets which would have
involved higher energy costs for large energy users.
In theory, a Government program that simply provided business with
information about the potential for cost effective energy efficiency
improvements would be one way to address information deficiencies and any
associated environmental externalities associated with higher than
necessary energy use.
Indeed the initial EEBP program focused on information provision. Fact
Sheets and other material were made available to industries regarding
energy efficiency best practice. However, program reviews found that
information provision by itself did not assist companies seeking to improve
their energy efficiency. Of more importance in addressing the information
issues in relation to efficient energy use would thus appear to be a more
active engagement at the specific business entity level in terms of
assessing the unique energy circumstances of the individual firm, rather
than broader (and more passive) information fact sheets. This is a key
change under the Government's enhanced approach with the energy efficiency
opportunities program.
Reviews identified that another problem of particular relevance for
business is the second category of impediments - organisational barriers.
Overseas research, summarised in the figure below, suggests that these
organisational barriers to the adoption of cost-effective energy efficient
technologies and processes are even more likely to occur in larger firms.
Figure 2: Organisational Barriers to Energy Efficiency Improvements
Risk aversion - managers may have an incentive to avoid risky projects
and actions in areas like energy efficiency which are perceived as non-
core to the organisation's operations, particularly if they are not
rewarded for taking greater risk by the owners of a firm (De Canio 1993)
Short time horizons - Managers might operate with a shorter time horizon
than the owners of the firms (Sorrell et al 2000, De Canio 1993)
Lack of cooperation - Managers in different parts of an organisation
might not cooperate if their incentives have not been appropriately
aligned by the owners (De Canio 1994)
Decentralisation - organisations with decentralised management were shown
to be poorly equipped and less likely to pursue large-scale projects
spanning the entire organisation. On the other hand, organisations with
centralized management were constrained in adopting small-scale localized
initiatives which required the active cooperation of their employees
(Cebon 1992).
Source: Productivity Commission (2005) p. 67
Participants in the Productivity Commission's inquiry also gave anecdotal
evidence of similar barriers being present in the Australian context. This
is supported by comments of organisations which have participated in the
EEBP program. Prior to joining the program, participants had not
considered how energy was used in their business or used a systems approach
to analyse energy use. Some companies did not have the information to
accurately analyse energy use prior to the installation of better metering,
monitoring and reporting processes. Other companies had previously
expanded existing technologies and processes rather than considering
whether an alternative process may be more energy efficient and cost
effective.
A submission to the Productivity Commission by energy management
consultants Energetics indicates that its evaluations by over the past five
years of 47 sites that spend more than $5m a year on energy has found 44 of
them (94%) don't have established energy management systems. Including
these large users, management diagnostics have been completed for 159 sites
in past 3 years in Australia: 69% of the sites self-scored at 1 Star -
meaning they have no practices for managing energy - even for controlling
waste. 18% of sites scored 2 stars, and only 3% 3 stars or above. It is
only this latter 3% that have management systems established to control
energy. This data suggests that energy management may not be rigorous in
Australian companies that are energy intensive and would therefore be
expected to maximise energy efficiency.
(http://www.pc.gov.au/inquiry/energy/subs/subdr104.pdf)
While the Productivity Commission's Report into Energy Efficiency has not
been finalised, the draft report expresses reservations about the scope for
government interventions to address purely organisational barriers to
energy efficiency. However, the Productivity Commission did note the
relationship between understanding behavioural and organizational
limitations and successfully designing energy efficiency programs directed
towards the correction of market failures, such as environmental
externalities or information failure.
The Government's energy efficiency opportunities program is directed
towards much more than just organisational barriers. The program seeks to
address information failures and organizational barriers at the individual
entity level which will allow businesses to adopt energy efficiency
opportunities when it is of benefit to them. To the extent that energy
efficiency opportunities are adopted by firms when it is in their best
interests to do so, the Government's other key goal of a low emissions
energy future will also be realised, with a reduction in the environmental
externalities associated with a more efficient use of energy.
OBJECTIVES
The dual objectives of the Energy Efficiency Opportunities Program are to
overcome the information failures and organisational barriers described
above which work against businesses identifying privately cost-effective
improvements in energy efficiency, and to the extent that these
opportunities are adopted, the Government's goal of a lower emissions
future with reduced environmental externalities will be realised.
Increased take-up of privately cost effective energy efficiency
improvements will benefit both the Australian economy (through increased
productivity) and the environment (through reduced greenhouse gas emissions
associated with energy use).
In considering the implementation options, it is also necessary to be
mindful of the Government's broader objectives of minimising the regulatory
impact of its decisions. In this regard the Government will favour lower
compliance cost options, as long as such options still substantially
achieve the Government's objectives.
OPTIONS
The decision to require Australia's largest energy users to undertake
mandatory energy efficiency opportunity assessments, and report publicly on
the outcomes was made as part of the Energy White Paper, released in June
2004. The Government explicitly does not require the implementation of
energy efficiency opportunities identified by companies. This RIS is
primarily focused on issues of implementation. This RIS compares 3 options:
. Option 1 is the status quo scenario against which the net costs and
benefits of other options will be compared.
. Option 2 is the initial proposal for a mandatory scheme, presented to
stakeholders for consultations.
. Option 3 is the revised proposal for a mandatory scheme, which
incorporates feedback from stakeholder consultations.
The main features of each option are summarised in the table below, with
more detail provided in the following sections.
Table 2: Comparison of RIS Options
| |Option 1 |Option 2 |Option 3 |
|Mandatory if meet energy use|( |( |( |
|threshold | | | |
|Legislation & verification |( |( |( |
|Assessment procedure |to some |( |( |
| |degree | | |
|Public reporting |( |( |( |
|Recognition of leading |to some |( |( |
|companies |degree | | |
|Capacity building |to some |( |( |
| |degree | | |
|Minimum point score | |( |( |
|Policy, management & people | |( |Less |
| | | |onerous |
|Data and analysis | |( |Less |
| | | |onerous |
Option 1 - Voluntary Scheme
If the Government had decided not to proceed with a mandatory energy
efficiency opportunities assessment program for large energy users, the
alternative would have been a continuation of the status quo where the
majority of firms undertake energy audits and investments in energy
efficiency improvements only on a voluntary basis.[1]
Such companies will thus incur some costs, although these assessments will
likely be undertaken as part of the company's standard business planning
and investment strategies. As detailed in the impact analysis for Option
1, the Australian Government's Energy Efficiency Best Practice (EEBP)
program and its predecessor the Enterprise Energy Audit Program (EEAP) were
programs that assisted companies who voluntarily undertook energy
efficiency assessments.
The most recent program, the EEBP, involved industry associations and
government working together to identify types, extent and patterns of
energy use within sectors, and the improvement potential of enterprises
within that sector based on best practice. It also involved working on
strategies to implement such practices and monitor progress. Under EEAP,
an attempt was made to separately account for the costs of undertaking
voluntary energy audits.
Under the program, aggregate costs incurred by participating organisations
and the Australian Government was around $18 million in 1999 dollar terms.
However as noted in the impact analysis section for this option, the
Program reviews for the EEAP and EEBP show that companies voluntarily
participating in the scheme were able to identify considerable benefits.
Indeed the Final Review of the EEBP identified a total of $74 million in
energy savings from implemented projects, with an associated 1.5 million
tonne reduction in greenhouse gas emissions.
That said, the review did not quantify the proportion of identified energy
efficiency opportunities actually taken up by the companies involved. In
fact, there was some evidence that after the conclusion of the program,
further ongoing action waned. This is not inconsistent with some of the
recent research in this area, especially a study of firm behaviour in
Norway, which attempted to explain the reasons why firms did not implement
energy efficient solutions[2]. Some key reasons related to information
difficulties and a lack of engagement or responsibility of personnel for
particular outcomes, as well as financial management rigidities within the
organisation. Some of these specific issues are directly addressed by the
requirements under the Government's proposed Energy Efficiency
Opportunities program.
Indeed the previous lack of ongoing successful outcomes associated with the
previous Government programs may well also be due to the lack of a
requirement to continually monitor and report on actions which would be
expected to provide greater momentum to investigate and take up
opportunities than would a once-off audit and assessment process.
The current funding for the Government's existing schemes has since lapsed,
although there remains a body of expertise and knowledge in the Department
and companies which have participated in the program. General information,
case studies and fact sheets are available on the Department of Industry,
Tourism and Resources' website (www.industry.gov.au/energybestpractice).
Some State Governments have expressed interest in similar state-based
schemes.
Option 2 - Mandatory Scheme with Minimum Performance Standards
In its Energy White Paper, the Australian Government announced that
companies using more than 0.5 petajoules of energy per year would be
required to undertake rigorous and comprehensive assessments of energy
efficiency opportunities consistent with an improved Australian Standard
(AS/NZS 3598:2000 Energy Audits) every five years, starting in 2006. The
assessments would identify energy efficiency opportunities with a payback
of four years or less, and firms would be required to report publicly on
the outcomes of the assessment.
The Government proposed the Energy Efficiency Opportunities program would
commence in 2006. An initial proposal was a scheme that would involve
meeting a wide range of minimum performance standards for energy management
and assessment, covering 5 strategic elements:
. Legislation and verification: to ensure that Australia's largest energy
users adopt an adequate standard of energy management and review.
. An assessment procedure: to enable companies to undertake and
demonstrate a best practice approach to managing and identifying cost
effective energy opportunities. The assessment procedure outlines the
policy, management and data analysis systems that a company needs to
have in place to manage energy use effectively. In the first instance,
companies will look at whether they have reached a prescribed minimum
standard and, if not, when they intend to reach the standard. The
assessment procedure will require minimum action by all companies, but
will also allow those companies that are already going beyond the
minimum required level to demonstrate their achievements by attaining a
higher level of points and public recognition. Companies will be
required to identify energy efficiency opportunities within their
organisations with a payback of four years or less, or using similar
measures which align with corporate decisions requiring capital
investment.
. Public reporting of opportunities: to ensure that CEOs and company
boards consider the identified opportunities carefully. To do this,
annual public reporting will be designed to enable markets to obtain
useful information, while protecting the reasonable commercial
interests of business.
. Recognition of leading companies and good practice: to encourage
companies to achieve their best through communications activities,
including a national energy efficiency awards program.
. Capacity building: to support development of energy efficiency skills
and knowledge within large energy using businesses and the consulting
sector.
The Energy Efficiency Opportunities assessment procedure incorporates:
. key elements of Level 3 of the energy audits standard, such as the
presence of energy management systems, provision of meaningful data
through metering, and involvement of key internal personnel;
. the translation of energy savings into financial performance
improvements;
. self assessment, with appropriate independent verification, to allow
organisations to choose the types of approaches and resources they use;
. processes that leading companies and the former Energy Efficiency Best
Practice program used to identify additional energy efficiency savings,
such as mechanisms to engage staff and facilitate creative responses;
. flexibility to address different starting points, roll-outs across
organisations with widely varying structures and cultures and different
market pressures, and to reward progressive improvement and early
action;
. more effective integration of energy issues into an organisation's
policies, strategies, management and operating systems on an ongoing
basis;
. encouragement of a shift towards a culture of excellence in energy
management;
. improved methods of analysis of energy use, with a particular emphasis
on 'systems thinking';
. improved project evaluation procedures that take account of the full
costs and benefits of energy efficiency opportunities for organisations
and provide a firm basis for serious investment decisions; and
. improved awareness of energy efficiency opportunities and performance
by the executive and board through public reporting
To achieve flexibility while maintaining rigour, the assessment procedure
is based on rating scales so that variations in the extent of
implementation and level of performance can be recognised. The self
assessment scorecard is based on a point scoring system to rate each
organisation's business units' or sites' performance on key aspects of
energy management that relate to identification of energy efficiency
opportunities. The categories for the self-assessment point scoring system
are:
. Policy, management and people
. Data and analysis systems
. Opportunity identification and evaluation
. Innovation and excellence (bonus points only)
. Results (to be reported to Department of Industry, Tourism and
Resources - DITR, and a summary publicly reported)
These categories recognise that in order to undertake an effective
assessment of energy opportunities, certain basic systems will need to be
in place. These form the mandatory elements of the assessment, which all
firms must meet. The procedure allows for companies to identify the
necessary systems and to put them in place over time. It also allows
companies to use a range of existing systems, practices and approaches for
identifying energy efficiency opportunities, and to have these recognised.
. Policy, management and people broadly corresponds to sections of the
energy audits standard that relate to establishment and maintenance of
appropriate policies, action plans and accountability considered
essential prerequisites for an energy audit. Additional emphasis is
placed on training and the engagement of staff across the organisation,
as this is a key lesson from past experience and consultation.
. Data analysis, systems and practices broadly relates to sections of the
standard that address the need for effective ongoing systems to collect
and analyse energy data and other relevant information. Integration of
these systems into organisational practices and systems is also
recognised, as is development and use of energy and material flows and
balances to optimise technical performance of plant. Effective
communication of relevant information to operational staff and
management is also recognised.
. Opportunity identification and evaluation focuses on a range of
mechanisms that may be used to identify energy efficiency opportunities
and the application of a comprehensive evaluation system that considers
the 'whole of business' case. The options reflect lessons learned from
organisations that have successfully improved energy performance. This
section also requires listing of opportunities for use in reporting.
. Innovation and excellence further responds to some of the key lessons
from innovative companies and recent experience in programs such as
Energy Efficiency Best Practice. It is recognised that it is very
difficult to mandate innovation and excellence, so this section is not
included in the core requirements; instead, bonus points can be gained
in this area. This creates an incentive mechanism to encourage the
kinds of activities that the best performing organisations pursue to
capture larger energy savings that also contribute to corporate success
because of their broader benefits.
. Results addresses the outcomes of the assessment process and reporting
to DITR and the public.
Within each category (except for innovation and excellence) there are
mandatory elements which each firm must meet, as well as additional
flexible elements. Firms must meet a sufficient number of flexible
elements to reach a minimum point score. However, firms can choose which
combination of flexible elements they target, according to their own
business requirements. While this approach is flexible and relies on self
assessment, the process of independent verification, reporting of actual
performance to DITR and the summary reporting to the public will provide
opportunities to ensure compliance.
To assist firms in undertaking self-assessment a spreadsheet-based tool
(using Microsoft Excel), known as '3-Plus', would be available. This
scorecard tool would also be made publicly available on the DITR website to
make the methodology transparent to investors and the wider community.
Scorecards containing individual data from organisations would remain
completely confidential.
Option 3 - Mandatory Measure without Minimum Performance Standards
Following stakeholder consultation and in-company trials of the 3-Plus self-
assessment tool, the initial proposal has been revised. Option 3 describes
the revised Energy Efficiency Opportunities proposal, which is a simplified
form of the original model. The simplified model still retains the five
key strategic elements of the program:
. Legislation and verification
. An assessment procedure
. Public reporting of opportunities
. Recognition of leading companies and good practice: to encourage
companies to achieve their best through communications activities,
including a national energy efficiency awards program.
. Capacity building
However, under option 3 participating companies will not need to perform
additional tasks to reach a minimum point score. It will be sufficient for
companies to meet the core mandatory elements of an assessment procedure,
which focus on basic monitoring, analysis and reporting systems for energy
use and possible energy efficiency improvements. The focus has been
sharpened to specify the essential elements to support an effective energy
efficiency opportunities assessment.
Companies who use more than 0.5 petajoules of energy per annum will still
need to register with the Department of Industry, Tourism and Resources.
These companies will be required to conduct an energy efficiency
opportunities assessment within five years, and to report annually on their
energy use as well as identification of and implementation of energy
efficiency opportunities with a payback of four years or less. This
reporting will be to both the Department, through the Australian Greenhouse
Office's Greenhouse Challenge Plus web-based interface, and the public via
the company website or other published report.
As for Option 2, the Department will have a verification role to ensure
compliance with the legislation.
IMPACT ANALYSIS
Stakeholders
The parties that will be affected under Options 2 and 3 are:
. companies which use large amounts of energy;
. the Federal Government; and
. members of public.
The most significant impact will be on the large energy users who are
directly subject to the Energy Efficiency Opportunities program. Based on
data from the Australian Bureau of Statistics, in 2001/02 around 250
companies were estimated to consume more than 0.5 PJ of energy per annum.
The majority of these will be in the industrial sector, including
manufacturing and mining companies. However some large commercial sector
businesses such as retail and banking chains will also be affected, as
shown in Figure 3 below.
Figure 3: Affected companies by industry sector
[pic]
The Australian Government will administer Energy Efficiency Opportunities
through the Department of Industry, Tourism and Resources, with assistance
from the Department of Environment and Heritage. State and Territory
Governments will not be directly affected by the proposal, although several
jurisdictions are currently planning or have already implemented somewhat
similar energy audit requirements for large industrial energy users. In
formulating the Options presented in this RIS, the Australian Government
has considered the design of these activities in other jurisdictions, with
a view to minimising the burden on affected firms from multiple schemes.
While participation in a State or Territory based audit program will not
remove the need for compliance with Energy Efficiency Opportunities
requirements, areas of possible overlap or duplication will be avoided if
possible. Many activities undertaken for other programs will count towards
compliance with Energy Efficiency Opportunities where they are
substantially similar to Energy Efficiency Opportunities requirements.
Members of the public are affected as final consumers of the products
produced and sold by the companies affected. However, the ultimate effect
of the proposed measure on the price of goods and services is ambiguous.
Although the legislation will impose some compliance costs to business, the
implementation of cost-effective improvements in energy efficiency is
expected to reduce the cost of producing some goods and services in the
long term. Members of the public are also beneficiaries of environmental
improvements caused by a reduction in the use of fossil fuels and
associated greenhouse gas emissions.
Option 1
Costs
Under Option 1 companies who choose to voluntarily undertake energy
efficiency opportunities assessments will incur some costs, although these
assessments will likely be undertaken as part of the company's standard
business planning and investment strategies. Similarly, investments in
improved energy efficiency are likely to form part of standard business
capital upgrades or capacity expansion.
That said, under EEBP an attempt was made to separately account for the
costs of undertaking voluntary energy audits. Under the program, aggregate
costs incurred by participating organisations and the Australian Government
was around $18 million in 1999 dollar terms.
While the flow of costs associated with a continuation of the current
voluntary assessment model is not known, the assessment of costs for the
alternative regulatory options is able to be calibrated as a net additional
cost, given that the participants under Energy Efficiency Opportunities are
identifiable and their additional requirements and efforts (beyond their
current commitments) can also be identified. By adopting this incremental
or additional cost approach, the alternative options can be compared
against an assumed zero (i.e. no additional) cost baseline for Option 1.
Benefits
It seems reasonable to assume that retaining the status quo position of
voluntary audit programs would not be likely to generate significantly
higher rates of energy efficiency improvement than have been observed
historically However, it is likely that some level of energy efficiency
opportunities will be voluntarily identified and taken up by Australian
companies without a mandatory assessment scheme. As with costs it is
necessary to determine a baseline on top of which additional benefits from
Energy Efficiency Opportunities will accrue.
Program reviews for the EEAP and EEBP show that companies voluntarily
participating in the scheme were able to identify considerable benefits.
The Final Review of the EEBP identified a total of $74 million in energy
savings from implemented projects, with an associated 1.5 million tonne
reduction in greenhouse gas emissions. Again it is not possible to
extrapolate from these results the potential benefits of continuing a
voluntary scheme, as the results depend on the opportunities identified and
taken up in particular businesses.
The Final Review of the EEBP did not quantify the proportion of identified
energy efficiency opportunities actually taken up by the companies
involved. Evidence from the review suggested that after the conclusion of
an intervention program further or ongoing action on energy efficiency
wanes as other organisational issues take priority. This is not
necessarily a sign of failure; a firm has many competing demands for its
internal resources and may find it appropriate to concentrate on issues
other than energy efficiency. However, another interpretation could be
that a mandatory scheme which ensured companies continued monitoring and
reporting on actions taken on an annual basis may provide greater momentum
to investigate and take up opportunities than a once-off audit and
assessment process.
As with the cost estimates, the estimated benefits of the alternative
options have been determined relative to a status quo baseline. The
modelling conducted by the Allen Consulting Group used a baseline scenario
where energy efficiency was expected to continue to grow at historically
observed levels with the only actions for reducing the energy efficiency
gap coming from voluntary implementation. Benefits reported from further
improvements in energy efficiency are additional to these baseline
improvements, so the alternative options can be compared against an assumed
zero (i.e. no additional) benefit baseline for Option 1.
Summary
Retaining a voluntary energy efficiency opportunities assessment program
would reduce the up-front compliance costs faced by companies. However it
is expected that many companies would elect not to participate at all. A
voluntary program would also reduce the productivity and environment
benefits compared to that which a mandatory scheme can achieve over time by
providing better information to businesses to make cost effective energy
interventions. Research has shown that organisational barriers and a lack
of information about possible energy efficiency improvements mean that
companies do not recognise and undertake privately cost-effective
investments. A continued voluntary scheme would not provide the impetus
for a significant number of companies to methodically investigate the
potential for energy efficiency improvements.
Option 2
Costs
The key costs of Option 2 will be the compliance costs incurred by affected
firms and administrative costs incurred by the Australian Government. Each
of these is addressed in turn below.
Compliance costs
Methodology used to estimate compliance costs
The Department of Industry, Tourism and Resources commissioned Energetics,
a specialist energy consultancy, to provide advice on the likely cost of
compliance with the Energy Efficiency Opportunities program. Energetics
based its cost estimates on its experience as an energy and environmental
consultancy. It has direct knowledge of the costs of implementing the
energy management processes outlined in options 2 and 3, in a large number
of Australian companies. It has used this knowledge to extrapolate these
costs to the likely population of companies covered by the program.
The businesses affected by the program were divided into 4 types:
. Type 1: Firms with less than 10 sites contributing to total energy use
greater than 0.5 PJ, with central management. Likely to be smaller
industrial companies.
. Type 2: Firms with up to 20 sites, some with energy use greater than
0.5PJ. Local level management with some central coordination and
reporting. Likely to be larger industrial companies.
. Type 3: Firms with between 20 and over 1,000 sites with central
management, each with relatively small levels of energy use. Likely to
be commercial, retail, hospitality and transport companies.
. Type 4: Firms with between 20 and 50 sites, many of which use more than
0.5PJ per site. Strong local and central management. Likely to be
major mining and resources companies and diversified manufacturers.
Firms were split into these four types, based on Energetics' experience in
conducting energy audits, the number and size of sites, and the company
management structure, which all have an impact on the level of costs
incurred. In general, compliance costs are expected to be lowest for Type
1 firms. Type 2 and 4 firms are expected to have higher absolute costs due
to the greater complexity of their operations and number of high energy use
sites (but are likely to have some economies of scale). Type 3 firms may
also face higher costs, especially in data collection across a larger
number of sites, but the program is intended to allow assessment using
representative sites where a large number of similar sites exist in an
enterprise.
Energetics used two distinct techniques to estimate different components of
compliance costs. The Energetics compliance cost analysis is attached at
Attachment B, and contains detailed explanations of the methodology,
particularly the discussion from page 38 of Attachment B.
Firstly, a bottom-up estimation approach for the energy measurement,
monitoring and management system requirements that form the basic
requirements necessary to undertake an opportunities assessment.
Energetics has practical experience of how much such systems typically cost
to implement in firms of various types.
Secondly, based on its experience that firms undertaking an intensive
assessment of energy efficiency opportunities typically spend an amount
directly budgeted as a proportion of either energy costs or more broadly
operating costs, the costs of undertaking the 'audit' type part of the
assessment is costed as a proportion of energy or operating costs.
Energetics' experience underlies its estimates of likely costs of this
component that represent how firms of varying size usually expend on this
type of assessment.
Bottom-up methodology for systems necessary for an assessment
Using the 3-Plus Tool (see description below), a minimum compliance
response was constructed in which the firm complied with all mandatory
elements, and the least-costly combination of flexible elements necessary
to obtain the minimum point score.
. As background, the 3-Plus Tool is a software tool that allows companies
to enter information about what energy monitoring and management
systems and processes they have in place. It allows them to assess the
standard of systems that they have, and identify areas that they could
improve.
. Under option 2, the 3-plus tool is used as an assessment tool under
which companies would be required to achieve certain scores for their
systems and processes, in addition to undertaking an assessment of
their opportunities.
. Under option 3, the 3 plus tool is used as a business diagnostic tool
that firms can use for their own benefit to assess the state of their
energy management. A core set of basic standards of energy monitoring
and management processes will be required to actually complete an
assessment. The tool will help companies plan their assessments.
Energetics then used a bottom-up approach for the monitoring and reporting
requirements which identified the estimated total cost of compliance for
each element of Energy Efficiency Opportunities, based on firm type. An
adjustment was then made to account for activities that were already being
done by the affected businesses, to determine the incremental or additional
cost to firms of complying with Energy Efficiency Opportunities
requirements.
Energy or operating cost methodology for undertaking an assessment
The requirement to perform an energy efficiency opportunities assessment
within five years of the program coming into effect is costed separately to
the reporting and monitoring requirements of the program, and is based on a
firm's assumed energy spend. Four scenarios were used:
. 1% of annual energy cost per year for 5 years where energy spend per
firm (on average) is less than 5% of operating costs and/or less than
$15 million pa. This implies that firms with this level of spend on
energy would typically spend up to 5% of annual energy costs conducting
a detailed assessment suitable for making investment decisions;
. 0.06% of total operating costs per year for 5 years where energy spend
is greater than $15 million but less than $50 million pa. This implies
that firms with large energy spend would typically take a "% of
operating costs" approach to conducting a detailed assessment, with
energy spend typically a significant proportion of total operating
costs. Estimates were made of the operating costs for applicable
sectors based on estimated proportion of costs that are energy-related,
including:
o 15% of operating costs for Mining;
o 20% of operating costs for Wood, Paper & Printing; Non-metallic
Minerals and Metal Products;
o Up to 30% of operating costs for Transport and Chemicals;
o 5% of operating costs for Water, sewerage and drainage;
For these sectors 0.06% of annual operating costs were calculated
where energy costs exceed $15 million per year. Where energy costs
are estimated to be less than $15 million per year, the 1% of energy
costs method was applied. This level of cost broadly reflects costs
that could be incurred from Energetics experience and based on the
modelling conducted. At the margin (i.e. close to $15 million
annual energy spend) estimates of per-entity spend on the
Opportunities Assessment can differ markedly between the "1% of
energy" and "% of operating cost" methods, however it is expected
that entities around this level could employ a method that reflects
their current level of knowledge of opportunities and perceived
benefits from the measure. Overall costs for this part of the
measure are not expected to be materially affected;
. Two-thirds of 0.06% of total operating costs per year for 5 years where
energy spend is greater than $50 million, to reflect further economies
of scale compared with the basic "% of operating cost" method for sites
with very large energy spend, typically reflecting large-scale items of
equipment rather than necessarily more items of equipment;
. Two-thirds of 1% of annual energy cost per year for 5 years for
commercial and construction sectors, to reflect an approach that would
be based on a detailed assessment at representative sites / applicable
technology levels, with results extrapolated to a whole population of
sites.
For both the reporting and assessment requirements, adjustments were made
to the base cost to account for actions already taken by affected firms.
This gives the additional or incremental cost associated with complying
with Energy Efficiency Opportunities.
Compliance cost estimates
The table below shows the expected average incremental cost per annum
incurred by firms undertaking the assessment requirements of Energy
Efficiency Opportunities. Overall the modelling assumes that 20% of the
compliance cost for any one firm is faced in each year. However the cost
will vary depending on the type of firm and the sector in which it
operates, so that the year to year cost will vary in practice, as different
firms undertake their assessments. The methodology for estimating the
costs in Table 3 is set out from page 38 in Attachment B.
Table 3: Compliance cost for Energy Efficiency Opportunities, by firm type
and industry sub sector
|Industry Sector |Av. annual incremental cost |Total |
| |per firm |cost per |
| | |annum |
| |Firm Type | |
| |1 |2 |3 |4 | |
|Mining |28,700|31,800 |n/a |56,100 |2,580,000|
|Food, beverages, tobacco |55,000|97,100 |n/a |n/a |2,200,000|
|Textile, clothing, |85,000|n/a |n/a |n/a |170,000 |
|footwear & leather | | | | | |
|Wood, paper & printing |- |22,200 |n/a |63,900 |350,000 |
|Petroleum, coal & chemical|16,300|28,700 |n/a |148,600|1,340,000|
|Non-metallic mineral |26,000|42,400 |n/a |n/a |380,000 |
|products | | | | | |
|Metal products |24,700|23,500 |n/a |91,700 |730,000 |
|Machinery and equipment |71,400|83,300 |n/a |n/a |750,000 |
|Water, sewerage & drainage|n/a |107,500|n/a |138,500|570,000 |
|Construction |n/a |n/a |57,000 |n/a |340,000 |
|Transport & storage |n/a |24,300 |17,700 |35,000 |380,000 |
|Commercial & Services |n/a | |108,300|n/a |4,870,000|
|ALL |36,900|46,400 |96,100 |70,000 |14,660,00|
| | | | | |0 |
This direct assessment cost is added to the other reporting and monitoring
costs as shown in Table 4 below. The upfront costs of compliance
(excluding the cost of opportunity assessment) total $21.7 million or an
average of $86,700 per firm. Recurrent costs will be $28.7 million per
year, or around $114,600 per firm. Recurrent costs are higher than the
development costs because they include the cost of Energy Efficiency
Opportunities and, in some cases, firms are expected to need to spend more
on recurrent expenditure than setting up the initial systems and processes.
Table 4: Estimated Compliance Costs - Option 2
| |Average cost per |Total cost |
| |firm | |
|Requirement |Development|Recurren|Development|Recurrent|
| | |t | | |
|Confirming 0.5PJ |9,340 |- |2,335,000 |- |
|Threshold | | | | |
|Policy, management & |42,898 |13,267 |10,724,375 |3,316,840|
|people | | | | |
|Data & analysis |18,500 |25,150 |4,625,000 |6,287,500|
|Opportunities |- |58,640 |- |14,660,00|
|Assessment | | | |0 |
|Innovation & |1,250 |8,380 |312,500 |2,095,000|
|Excellence | | | | |
|Reporting |14,725 |9,191 |3,681,250 |2,297,715|
|ALL |86,713 |114,628 |21,678,125 |28,657,05|
| | | | |5 |
In determining the annual costs of Option 2 the development costs are
assumed to be incurred in 2005-06. As noted before, 20% of total
assessment-related compliance costs are faced in each year (including in
year 1), hence the first year impact is the highest of all single year
estimates at $36.3 million. From 2006-07 onwards, the annual compliance
cost is equivalent to the recurrent costs only, or $28.7 million per annum.
For the cost calculations by entity type, the individual requirements in
Table 4 above were determined for each of the 250 entities, spread across
the industry sectors and firm types according to the splits in Table 5
below. These industry and 'firm type' allocations are used to scale up the
individual calculations for each element of the compliance requirements
under Option 2 and later for Option 3. The detailed breakdown of each cost
component is presented in the compliance cost report prepared by Energetics
for the Department (see Attachment B)
Table 5: Entities by Number - Industry and 'Firm Type' Concordance
|Industry Sector | |Total by |
| | |Industry |
| |Firm Type | |
| |1 |2 |3 |4 | |
|Mining |30 |10 |0 |25 |65 |
|Food, beverages, tobacco |10 |17 |0 |0 |27 |
|Textile, clothing, |2 |0 |0 |0 |2 |
|footwear & leather | | | | | |
|Wood, paper & printing |0 |7 |0 |3 |10 |
|Petroleum, coal & chemical|10 |15 |0 |5 |30 |
|Non-metallic mineral |3 |7 |0 |0 |10 |
|products | | | | | |
|Metal products |3 |20 |0 |2 |25 |
|Machinery and equipment |7 |3 |0 |0 |10 |
|Water, sewerage & drainage|0 |4 |0 |1 |5 |
|Construction |0 |0 |6 |0 |6 |
|Transport & storage |0 |7 |4 |4 |15 |
|Commercial & Services |0 |0 |45 |0 |45 |
|Total by Firm Type |65 |90 |55 |40 |250 |
Government Administration Costs
Estimates of Government administration costs for implementation of Energy
Efficiency Opportunities were provided in the Energy White Paper and are
provided in the table below. After 2008-09 no net additional recurrent
funding is allocated, and it is assumed that any administration costs would
be provided through internal departmental budget allocation processes.
Table 6: Estimated Administration Costs, Energy Efficiency Opportunities
|Year |2004-05|2005-06|2006-07|2007-08|2008-09|Total|2005-06 |
| | | | | | | |to |
| | | | | | | |2008-09 |
|$ |2.2 |3.7 |3.9 |3.7 |3.3 |16.9 |14.6 |
|million| | | | | | | |
Source: Australian Government (2004) page 181.
Cost Summary
Table 7 below summarises the estimated annual costs of Option 2. The total
undiscounted cost is just under $309 million over the 10 years to 2014-15.
The costs and benefits of Energy Efficiency Opportunities will occur at
different times. In particular, there will be a time lag in obtaining the
benefits from improved productivity as it takes some years for all
companies to complete their energy efficiency opportunities assessment and
make subsequent capital investments in energy efficiency improvements at
their discretion. In order to compare costs and benefits which occur at
different times, a net present value of costs and benefits is calculated.
This accounts for the time value of money, which reflects the fact that a
dollar spent today is valued more highly than a dollar spent in the future.
Choosing an appropriate discount rate for benefit-cost analysis is a
subject of some debate. There is a substantial body of literature which
provides conflicting advice on the appropriate mechanism by which economy-
wide benefits and costs for a project should be discounted over time. For
this analysis, we have used the risk-free discount rate (ie a real discount
rate of 3%), which is consistent with the real interest rate on a CPI-
linked government bond. No arbitrary additional premium has been added to
this discount rate, as each quantifiable cost and benefit line item has
been conservatively estimated to account for the risk and uncertainty in
the analysis.
Applying a real discount rate of 3% generates a net present value for these
costs of $265.5 million. Of this around 95% of the costs are borne (in the
first instance at least) by the affected firms. The extent to which these
costs are passed on to consumers in the form of higher priced goods and
services will depend on the level of competition in the industries
concerned and the degree to which benefits from energy effective savings
flow through to business operations following various energy efficiency
investments. It is not possible to separately quantify the magnitude of
these indirect effects on consumers, as this would require a detailed
analysis of the level of competition now and in future in the industries
affected. Many energy-intensive industries are at early stages in the
value chain (for example mining and refining) and so the impact of final
consumers would also need to consider how cost-savings are passed on at
each step in the value chain. It is worth noting that part of the benefit
to consumers is already captured as an element of the benefits accruing
from the increase in gross domestic product, discussed in the benefit
section below.
Table 7: Estimated Costs, Option 2, 2005-06 to 2014-15
(Note: costs discounted to 2005-06 values)
[pic]
Benefits
The primary quantifiable benefit of a mandatory scheme will be the energy
cost-savings and other productivity improvements flowing from investment in
energy efficiency improvements. These need to be expressed in net terms,
to account for the capital cost of the investments. Improvements in
productivity will allow a greater amount of output to be produced with a
given set of inputs, thereby increasing Australia's gross domestic product
(GDP).
Improvements in energy efficiency which reduce fossil fuel consumption may
also have environmental benefits, including reductions in greenhouse gas
emissions. Determining the appropriate dollar value to place on these
positive environmental impacts is a complex and controversial task, which
is not included in the benefit calculations.
Methodology used to estimate benefits
Quantifying the benefits of Options 2 and 3 is much more difficult and
uncertain than estimating their costs. Firstly, there has never been a
full and comprehensive assessment of the size of the energy efficiency gap.
Secondly, there is only limited, and anecdotal, information on the extent
to which a mandatory audit program would influence firms to take up energy
efficient investments.
Modelling conducted for the NFEE estimated the potential for energy
efficiency improvements in particular sectors of the Australian economy.
These estimates were based on opportunities with a payback period of four
years or less, identified in previous case-studies and energy audit
results. As noted before, the level of comfort that can be placed in the
results of the NFEE modelling depends on the representativeness of the
underlying case study data used to determine the size of the energy
efficiency gap.
The economy-wide impacts of increasing energy efficiency were modelled by
the Allen Consulting Group, assuming that 50 per cent of potential energy
efficiency improvements would be taken up over a 12 year period from 2005
to 2016. The effects were compared to a "business as usual" scenario where
energy efficiency continued to increase at historical rates with the
current voluntary arrangements still in place.
By 2016, 12 years after the initial investments in energy efficiency
opportunities began, these increases in energy efficiency would increase
GDP by 0.09% or $975 million. In addition, total direct energy cost
savings would be around $1.4 billion and greenhouse gas emissions would be
reduced by 2.8% (9.5 mega tonnes of carbon dioxide equivalent).
The NFEE modelling does not examine in detail how the 50% take up of energy
efficiency opportunities (above the baseline case) would occur through
various policy approaches. In particular, it does not discuss the relative
take-up rates that might accrue under a mandatory scheme such as Option 2
or Option 3. This lack of detail also makes it unwise to assume how moving
away from a 50% take up rate will affect the level of GDP growth.
What is known from small sample data is that when businesses are aware of
the energy efficiency opportunities available to them, their take-up rates
are quite high. Although the participants in the previous schemes such as
EEAP were involving themselves on a voluntary basis (and hence may have
been self selecting themselves because they expected to see positive
opportunities as a result of any energy efficiency audit), their take-up
rates (ie. moving from assessment to energy efficient interventions) were
significant at around 80%.
That said, while the lower 50% take-up implied in the Allens' analysis is
still strong, it is more in line with the take-up rates that one might
expect from larger firms (such as those targeted by Energy Efficiency
Opportunities). In terms of comparing the expected take-up rate
differential that might be generated by the slightly more extensive
compliance requirements (in relation to data analysis and organisational
involvement) in Option 2 compared to Option 3, there is some argument that
benefits might be slightly higher for Option 2.
Unfortunately there is no evidence available to make a definitive claim
about the various pathways from audit and identification through to actual
energy efficient investment decisions. In the absence of such data, it is
not possible to make a fine distinction between the differing
identification obligations under Option 2 and Option 3 and their impact on
take-up rates beyond those calculated in the Allens' analysis. In theory
Option 2 benefits should have a slightly higher take-up rate, but for the
purposes of the RIS analysis the quantified benefits are the same for both
Options.
The Allen's modelling included increases in energy efficiency in sectors,
such as the residential and agricultural sectors, not targeted by Energy
Efficiency Opportunities, and included investments by both small and large
firms.
The Allen Consulting Group, at the request of the Department of Industry,
Tourism and Resources, explored whether the NFEE modelling could provide
greater sectoral detail on the benefits of Energy Efficiency Opportunities.
Allen's concluded that, although the scope of Energy Efficiency
Opportunities differed from that of the NFEE modelling, some general
inferences could be drawn.
Australian Bureau of Statistics (ABS) data suggest that around 250 firms
used greater than 0.5 PJ in 2001-02. Firms which consumed more than 0.5 PJ
of energy were responsible for around 1156 PJ of energy end use. This is
equivalent to just over 60 per cent of total energy use of businesses
covered in the 2001-02 ABS survey (1884 PJ), and around 35 per cent of
total energy end use in the economy in 2001-02 as reported by the
Australian Bureau of Agricultural and Resource Economics (2004). Thus
around a third of the impacts estimated in the NFEE modelling could arise
from the Energy Efficiency Opportunities population, assuming that all
identified opportunities with paybacks up to 4 years are implemented, and
that the modelling involved uniform opportunities for energy savings;
uniform distribution of large energy use firms using greater than 0.5 PJ of
energy; and uniform expansionary impacts on GDP.
Examining the above assumptions relating to uniform opportunities,
distribution and expansionary impacts, it was noted that not all
opportunities for energy savings are uniform. The greatest potential for
energy efficiency improvement arise in the services sectors, including
wholesale and retail trade (11.9 per cent energy efficiency improvement
potential for paybacks less than 4 years), finance and business services
(11.1 per cent), accommodation, cafes and restaurants (14.1 per cent) and
culture, recreation and personal services (9.9 per cent) (Allen Consulting
Group 2004a).
The lowest opportunities for energy efficiency improvements arise in the
trade exposed mining, minerals processing and chemicals industries, where
energy efficiency improvement potential ranges from 3.4 per cent for
mining, through 4.3 per cent for alumina and aluminium, up to 8.9 per cent
for basic chemicals. These industries are likely to have greater
requirements for energy use, and to comprise large energy using firms.
This leads to the second point - large energy use firms are likely to be
concentrated in a small number of energy intensive resource extraction or
processing industries. Minimum efficient scale in these industries tends to
drive a smaller number of larger firms.
Thirdly, expansionary impacts on GDP are not uniform. The greatest first
round contributions to positive GDP growth stimulus by industry are from
the other manufacturing and trade services sectors, and from the energy
intensive trade exposed industries - alumina and aluminium and iron and
steel. As noted, it is difficult to determine exactly what factors drive
the results for other manufacturing and trade services. However, it is
reasonable to infer from the energy intensive trade exposed industry
results that these industries have a greater relative contribution to the
overall GDP growth resulting from energy efficiency investments.
What this suggests is that if anything, large energy use firms are likely
to make a greater contribution to the overall GDP growth. When combined
with the second point above, the conclusion can be drawn that the Energy
Efficiency Opportunities population of firms could be responsible for at
least a third of the overall boost to GDP in the MMRF-Green modelling, or
around $300 million in year 12. Significant caution needs to be observed
in relation to this conclusion however, as it is based more on inference
rather than explicit modelling output.
The Allen's modelling assumes that energy efficiency improvements are
introduced uniformly over a 12 year period. However, for the purposes of
this RIS a 10 year time horizon is adopted and firms will have a five year
period to conduct their initial energy efficiency opportunities assessment.
This means that some firms will not begin undertaking energy efficiency
improvements until year 5 onwards. The time period in which the financial
benefits from the energy efficiency improvements will occur is thus
truncated, and the total benefit of $300 million per annum implied by the
Allen's analysis (noting the caveats) cannot be fully attributed to the
Option.
Estimated Benefits
Based on the available evidence, a best estimate is that the net financial
benefit of firms taking up energy efficiency opportunities identified
through the EEOA measure could rise to around $205 million in year 10 (2014-
15), or a total benefit in net present value terms of $760 million.
Table 8: Estimated Benefits, Option 2, 2005-06 to 2014-15
[pic]
Sensitivity Testing
As noted considerable uncertainty surrounds the benefit estimate. The two
key assumptions that affect the analysis are the discount rate that is
applied and the rate of take-up of energy efficiency opportunities.
There is considerable debate over the appropriate discount rate to choose
when undertaking impact analysis. The Productivity Commission, in its
draft report into Energy Efficiency noted the particular sensitivity of
case studies into energy efficiency to the discount rate applied. As noted
above, a discount rate of 3% has been applied here, consistent with the
real long-term Government bond rate. Choosing another discount rate will
alter the magnitude of the expected net benefits and costs of Option 2, but
will not significantly alter the ratio of costs to benefits (see Table 9).
Table 9: Sensitivity Analysis Option 2 - Discount Rate
|Real Discount Rate |3% |12% |Difference |
|Benefit (NPV, $ |762.9 |418.7 |344.2 |
|million) | | | |
|Cost (NPV, $ million) |265.5 |179.9 |85.6 |
|Net Benefit (NPV, $ |497.4 |238.8 |258.6 |
|million) | | | |
|Ratio Benefits to Costs|2.9 |2.3 |0.6 |
While a suite of differing take-up rates could also be theoretically
modelled in addition to the sensitivity testing on the discount rates, it
would be quite a detailed and time consuming task. However, another method
by which additional sensitivity testing can be applied to the benefits
estimate is to consider the sensitivity of the component of the NFEE
benefits which are assumed to relate to the population captured by the
Energy Efficiency Opportunities program. As discussed in some detail in
the preceding section, a third of the overall boost to GDP in the MMRF-
Green modelling has been assumed to relate to the EEO program population,
that is, around $300 million per annum by year 12. Given the uncertainty
in this estimate, we can apply quite extreme bounds to this figure to test
whether a $100 million difference either side of the $300 million estimate
would impact on the net benefit calculation in any major way.
Applying these lower and upper bounds with a 3% discount rate gives a NPV
for the benefit calculation of between $494.9 million and $989.7 million.
This generates a net benefit calculation of between $229.4 million and
$724.2 million. If we instead use the higher discount rate scenario of
12%, the NPV for the benefits fall to between $271.6 million and
$543.2 million. The net benefit estimates also fall, but still remain
strongly positive ranging from $91.7 million to $363.3 million.
While this sensitivity analysis provides some additional insight into the
range of possible outcomes given the caveats associated with these benefits
calculations, under the range of scenarios presented, option 2 still
represents a positive net benefit outcome from the Energy Efficiency
Opportunities program. In addition, the benefit calculations represent the
lower bound of possible economy wide outcomes (for any discount rate or
take-up rate variation) given that they currently exclude the environmental
benefits that would be associated with a reduction in greenhouse gas
emissions. Given the difficultly in valuing these benefits, they have not
been included in the benefit calculations reported in this RIS.
That said, the analysis in the RIS is best considered from the perspective
of the relative impact of option 2 or 3 in terms of compliance costs for
industry, given that there are still quite strongly held opinions about the
accuracy and reliability of the benefit calculations associated with the
modelling of the energy efficiency gap in the Australian context. These
criticisms are best summarised in the draft Productivity Commission's
Report into Energy Efficiency, which noted concerns in relation to the
range of assumptions used in a number of recent studies in the area. Not
all were directly related to the methodology used in the MMRF-Green
modelling presented in this RIS, however many of the general criticisms do
apply to varying degrees.
In short, the criticisms focused on the underlying assumptions in relation
to the:
. Criteria for determining cost effectiveness (giving undue emphasis to
short-term returns)
. Business-as-usual improvements in energy use (being understated as the
base-case and hence overstating potential benefits of closing any
energy efficiency gaps)
. difficulties associated with the extrapolation of audit and best-
practice study results to a whole sector and/or the representativeness
of the simulated producers and consumers in the scenarios.
These criticisms serve to highlight the caution that should be applied to
the analysis in the RIS in relation to the benefits calculations.
Summary
Table 10 shows the flow of costs and benefits over the next 10 years.
Although the net benefit is initially negative in the first few years, the
overall net benefit of Option 2 is $497.4 million in net present value
terms.
Table 10: Summary of estimated costs and benefits, Option 2
[pic]
Option 3
Costs
Again the key costs will be the compliance costs for affected firms, and
the administrative cost incurred by the Australian Government.
Compliance Costs
Methodology used to estimate compliance costs
Energetics also estimated the likely compliance costs for Option 3. Option
3 does not require firms to obtain a minimum point score, effectively
reducing the number and level of compliance obligations. Energetics
compared the requirements under the "minimum compliance cost" scenario
developed to assess the costs of Option 2, with the reduced requirements
set out in Option 3. It then estimated the proportion of the Option 2
costs which would still be incurred under the reduced Option 3
requirements.
Estimated compliance costs
Table 11 sets out the estimated additional costs incurred by the affected
firms to comply with Option 3. The requirements to confirm threshold
energy use, undertake an energy efficiency opportunities assessment and
report on the results are common to both Options 2 and 3, so the cost for
these elements does not change. However, the compliance costs for the
other elements falls substantially. On average, compliance costs for
Option 3 are estimated at around three quarters of those incurred under
Option 2.
Table 11: Estimated Compliance Costs - Option 3
|Requirement |% of |Average cost per |Total cost ($M) |
| |Option |firm | |
| |2 cost*| | |
| | |Develop. |Recurrent|Develop. |Recurren|
| | | | | |t |
|Confirming 0.5PJ |100 |9,340 |- |2.34 |- |
|Threshold | | | | | |
|Policy, management |43 |18,692 |5,651 |4.67 |1.41 |
|& people | | | | | |
|Data & analysis |53 |7,000 |14,205 |1.75 |3.55 |
|Opportunities |100 |- |58,640 |- |14.66 |
|Assessment | | | | | |
|Innovation & |0 |- |- |- |- |
|Excellence | | | | | |
|Reporting |100 |14,725 |9,191 |3.68 |2.23 |
|ALL |76 |49,757 |87,687 |14.33 |21.92 |
* Average of annual costs over the initial 5 year period
For Option 3, the upfront costs of compliance (excluding the cost of
opportunity assessment) total $12.4 million or an average of $49,700 per
firm. Recurrent costs will be $21.9 million per year, or around $87,600
per firm. In determining the annual costs of Option 3 the development
costs are assumed to be incurred in 2005-06. As noted before, 20% of
assessment related compliance costs will also occur in year one and, when
added to the up-front compliance cost estimates, the first year impact is
the highest of all single year estimates at $27.1 million. From 2006-07
onwards, the annual compliance cost is equivalent to the recurrent costs
only, or $21.9 million per annum.
Administration Costs
Administration costs are the same for Option 3 as in Option 2, as the
reduced compliance obligations for firms will not materially alter the
level of administrative, verification and enforcement activity the
Australian Government will undertake.
Summary
Table 12 below summarises the estimated costs for Option 3. The net
present value of the total costs incurred between 2005-06 and 2014-15 is
$205.6 million. Business compliance costs account for 94% of these costs,
with the remaining 6% being borne by the Australian Government.
Table 12: Estimated Costs, Option 3, 2005-06 to 2014-15
[pic]
Benefits
The benefits of Option 3 are assumed to be identical to those calculated
under Option 2. That is, the benefit from increased productivity due to
energy efficient investments will rise to around $205 million in 2014-15 or
a total benefit in net present value terms of $760 million. Positive
environmental benefits from reduced use of fossil fuels would be additional
to this. The realisation of benefits over time is shown in the table
below.
Table 13: Estimated Benefits, Option 2, 2005-06 to 2014-15
[pic]
Sensitivity Testing
The impact analysis for Option 2 noted the considerable uncertainty
surrounding the benefit estimate. It also noted the time challenges of
modelling a range of take-up rates, and the fact that the benefits are an
underestimate due to the exclusion of environmental benefits. These same
caveats apply for Option 3.
However sensitivity analysis was conducted on the impact of varying real
discount rates on the expected net benefit of Option 3. As was the case
with Option 2, choosing another discount rate will alter the magnitude of
the expected net benefits and costs of Option 3, but will not significantly
alter the ratio of costs to benefits (see Table 9).
Table 14: Sensitivity Analysis Option 3 - Discount Rate
|Real Discount Rate |3% |12% |Difference |
|Benefit (NPV, $ |762.9 |418.7 |344.2 |
|million) | | | |
|Cost (NPV, $ million) |205.6 |139.6 |66.0 |
|Net Benefit (NPV, $ |557.3 |279.1 |278.2 |
|million) | | | |
|Ratio Benefits to Costs|3.7 |3.0 |0.7 |
In a similar manner to option 2, the benefits calculations for option 3
have also been subjected to sensitivity in relation to the population
captured by the Energy Efficiency Opportunities program, by varying the mid-
point estimate of $300 million per annum by year 12 to a lower bound of
$200 million and an upper bound of $400 million.
Applying these lower and upper bounds with a 3% discount rate gives a NPV
for the benefit calculation of between $494.9 million and $989.7 million.
This generates a net benefit calculation of between $289.3 million and
$784.1 million. If we instead use the higher discount rate scenario of
12%, the NPV for the benefits fall to between $271.6 million and
$543.2 million. The net benefit estimates also fall, but still remain
strongly positive ranging from $132 million to $403.6 million.
Despite the uncertainty surrounding the exact amount of economic benefit,
these figures suggest that the magnitude of benefits generated by Energy
Efficiency Opportunities are likely to be of sufficient magnitude that the
net benefit of option 3 is significantly positive.
Summary
Table 15 shows the net benefit of Option 3 over time. The costs exceed the
benefits for the first two years, but then an annual net benefit is
produced. Overall Option 3 would deliver a net present benefit of
$557.3 million over the 10 years.
Table 15: Summary of estimated costs and benefits, Option 3
[pic]
CONSULTATION
The Department held consultation workshops with almost 180 industry members
in Perth, Sydney, Melbourne, Brisbane and Canberra during October and
November 2004 to discuss the development of the mandatory Energy Efficiency
Opportunities program.
The participants represented companies across the manufacturing, mining and
resource processing, power generation and distribution, energy services,
and transport sectors. Members of the Australian Greenhouse Office (AGO),
state government agencies (in particular, those involved in developing the
National Framework for Energy Efficiency) and industry associations also
participated. A list of organisations who participated in the workshops is
at Attachment A.
The workshop participants were given an opportunity to identify the
benefits and opportunities Energy Efficiency Opportunities may provide for
their organisation, as well as raise any challenges and risks they foresaw.
Participants also shared their experience of current business practice,
including what elements are necessary for a successful assessment
procedure. These elements were used by the Government in designing the
initial proposal (Option 2).
The industry workshops were highly valuable for gaining industry input into
the design of Energy Efficiency Opportunities. While company
representatives had specific comments or experiences, common themes emerged
from the workshops on the challenges, benefits, lessons and recommended
design of Energy Efficiency Opportunities.
A clear message from industry was that Energy Efficiency Opportunities must
be an overarching framework that takes account of differing company
practices and structures and has reporting methodologies consistent with
other Commonwealth and state programs.
Industry members wanted Energy Efficiency Opportunities to be flexible,
efficient and credible. They argued new energy efficiency opportunities
will be generated by getting the right principles, processes and systems in
place and then having the follow-up support to implement projects.
The key areas of concern surrounded five main issues:
. the four-year payback - whether it was the best method for reporting on
opportunities,
. public reporting - how to encourage companies to be thorough in
identifying opportunities when they must publicly report outcomes,
. streamlining - ensuring the methodologies of state and federal
programmes are consistent,
. complexity of company structure and operations - how to design a
framework that accounts for diversity of company structure and
practice, and
. attitudinal hump - how to shift companies into 'opportunity' thinking
around energy efficiency and away from a belief that everything cost-
effective has been 'done' on energy.
The participants acknowledged it was a large task to design Energy
Efficiency Opportunities, build the necessary capacity and improve energy
efficiency across the business economy. The Australian Government's role
was to help to build capability and assist companies 'to go on the
journey'. Knowledge needed to be shared across business and external
expertise harnessed.
Evaluation of the workshops showed the participants valued being involved
so early in the development of the measure and being asked about their
concerns and the challenges ahead. They also appreciated the opportunity
to talk to their counterparts in other industries and discuss how they
approach energy efficiency.
The views from these consultations are being drawn upon in the development
of program guidelines, including an assessment procedure and reporting
framework.
Further consultation
The details of the assessment procedure will be included in the regulations
and guidelines rather than the EEO Bill. The development of these details
is ongoing and firms will be consulted on the compliance costs, as well as
being provided with the RIS, and these consultations will inform the
finalisation of the model.
Limited consultation on the costs of compliance have occurred with trial
companies, who are assisting in the development and testing of the details
of the program model. Firms were not consulted more widely because the
details were under development and not fixed. Once the options were
clearly identified (options 2 and 3) in July 2005, there was little time
available in the legislative timetable to undertake wide consultation on
the current compliance cost estimates in the draft RIS. Current
expectations are that the draft RIS will be provided to various
representatives for targeted consultation prior to the introduction of the
Bill.
CONCLUSION AND RECOMMENDED OPTION
The costs and benefits of Option 2 and 3, compared to the status quo option
1 are summarized in the table below.
Table 16: Comparison of Options - Net Benefits
|NPV $ million |Option 1 |Option 2 |Option 3 |
|Benefit |0.0 |762.9 |762.9 |
|Cost |0.0 |265.5 |205.6 |
|Net Benefit (cost) |0.0 |497.4 |557.3 |
As discussed previously, the financial benefit for both options is around
$760 million in NPV terms. This number is a best estimate based on the
available data, although considerable uncertainty remains. Sensitivity
testing of the discount rate and the benefits likely to be captured by the
target population of the EEO program. Combining the lower bound estimates
of the benefits - that is, using the highest discount rate example (ie 12%)
and the lowest benefit estimate (ie. assuming the benefits associated with
the EEO target population are a 1/3 lower than the base case) still
generates a significant net benefit outcomes for both option 2 and 3 at
$91.7 million and $132 million respectively.
While the benefits calculations should be treated with significant caution
(noting the criticisms that have been leveled at some of the key
assumptions), the more important element of the analysis is the relatively
lower compliance cost estimates associated with option 3.
The compliance costs of each Option were more readily ascertainable and a
detailed analysis of the likely compliance effects have been undertaken.
Although most firms subject to Energy Efficiency Opportunities will already
undertake some monitoring, reporting and analysis of their energy-use, to
differing degrees, there will be additional costs incurred. The compliance
costs for Option 3 will be less than Option 2, due to the reduced and
simplified regulatory requirements.
Given that the dual objectives of the Energy Efficiency Opportunities
Program are to overcome the information failures and organisational
barriers associated with businesses identifying privately cost-effective
improvements in energy efficiency, as well as to assist in reducing
emissions and associated environmental externalities to the extent
efficiencies are implemented, the lowest cost compliance model should be
the preferred option chosen.
It is thus recommended that Option 3 be adopted, as it provides the
greatest net benefit overall - where compliance costs to business are
minimised under a mandatory identification scheme, while the Government's
objectives relating to Australia's environment, productivity,
sustainability and competitiveness are still met.
IMPLEMENTATION AND REVIEW
Energy Efficiency Opportunities will be implemented through enabling
legislation. Subordinate instruments will provide detail such as reporting
requirements. The Department will also issue guidelines for the assessment
process to assist companies to meet their obligations.
The Government is requiring a mandatory assessment of energy efficiency
opportunities at least once every five years. Given this, a sunset clause
for the legislation was considered inappropriate, as it may send an
unintended signal that the assessment was simply a one-off requirement
which would not be conductive to a longer term organisational commitment to
identifying energy efficiency opportunities. The Government is interested
in sending a strong signal that it expects that the anticipated benefits of
this program be a longer term commitment by business, and that the changed
behaviour that this should bring will be an important element in
encouraging investment in more efficient energy use, and though that, a
lower emission future.
Key components of the program are being trialled in the second half of 2005
and beyond by leading companies across a wide range of sectors, including
heavy and light manufacturing, mining, commercial and transport. All
companies covered by the legislation will be required to register for the
program during 2006-07. By end of Year 2008-09, 50 businesses will have
undertaken, and publicly reported on, their EEOA assessment. Verification
and reporting arrangements will be determined consultatively, however
reporting is intended to utilise the Greenhouse Challenge Plus online
reporting system, which already has about 120 of the EEO target companies
reporting on greenhouse and energy. It is expected that firms will conduct
energy efficiency opportunities assessments on a five-year rolling basis
from 2007.
The reporting requirements of Energy Efficiency Opportunities provide the
opportunity to collect data with which to review the program. Key
performance indicators (KPIs) have been designed against which the success
of the program will be measured. The KPIs include measures of both the
effectiveness and the efficiency of the program - and an important issue
that the Government will be mindful of is the degree to which
organizational change has occurred.
Where the information needed to assess performance against a KPI will not
be readily available from company returns, targeted surveying will be
undertaken. This may include surveys of business awareness of Energy
Efficiency Opportunities or satisfaction of the participating companies
with the reporting systems used.
Effectiveness is a measure of how well the program is achieving the desired
program outcomes (its objectives). The effectiveness KPIs tend to be long-
term and focused at a high level.
As discussed in an earlier section, the overall desired outcome of Energy
Efficiency Opportunities is to overcome the information failures and
organisational barriers which work against businesses being able to
properly identify and undertake what would otherwise be privately cost-
effective improvements in energy efficiency. Six effectiveness KPIs are
proposed.
1. Increased awareness of the Energy Efficiency Opportunities program
2. Level of participation in the Energy Efficiency Opportunities
program
3. Improvement in energy management
4. Improvement in the identification of energy efficiency opportunities
5. Improvement in the uptake of energy efficiency opportunities
Savings in energy and money spent and costs as a result of Energy
Efficiency Opportunities-induced actions. Efficiency is a measure of the
extent to which the program outputs are maximised for a given level of
inputs. So, it is necessary to develop outputs for the Energy Efficiency
Opportunities program that will feed into the outcomes. The efficiency
KPIs tend to be more short-term than those for effectiveness, and more
focused on the running of the program.
The areas of interest for efficiency KPIs are the achievement of project
milestones, key stakeholder satisfaction and effective communication. The
efficiency KPIs identified for the program generally fall into these three
categories. They are:
1. Stakeholder awareness of the program and what is expected of
participants, eg registration, assessment procedure, reporting,
verification (communication);
6. Reporting systems are appropriately targeted, easy to use, high
quality and where possible streamlined (communication and
satisfaction);
7. Key delivery management milestones met as per the CIU implementation
plan (milestones);
8. Program delivered on time and to budget (milestones);
9. Participant attitudes to the scheme - number of firms satisfied with
the Energy Efficiency Opportunities process and consultation
(satisfaction); and
10. Target firms perceive benefits from program participation eg from
the trials, capacity building, consultation in developing the
measure, materials/tool, etc (satisfaction and communication).
Monitoring of the Energy Efficiency Opportunities program's KPIs will be an
ongoing process, as set out in the table below.
Table 17: Evaluation Timeline
|Evaluation milestone |Timeline |
|Major baseline survey completed |2006 |
|Ongoing data collection/analysis from company|Throughout |
|reports |2006-2010 |
|Yearly efficiency review and reporting |Throughout |
| |2006-2010 |
|Yearly 'running changes' |Throughout |
| |2006-2010 |
|Undertake special evaluation data collection |2009 |
|Draft evaluation report written |January 2010 |
|Circulation of draft report |February 2010 |
|Final evaluation report written and released |July 2010 |
|Review evaluation |July-December 2010 |
|Implement evaluation findings in ongoing |2011 |
|program | |
REFERENCES
Australian Bureau of Agricultural and Resource Economics (2004) Australian
Energy Supply and Disposal - Energy Units, 1973-74 to 2001-02, Product Code
12721, www.abareonlineshop.com.
Allen Consulting Group (2004a) Economic Impact Analysis of Improved Energy
Efficiency, Phase 2 Report for the Sustainable Energy Authority Victoria,
Melbourne, April.
Allen Consulting Group (2004b) The Energy Efficiency Gap: Market Failures
and Policy Options, Report to the Business Council for Sustainable Energy,
the Australasian Energy Performance Contracting Association and the
Insulation Council of Australia and New Zealand, Melbourne, November.
Allen Consulting Group (2003) Economic Impact Analysis of Improved Energy
Efficiency, Phase 1 Final Report for the Sustainable Energy Authority
Victoria, Melbourne, November.
Australian Government (2004) Securing Australia's Energy Future, White
Paper, Department of Prime Minister & Cabinet, Canberrra, June.
Cebon PB (1992) 'Twixt Cup and Lip: Organizational Behaviour, Technical
Prediction and Conservation Practice' Energy Policy, September, 802-814.
De Canio SJ (1994) 'Agency and Control Problems in US corporations: The
Case of Energy-Efficient Investment Projects' Journal of Economics of
Business, 1(1), 105-123.
De Canio SJ (1993) 'Barriers within Firms to Energy Efficient Investments'
Energy Policy, September, 906-914.
Marsiglio J (2005) Greenhouse Gas Emissions and Energy Efficiency in
Industry - EPA Victoria's Role in the Victorian Greenhouse Strategy April.
Productivity Commission (2005) Energy Efficiency, Draft Report, Melbourne,
May.
Sorrel S, O'Malley E, Schleich J and Scott S (2004) The Economics of Energy
Efficiency: Barriers to Cost-Effective Investment, Edward Elgar Publishing
Limited, Cheltenham
ATTACHMENT A - LIST OF STAKEHOLDER WORKSHOP PARTICIPANTS (Oct-Nov 2004)
Perth
Alberfield, Austral Bricks WA, Australian Greenhouse Office (AGO), Alcoa
World Alumina, BP Refinery Kwinana, Bristile Roofing, Chamber of Commerce
and Industry of WA, Chamber of Minerals & Energy of WA, Curtin University,
Ecos (representing Chevron Texaco Australia), Epic Energy, Hismelt,
Millennium Chemicals, Minara Resources, Newmont Australia, SEDO/NFEE (WA),
Simcoa Operations, Sons of Gwalia, The Laminex Group, Tiwest Joint Venture,
Transalta, Water Corporation, Wesfarmers, Western Mining, Woodside.
Sydney
AGL, AGO, Alcan Grove, Blue Circle Southern Cement, BlueScope Steel, Boral,
Centennial Coal, Coca-Cola Amatil, Delta EMD, Dept of Energy, Utilities &
Sustainability (DEUS)/ NFEE, Energetics, Energy Conservation Systems,
EnergyAdvice, Exergy Australia, H C Extractions, Hydro Aluminium Kurri
Kurri, NSW Greenhouse Gas Scheme, Origin Energy, PACIA, Qantas, Shell,
Stonefern Management Consulting, Sustainable Business, Sydney Water, Tomago
Aluminium Western Sydney Area Health Service, Woolworths Ltd, Xstrata Coal.
Melbourne
ACI Packaging, AGL Corporate, AGL Energy Sales & Marketing, Amcor, Amcor
Paper, AGO, Australian Trucking Association, Australian Vinyls, Bega
Cheese, BHP Billiton, Caltex, Department of Sustainability & Environment
(VIC), Edison Mission, EEP Management, Energy Supply Association of
Australia (ESAA), EnergyAdvice, EPA Victoria, ESSO, FMP Group, Harvey,
Holden, International Power - Hazelwood Power Station, IS Alliance,
Kimberly-Clark, Mitsubishi, National Foods, Norske Skog, Orica, Origin
Energy, Productivity Commission, Qenos, Rio Tinto, SCA Hygiene Austral Asia
Pacific, Sustainable Energy Authority Victoria/ NFEE, Shell, Siemens,
Telstra, Wesfarmers - Kleenheat Gas.
Brisbane
A3P, AGL Corporate, AGO, Alinta, Anglo Coal Australia, Australian Industry
Group, BHP Billiton, BHP Billiton Coal, Boral Ltd, BP (Bulwer Island)
Refinery, Brisbane City Council, Comalco Aluminium Ltd, Commerce
Queensland, Consolidated Rutile Ltd (CRL), CSIRO, Dept of Energy/NFEE,
Energex, Energy Users Association, EPA - Qld, Ergon Energy, Gold Coast City
Council, Hyne Timber, Incitec Pivot, NCMC, NRG Gladstone Operating
Services, OSD Energy Services, Placerdome Asia Pacific, QNI, Queensland
Magnesia, Queensland Rail, Queensland Resources Council, Rio Tinto, Santos,
Tarong Energy, Xstrata Copper.
Canberra
Australian Energy Performance Contracting, Australian Industry Greenhouse
Network, Australian Industry Group, Australian Trucking Association,
Balance Energy, BlueScope Steel, Carter Holt Harvey, Cement Industry
Federation, Coles Myer, Context, DeltaEMD, Energy Users Association of
Australia, PaperlinX, Patrick Corporation, Pilkington (Australia), Visy
Pulp and Paper.
Aluminium sector workshop - Alcan Gove, Alcoa World Alumina Australia,
Australian Aluminium Council, Comalco Aluminium Limited, Hydro Aluminium
Kurri Kurri, Queensland Alumina, Tomago Aluminium Company, Worsley Alumina.
ATTACHMENT B -Analysis of costs of compliance
Scope of work and approach
Scope of review - Order 2005 3
This review has sought to estimate the net costs and net benefits that
might be expected to result for firms or reporting entities participating
in the Government's Energy Efficiency Opportunities measure (EEO). The
assessment has focused on key elements related to the measure:
1. Elements of the 3-Plus tool that would be required to achieve the
minimum score required, including:
a. Policy, Management and People,
b. Data and Analysis,
c. Opportunity Identification and Evaluation,
d. Innovation and Excellence, and
e. Reporting;
2. Potential impact on costs of compliance arising from some firms'
core energy consuming processes that may be unlikely to be
influenced by EEO activities, at least on an averaged annual cost
basis - i.e. "lumpy investments";
3. The additional costs of EEO relative to measures that firms already
undertake, either as part of internal efforts to implement cost-
effective energy efficiency solutions or as part of other government-
sponsored programs, or both;
4. Comparison of compliance costs (and benefits) compared with other
mandated or voluntary programs;
5. Expected benefits arising to firms participating in EEO in terms of
energy savings, and other benefits that might arise via improved
practices, information, and transaction costs associated with
participation in multiple programs;
6. Flexible elements of the 3-plus tool (other than a minimum set
required to achieve the minimum score), including an assessment of
possible compliance costs against the stated criteria and possible
alternate approaches.
Scope of review - Order 2005 3a
The possible shift in focus of the assessment of energy measurement,
monitoring and management systems, to mandating a simpler set of
requirements more directly related to a standard for the performance of an
adequate Energy Efficiency Opportunities Assessment, calls for a further
estimation of compliance costs.
Under this scenario companies would not use the 3 plus tool for compliance,
but rather as a reporting tool against which they do not have to reach any
particular standard. However, the program would mandate, as part of the
standard for the Assessment of Energy Efficiency Opportunities, certain
elements described in the 3 plus tool. These elements will be integrated
as required components of the Energy Efficiency Opportunities Assessment
process.
Physical boundary assumptions
The government's White Paper indicated that around 250 firms might be
expected to be required to comply with the EEO measure, by consuming in
excess of 0.5 PJ of energy per year. In order to assess the possible costs
of complying with the measure for these 250 firms, a number of boundary
issues must be taken into account. For example:
1. Who are the 250 firms, what is their structure and in what sectors
do they operate?
2. What proportion of energy use within each sector (as estimated by,
say ABARE) will be captured under the measure, and at what cost is
this energy acquired (so that benefits can be reasonably estimated)?
3. What existing data acquisition, reporting and assessment levels are
there within organisations such as consolidated purchasing,
reporting to Greenhouse Challenge, internal systems-focus on energy
management and assessment of opportunities?
4. What is the definition of "energy" under the measure including
common sources used for energy value, process feedstock, explosives
and chemical processes?
5. At what organisation level(s) is 0.5 PJ to be measured and do
organisation structures give rise to the potential for multiple
reporting entities coming from within individual firms?
These basic boundary issues are potentially material to the costs of
compliance, both in terms of the number of firms or reporting entities that
may be captured (impacting on overall costs of compliance) and on the cost
per firm or entity required to comply. For the purpose of this assessment:
1. It was assumed that 250 entities would be required to comply,
2. ABARE and industry knowledge were used to estimate the number of
entities within each sector (generally at 1- and 2-digit ANZSIC
levels),
3. These entities were characterised by organisation type to recognise
differences in approaches to compliance - including large corporate
entities with a large number of high-energy use sites, smaller
industrial firms that use 0.5 PJ through a small number or high-
energy use sites and / or the aggregation of energy use at several
sites, and typically commercial-sector organisations that use 0.5 PJ
only through the aggregation of energy use at a large number of
sites. We see 4 basic types of organisation structure that may
apply:
a. Type 1: A small (< 10) number of operations with central
management, with a total energy use > 0.5PJ. Likely to be
industrial. Typically compliance is managed centrally.
b. Type 2: A medium (up to 20) number of operations, with some
operations > 0.5PJ or total energy >0.5 PJ and strong local and
corporate management. Likely to be industrial. Typically
compliance is at a local level with some coordination and
reporting of compliance centrally.
c. Type 3: A large (20 to 1,000+) number of operations with
generally small individual energy use, but total energy use
> 0.5PJ, and central management. Likely to be communications,
commercial, retail, cafes/restaurants and transport. Typically
compliance is managed centrally.
d. Type 4: A large (20 to 50+) number of operations with some/many
sites > 0.5PJ. Both strong local and central management. More
likely to be industrial. Typically compliance is at a local
level to ensure sites > 0.5PJ pass assessment, with coordination
and quality control managed centrally to ensure consistency of
response.
4. Energy forms were taken to include those fuels used for their
intrinsic energy value and commonly reported as "energy usage" -
i.e. electricity, natural gas, petroleum, diesel, LPG, fuel oil,
coal and derived coal (by)products, woodwaste, bagasse,
5. Estimates were made of the proportion of sectoral energy use that
would be captured by the 250 entities, and this energy use was
costed using estimated energy rates for various sources, including
recognition of sectoral price differences,
6. This approach results in one scenario that estimates average energy
use and cost per firm or entity within each sector by firm type. It
is recognised that this is one scenario, and that the final make-up
in terms of the number of entities, their energy use and cost will
be different.
These boundary assumptions were used for the assessment of potential
compliance costs under both Order 2005 3 and Order 2005 3a.
Approach to reporting potential costs
Under both potential compliance regimes we have sought initially to
"imagine" that organisations do not currently do any of the tasks that are
identified in 3-Plus. This is, of course, not the case, and hence total
cost estimates that result have no particular relevance. This approach is
useful to estimate what the potential costs per-firm are however, as it may
be expected that some (albeit few) firms will fall into this category.
We estimate that, in relation to the elements required to be completed to
achieve minimum compliance for both approaches, the most significant
factors that will affect cost estimates are:
. Influence - we expect that many large energy-using firms will have some
core processes or equipment that are unlikely to be influenced to a
significant degree by the EEO assessments. For example aluminium
reduction cells, blast furnace, mine draglines and other similar "lumpy
assets" may, to a large extent, be outside the influence of this
measure other than at a reporting level and peripheral influencing
factors. We expect that this factor will have the highest impact on
compliance costs.
. Additionality - for other energy consuming equipment and processes, it
will be the case that some firms manage this to some degree, and have
some processes in place to identify, assess, scope and implement
actions that are cost effective. To the extent that firms already do
this (and to the extent that they achieve comprehensive and sustained
improvement) the EEO assessment may be an additional task.
Noting these factors the following approach to costing under both the
initial and the simplified model was adopted:
. Determination if the 0.5 PJ threshold is achieved: an upper limit of
cost was estimated and would reflect a firm / reporting entity that has
limited knowledge of energy usage (though costs are assumed to be
managed from an accounting perspective), together with a low estimate
(large users and firms who have a good or reasonable knowledge of usage
or ready access to this information) and an average estimate taken to
represent the expected overall effort required by firms to assess their
need to comply and then register with DITR including an outline of the
organisation structure proposed to manage compliance.
. Cost of compliance with 3-Plus elements: this was limited to two
scenarios - firstly under the initial Order a scenario was created
using 3-Plus that would enable compliance (50% score) to be achieved,
and costs estimated taking the organisation structure into account and
linked, where appropriate, to energy use / spend by firm or entity
within these structures; secondly under the proposed Simplified
approach costs were assessed on a similar basis. For both scenarios
key elements likely to influence costs are identified. Further for
both scenarios, influence and additionality factors are estimated, to
reflect possible compliance costs that are over and above costs firms
may incur now to meet the stated requirements.
. Costs of Opportunities Assessments: as a base scenario we have
constructed a model to estimate what firms could expend on a typical
detailed technical assessment, drawing on %-of-energy/opex estimates by
others. Influence and additionality factors are taken into account to
determine the potential "additional" costs for this aspect. The
initial 3-Plus model and the Simplified model then describe additional
tasks that should be completed, principally related to engagement of
management, broader consultation across multiple stakeholders, and
development of appropriate data management and metering strategies.
Base and "additional" costs under both scenarios are estimated for
these additional tasks.
Summary of findings
Overall costs of compliance
Under a simplified approach to compliance (Order 2005 3a) we estimate the
following costs may be "additional" to costs firms/entities incur related
to energy efficiency.
Table 1: Estimated EEO compliance costs - simplified additional approach
The above 5-year average cost per firm / entity is equivalent to 0.66% of
average 5-year spend on energy use that could be influenced by the measure,
and is equal to a total 5-year cost for the measure of $115 million. Under
the original 3-Plus the estimated additional costs to comply (achieve the
minimum 50% score in 3-plus) are:
Table 2: Estimated EEO compliance costs - original additional approach
These costs are lower than those that exclude additionality; these costs
are estimated at $42.5 million development and $41.5 million recurrent to
achieve a minimum 50% 3-Plus score. Individual components of these cost
estimates are summarized below.
Meeting 0.5PJ threshold & registration with DITR
We estimate that, on average firms / entities may incur costs of less than
$10,000 to determine they need to comply with EEOA, define the proposed
organisation structure / business model for achieving compliance, and
register with DITR.
Table 3: Cost to confirm 0.5PJ threshold, EEOA structure and registration
. This shows an estimated average cost per firm / entity of $9,340, and
an estimated total cost of $2.3 million,
. Upper limit costs for any single firm are estimated to be $50,000 -
this would typically be a firm / entity with a large number of,
generally, small energy-using sites who does not currently have
knowledge of energy usage or consolidated data systems other than cost
accounting systems. We expect that firms at this level would be the
exception,
. Lower bound costs are estimated to be nominal, at about $2,000, and
would apply to many firms who have knowledge of energy use / know that
energy use far exceeds 0.5 PJ, and incur costs primarily to complete
registration and how confirm business units / entities will
participate,
. This is assumed to be a one-off cost to business.
Policy, management and people
Under the proposed simplified set of requirements for this element, upfront
and recurrent costs per firm are estimated to be:
Table 4: Estimated "additional" costs for element 1 under simplified model
This is equivalent to $18,700 on average per firm in upfront costs (first
year) and $5,700 per year recurrent costs (e.g. years 2 to 5 under a 5-year
program). Total costs are $4.7 million upfront and $1.4 million recurrent.
This compares with estimated costs under the original 3-Plus model
(mandatory and selected flexible elements to achieve minimum 50% score) as
shown below:
Table 5: Estimated "additional" costs for element 1 under original model
The additional costs of compliance with Element 1 to achieve the minimum
compliance score is estimated to be $43,000 on average per firm / entity to
develop, and $13,250 per year recurrent. Total costs are estimated at
$10.7 million upfront and $3.3 million recurrent.
Data and analysis
Under the proposed simplified set of requirements for this element, upfront
and recurrent costs per firm are estimated to be:
Table 6: Estimated "additional" costs for element 2 under simplified model
This is equivalent to $7,000 on average per firm in upfront costs (year 1)
and $14,000 per year recurrent costs (e.g. years 2 to 5 in a 5-year
program). Total "additional costs" are $1.75 million upfront and $3.55
million recurrent.
This compares with estimated costs under the original 3-Plus model
(mandatory and selected flexible elements completed to achieve minimum 50%
score) as shown below:
Table 7: Estimated "additional" costs for element 2 under original model
The additional costs of compliance with Element 2 to achieve the minimum
compliance score is estimated to be $18,500 on average per firm / entity to
develop, and $25,000 per year recurrent. Total costs are estimated at $4.6
million upfront and $6.3 million recurrent.
We note no costs for sub-metering are included. Within the Opportunities
Assessment stage we assume that temporary sub-metering would be installed
to inform the assessment, and is costed as part of this work. We further
assume that permanent sub-metering is only justified on a cost-
effectiveness basis and would be included in the development of total costs
/ benefits associated with a particular project or suite of projects,
rather than as a cost of compliance.
Innovation & excellence
Under a proposed simplified set of requirements there would be no
requirement to meet any minimum performance level of this element. Hence
costs are nil.
This compares with estimated costs under the original 3-Plus model
(selected flexible elements completed to achieve minimum 50% score) as
shown below:
Table 8: Additional cost of compliance with element 4.3
This implies an average additional cost per entity of $1,250 to develop the
above requirements (year 1), and about $8,500 per year (2 to 5) thereafter
in additional costs to comply (estimates rounded to nearest $250). Total
costs are $0.3 million upfront and $2.1 million recurrent.
Reporting
No simplified reporting requirements are proposed, just those specified in
the 3-plus tool provided with Order 2005 3. Additional costs associated
with reporting elements are:
Table 9: Additional cost of compliance with element 5
This implies an average cost per entity of $15,000 to develop suitable
reporting templates to DITR and web summary publications (year 1).
Recurrent costs (years 2 to 5) are estimated at an average of $9,000 per
entity (rounded to the nearest $500). Total costs are $3.7 million upfront
and $2.3 million recurrent.
Opportunities assessment
The potential cost of assessing opportunities was assessed separate to
other mandatory elements of 3-Plus, and drew on previous suggested
approaches that linked expenditure on this element to the proportion of
total spend that is energy-related, together with the above approach to
setting boundaries. Possible "additional" costs are indicated below:
Table 10: Estimated additional annual cost of opportunities assessment
That is, an average of $14.66 million would be expected to be spent on
opportunities assessment per year, additional to what firms may currently
spend. This equates to $58,500 per firm / entity per year, with a range
from about $16,000 to $150,000 per year on average for firms within
sectors. We note that the inherent statistical nature of the analysis will
produce outliers, and cost ranges on an average-per-firm within each sector
may not be so diverse.
We note also that annualised averages are unlikely to reflect the nature of
expenditure for some firms. In many cases it could be expected that much
higher costs would be incurred in Year 1, with lower costs in subsequent
years to assess progress of individual opportunities and identify /
evaluate new opportunities. However the total cost of $14.66 million per
year implies an overall cost of Opportunities Assessment over 5 years of
$73.25 million. The mix of firms / entities conducting assessments in any
one year would influence the actual amount spent, but would on these
estimates average $14.66 million per year. This is equivalent to about
0.42% of the estimated annual cost of energy use that is expected to be
influenced by the measure.
Benefits of EEOA
Re-stating the estimated possible costs of compliance with EEOA:
Overall costs of compliance
Under a simplified approach to compliance (Order 2005 3a) we estimate the
following costs may be "additional" to costs firms/entities incur related
to energy efficiency.
Table 1: Estimated EEO compliance costs - simplified additional approach
Under the original 3-Plus the estimated additional costs to comply (achieve
the minimum 50% score in 3-plus) are:
Table 2: Estimated EEO compliance costs - original additional approach
These costs are lower than those that exclude additionality; these costs
are estimated at $42.5 million development and $41.5 million recurrent to
achieve a minimum 50% 3-Plus score. Metering and innovation costs are
generally additional to these costs, and are assumed to be justified on a
cost-benefit basis for individual projects or approaches by individual
firms / entities.
The NFEE development process, to which Energetics contributed input in
relation to potential savings in the industrial sectors, estimated that
savings of 101 PJ out of an estimated 1,474 PJ (mining and manufacturing
plus commercial - 6.85% above BAU) could potentially be achieved if just
50% of measures at nominal 4-year payback or less were found to be viable.
The process adopted here estimates that 54% of industrial and commercial
energy use will be subject to the EEOA measure. If we assume that savings
above are equally distributed between those included in, and those not
included in EEOA this gives an estimate of expected savings by EEOA liable
parties of 54 PJ.
The process adopted here has sought to isolate those areas where industry
currently has no additional support need - this yields an estimated 353 PJ
in 2000/01 of energy that is estimated not to be presently managed
effectively for energy efficiency. If 54 PJ is wholly achievable from this
energy (i.e. 100% of all remaining energy is assumed to be fully managed to
yield all cost-effective opportunities) this equates to 15.4% savings
against 2000/01 usage (less against growth in this energy to 2015 - eg if
growth is 2% pa, 353 PJ becomes 465 PJ under BAU, and 54PJ savings against
2015 = 11.6%).
We do not have access to modeling behind the economic benefits of the NFEE.
However the value of 54 PJ in annual savings, distributed proportionate to
current usage, across all energy forms used in this model, could be more
than $700 million per year in 2015 if energy prices escalate at just 2% per
year. This compares with $12.4 million in EEOA set-up costs and $21.9
million recurrent (assuming all $700 million in 2015 savings are the result
of EEOA and not other NFEE policies - e.g. MEPS extended to commercial /
industrial sectors), excluding implementation costs which would be in
excess of $1.4 billion to achieve an average 2.3 year payback (from NFEE).
Cost of compliance: "common energy" definition
Costs of identifying energy use to determine whether they are subject to
the 0.5PJ threshold
Type 1: A small (< 10) number of operations with central management, with a
total energy use > 0.5PJ. Likely to be industrial. Typically compliance
is managed centrally.
We expect that, whether energy is reported / centrally procured or not, the
cost of determining if an organisation in this category meets of exceeds
the 0.5 PJ threshold (and registering with DITR) will be low under a
"common" definition of "energy".
We expect that, in general, Type 1 companies are those that reach the 0.5PJ
criterion through the aggregation of the energy use at one or more sites.
This represents companies with a single management structure that is likely
to implement the program and undertake the assessment.
We expect that companies captured under this definition may include:
. Small to medium scale mining and oil & gas companies,
. Some food & beverage companies in many F&B sub-sectors, such as sugar,
beer & malt, carbonated soft drinks, cereals, dairy processing, meat
processing, seafood processing, confectionary, fruit & vegetable,
. Some chemicals manufacturers
. Machinery and equipment manufacturers
. Some independent metals manufacturing companies (e.g. steel, recycled
steel, copper and zinc smelting, alumina refining, aluminium smelting),
. Some non-metallic minerals companies
In our opinion, the cost per company to determine if they exceed 0.5 PJ and
register with DITR will be in the range $2-10,000, with higher costs
incurred where data is not managed effectively and external resources are
engaged to assist in determining total usage and assisting to define
business structure for the purpose of the measure. In general we would
expect that costs would be at the lower end of this cost range, with many
companies already having at least basic energy use knowledge via reporting
or central procurement. Total number of companies may be in the order of
65.
Type 2: A medium (up to 20) number of operations, with some operations >
0.5PJ or total energy >0.5 PJ and strong local and corporate management.
Likely to be industrial. Typically compliance is at a local level with
some coordination and reporting compliance centrally.
We expect that where energy is reported / centrally procured, the cost of
determining if an organisation in this category meets of exceeds the 0.5 PJ
threshold will be low under a "common" definition of "energy". Where this
is not the case costs are likely to be low to moderate.
Some organisations in this category will be among the largest energy users
in Australia (far in excess of 0.5 PJ), and will already be aware that they
are required to comply with the measure. Notwithstanding autonomy of
operation at a site level, de-regulation of energy markets will in most
cases have led to centralized procurement of major energy forms, which will
make assessment of energy use relatively easy.
We expect that companies captured under this definition may include:
. Large scale mining and oil & gas companies,
. Some food & beverage companies in F&B sub-sectors, such as baking,
major dairy processing, major meat processing,
. Wood, paper and printing companies,
. Some non-metallic minerals companies,
. Some chemicals manufacturers, particularly with down-stream operations,
large plastics manufacturing,
. Metals manufacturing companies,
. Possibly some transport & storage companies, and gas production /
distribution,
In our opinion, the cost per company to determine whether they exceed 0.5
PJ and then register with DITR will be in the range $2-15,000, with higher-
end costs incurred where data is not currently managed effectively and
external resources are engaged to assist in determining total usage and
assisting to define business structure for the purpose of the measure. In
general we would expect that costs would be at the lower end of this cost
range, with many companies already having at least basic energy use
knowledge via reporting or central procurement. Even where a more detailed
assessment is required (e.g. for borderline 0.5 PJ companies), the small
number of sites would mean relatively low costs of acquiring relevant
account data and requesting usage information from suppliers. We expect
that total number of companies will be higher than for Type 1, estimate 90.
Type 3: A large (20 to 1,000+) number of operations with generally small
individual energy use, but total energy use > 0.5PJ, and central
management. Likely to be communications, commercial, retail,
cafes/restaurants and transport. Typically compliance is managed
centrally.
We expect that moderate to high costs may be incurred by some companies
within this category compared with others, owing to both the large number
of sites for which data may need to be acquired (where not retained from
procurement activities), in particular where energy use is borderline 0.5
PJ, and the possible number of business operations. Some companies here
are very large, and will have knowledge that they far exceed 0.5 PJ - for
these costs to confirm energy use exceeds this level will be low, but
developing proposed structural approach might be more costly.
We expect that companies captured under this definition may include:
. Communications,
. Supermarket companies,
. Large commercial property trusts / owners,
. Banks and other financial institutions,
. Fast-food chains (medium to large number under central ownership would
be required),
. Some retail-centre owners,
. Hotel chains / hospitality,
. Construction companies,
. Transport companies
We estimate that the highest costs and widest range of costs to determine
if energy use > 0.5 PJ will be incurred here. Costs are estimated to range
from $5-50,000, with higher costs incurred by a (probably) small number of
companies without centralized energy data. For very large companies such
as major banks and supermarket chains, it is likely that energy use or cost
is reasonably well known, however modest costs may be incurred to develop
proposed structures for the measure, taking (generally) higher numbers of
business units that may be included. Average costs may be in the order of
$20,000. We expect that total number of reporting entities will be in the
order of 55.
Type 4: A large (20 to 50+) number of operations with some/many sites >
0.5PJ. Both strong local and central management. More likely to be
industrial. Typically compliance is at a local level to ensure sites >
0.5PJ pass assessment, with coordination and quality control managed
centrally to ensure consistency of response.
We would expect that this category will include major mining / resources
and mineral processing companies, some pulp & paper companies and some
diversified manufacturing companies. In general we would expect most, or
all of these companies to use far in excess of 0.5 PJ, and costs to
determine requirements to comply are likely to be low. Estimated costs are
$4-10,000 to determine compliance and registration. The number of
companies is likely to be low, with a number of business units individually
complying with the measure. Estimated number of reporting entities is 40.
Summary
Table 11: Summary of 0.5PJ threshold, compliance structure & registration
costs
Within each of the end-user types assessed here, we note that costs a
company may incur to simply inform themselves of the nature, intent and
scope of the measure have not been included. We expect that a number of
companies have already incurred expense, internally and potentially
externally, to conduct this task, and may continue to do so.
Note: we have excluded from this assessment energy producers and
distributors, and government operations. Clarification on the inclusion of
these is required, taking into account ownership & equity issues (eg
public/government owned generation and distribution assets), and energy use
definitions (particularly at distribution level - eg petroleum).
Costs of Minimum Performance Against 3-Plus Standard - Order 2005 3
In assessing the costs to comply with the requirements of 3-Plus (initial
structure) we have looked at a possible "minimum-cost" model that would
enable the minimum score of 50 points to be achieved. This resulted in the
following overall score.
Figure 1: Outcome from 3-Plus scenario for minimum score to comply
The following summary describes the estimated costs associated with
completion of mandatory and flexible elements that could be associated with
achieving this score. In each element we estimate base costs assuming no
current measures are in place, followed by an assessment of likely costs
taking current action into account.
Policy, management and people
Base cost - no current policy or plans
1.1 & 1.2: Mandatory Elements: development of a public policy is assumed to
cost in the order of $10,000 per entity to develop and a further $2,500 per
year to update. It is assumed that this is developed at the corporate
level for each entity, and does not vary by organisational complexity. The
main cost element here is to "State corporate level objectives (short and
long term)" since this could be expected to require some level of
assessment of committed action plans at site/business unit level, and
future business plans at these levels (upfront and annually to re-confirm
objectives). The cost to develop a corporate policy itself would be
nominal.
Costs will vary by organisational complexity for the development of element
1.2 Internal Policy and Action Plan. For Type 1 organisations we estimate
a development cost of $30,000, with about twice this cost ($60,000) for
both Type 2 and Type 4 entities owing to their greater number of sites
and/or energy spend. Type 3 organisations are expected to be characterised
by few, if any, sites spending more than $5 million on energy per year, and
the action plans are expected to be at the level of corporate plus
technologies / techniques that can be rolled out across business units and
jurisdictions. Establishment costs are estimated at $45,000.
A significant component of these costs is expected to relate to the first
sub-element, requiring that the policy and action plan "Be structured so
that it is consistent with or integrated into other core management
strategies such as business improvement, OH&S, environmental management".
This could entail analysis of the requirements and structure of these
systems at site / business unit level to ensure conformance. The
requirement for a "Communications strategy..." could also be a sizeable
upfront cost, for example if the development of a video is considered to be
an effective method of conveying the policy and action plan to teams of
employees / managers within sites and business units.
For all types of organisation we assume that about one third of development
costs will be spent annually on updating action plans consistent with the
stated requirements. This gives total development and recurrent costs as
shown below.
Table 12: Base cost of compliance with element 1.1 & 1.2 - no current
action
This implies an average cost per entity of $59,000 to develop policies and
action plans consistent with requirements, and about $18,500 per year
thereafter to update these (estimates rounded to nearest $500).
1.3 & 1.4: Flexible Elements: If all sub-elements of 1.3 and 1.4 were to be
implemented, we expect that upfront costs of $25-50,000 per firm could be
incurred, together with recurrent costs of $40-200,000+.
A significant part of upfront costs would be associated with the
development of incentives for staff with energy targets included in salary
packages, and development of processes / systems to support frequent (e.g.
monthly / quarterly) action plan updating and training needs.
High recurrent costs would result largely from the stipulated training
requirements (e.g. 5 days per year per million spent on energy would result
in very high costs for large energy users). These costs do not include
"opportunity" costs that may be incurred, nor do they include incentives
that may apply where energy targets / KPIs are included in salaries.
Selecting a smaller set of sub-elements to meet the minimum required
standard could substantially lower costs. For this scenario it was assumed
the following sub-elements would be completed:
Table 13: Selected flexible sub-elements of 1.3 & 1.4 to enable 3-Plus
compliance
Where no action is currently undertaken in respect of these sub-elements we
expect that set up costs of $5,000 to $10,000 for each of 1.3 and 1.4 could
be incurred. We estimate that most of these costs would be internal and
may include, for example, formation of a committee at business unit / site
levels to contribute to policy development and reach consensus on target
setting, adjustment of internal systems to include energy KPIs in staff
duty statements and inform contractors of policy requirements, and
nomination / selection of senior staff with responsibility for energy
management - including scope and definition of duties related to this role.
Recurrent costs would be modest for 1.3 and 1.4 (25% and 33% of upfront
costs respectively), and could consist primarily of an audit of relevant
materials related to these sub-elements to confirm currency and amend /
update as appropriate.
This gives upfront and recurrent cost estimates as shown below:
Table 14: Base cost of compliance with element 1.3 & 1.4 - no current
action
This implies an average cost per entity of $16,500 to develop the minimum
set of flexible elements consistent with requirements, and about $4,750 per
year thereafter to update these (estimates rounded to nearest $250).
Additionality
1.1 & 1.2: Mandatory Elements:
The above cost estimates reflect a scenario where firms / entities do not
currently have a basic policy or action plan developed. While policies and
action plans may not be developed to the level indicated above, it is
likely that the vast majority of firms subject to the measure have
commitments to reduce energy embedded within overall company environmental
policies, and many will have current action plans resulting from
participation in say Greenhouse Challenge Plus. In addition for businesses
that manage a substantial part of their energy use as part of normal
business it is likely that existing processes for developing, approving and
communicating action plans at a business level could be employed to meet
these requirements.
Notwithstanding these factors, the stated requirements are likely to call
for a higher level of effort than may be undertaken at present, including
development of short and long term corporate objectives with annual sign
off, integration with OH&S and environmental management systems, and
communications strategies.
In general we estimate that up to 50% of the requirements may be met within
existing systems, thus lowering setup costs. At a recurrent level costs
are expected to be additional to the extent that policies may not, in
general, be updated annually, and to the extent that action plans reflect
commitments to implement cost-effective projects that are additional to
those that get picked up as part of normal business practices. A 50%
reduction in base (no action) costs is estimated here also.
Taking additionality into account the following cost estimates result:
Table 15: Additional cost of compliance with element 1.1 & 1.2
This implies an average cost per entity of $29,500 to develop policies and
action plans consistent with requirements, and about $9,250 per year
thereafter to update these (estimates rounded to nearest $250).
1.3 & 1.4: Flexible Elements
We would expect that firms / entities with existing policies have these on
their website and in Annual reports, however most are unlikely to have
these at the level of sites / business units. We estimate that 25% of the
required tasks for element 1.3 are already carried out (upfront and
recurrent).
We expect however that the majority of element 1.4 will be additional to
current levels of development. Most organisations with energy managers are
likely to have just one or a small number of people with this
responsibility, and target setting may be generally done at corporate
level. In addition we expect that it will be the exception rather than the
rule for contractors to be required to submit their energy policies. Hence
90% of base costs are assumed to be additional (upfront and recurrent).
This results in the following estimate of "additional" costs for elements
1.3 and 1.4.
Table 16: Additional cost of compliance with element 1.3 & 1.4
This implies an average cost per entity of $13,500 to satisfy the above
requirements, and about $4,000 per year thereafter to update these
(estimates rounded to nearest $250).
Summary - Policy, Management & People
The additional costs of compliance with Element 1 to achieve the minimum
compliance score is estimated to be $43,000 on average per firm / entity to
develop, and $13,250 per year recurrent. Total costs are estimated at
$10.7 million upfront and $3.3 million recurrent. This is shown below.
Table 17: Summary of Additional Costs - Policy, Management & People
Data and analysis
Base cost - no current data and analysis procedures
2.1 & 2.2 Mandatory Elements
The potential level of cost for this element may vary widely by
organisation. For example, at a very basic "compliance" level, a number of
approaches could be adopted, such as:
. Simple spreadsheet models that collate and conduct basic analysis on
trends and performance compared with targets would be a very low-cost
solution for many organisations, particularly where less than 10 sites
are involved;
. More complex spreadsheet models for organisations with more than 10
sites and/or multiple energy inputs;
. Existing financial systems (e.g. SAP) could be modified to take energy
use data as well as financial information, and be used to provide
outputs for trends analysis;
. Customised databases may be required for organisations with a large
number of sites, together with access to databases of activity levels,
whether generally static or dynamic;
. Arrangements with retailers and other energy suppliers to receive
information on a regular basis and, as a minimum, to centralise
invoicing to a single point
With all of these approaches factors would be considered over and above
basic reporting, particularly consolidation of data for energy procurement
purposes, and the requirement for data to be "normalised".
We estimate that a minimum development spend in the order of $15,000 would
be incurred at the level of a Type 1 organisation, who could be expected to
develop relatively simple spreadsheets and analysis tools, centralise
receipt of energy invoices and establish a process to acquire production or
activity data at regular intervals, and develop an appropriate board-level
quarterly report. Costs of about twice this level might be expected for
Type 2 & 4 organisations, who will have a higher number of sites, and
potentially more energy inputs and analysis requirements. Type 3
organisations could be expected to incur the greatest level of development
cost, since a database solution is likely to be a minimum requirement.
Development costs of $75,000 are estimated to acquire data and build a
database solution with analysis functions, and to establish processes via
which energy use and activity levels for a large number of sites can be
acquired and normalised on a regular basis.
Recurrent costs for data acquisition, analysis and reporting will also vary
significantly. For Type 1 organisations costs could be relatively low -
for example 2.5 person days per quarter to perform all compliance tasks at
$100/hour (e.g. mix of analysis and senior resources) would give an annual
cost of $8,000. Higher costs - estimated 150% - could be expected for Type
2 and 4 organisations ($12,000 per year), while Type 3 organisations would
incur higher costs, estimated at $40,000 per year.
We stress that the above cost estimates are, in our opinion, basic costs
that an organisation could incur to simply comply with the requirement to
collate data on a quarterly basis and perform a suitable level of analysis
and reporting at board level. In our experience many organisations will
expend significantly more than this on data collation and analysis.
However the purpose of this for many organisations is to enable, for
example, centralised billing, bill validation and payment, input to
procurement strategies, reduced cost of transactions. That is, there may
be significant cost savings and net benefits to organisations by improving
invoice-level collation and analysis systems, that outweigh the additional
costs incurred to go beyond basic compliance levels outlined above.
Total development and recurrent cost estimates for these elements is shown
below:
Table 18: Base cost of compliance with element 2.1 & 2.2 - no current
action
This implies an average cost per entity of $36,000 to develop minimum data
collation, analysis and reporting procedures, with highest costs
concentrated at multi-site organisations, and about $17,000 per year
thereafter to maintain basic systems.
2.3 & 2.4 Flexible Elements
If all firms / entities were to install a substantial level of sub-metering
and feedback / reporting systems (e.g. at $250,000 resolution), allied to
modelling of energy / material flows and regular acquisition of best
practice / possible information for comparison, the costs would be
substantial. Initial estimates, based on:
. Type 1: 1% of energy cost to develop, 0.2% of energy cost recurrent;
. Type 2: 1.5% of energy cost to develop, 0.3% of energy cost recurrent;
. Type 3: 0.5% of energy cost to develop, 0.1% of energy cost recurrent;
. Type 4: 1% of energy cost to develop, 0.2% of energy cost recurrent
suggest development costs in the order of $97 million and recurrent costs
of $19 million ($388,000 development and $78,000 pa recurrent per firm /
entity). Clearly, for this level a sound business case would need to be
developed to justify the expense.
Under a minimum-compliance approach to 3-Plus, it may be possible to ignore
the requirements of sub-element 2.3 and focus on 2.4 only (though noting
that the analysis at 2.4 could benefit in some cases from sub-metered
data). The following requirements would need to be met.
Table 19: Selected flexible sub-elements of 2.3 & 2.4 to enable 3-Plus
compliance
The requirements for these sub-elements are linked to (an extension of) the
mandatory requirements, where billing data and KPIs are collated and
compared on a regular basis. To some extent the upfront costs here should
be met during the opportunities assessment stage, since the development of
models (e.g. regression) and analysis of performance against existing best
practice should be essential to an assessment of firm-wide opportunities
for improvement. These costs are included in the opportunities assessment
section, and it is assumed that the acquisition of analysis models or data,
and metering of equipment is committed to on a cost-justified / benefits
basis.
Hence upfront costs here will relate principally to the development of
requirements with designers / suppliers related to selection of efficient
equipment. Recurrent costs will be incurred in the use of models developed
to provide ongoing feedback to plant operators beyond billing-level KPIs,
use of design tools and ongoing comparison of performance with best
practice.
At this minimum level, costs are estimated at:
Table 20: Components of compliance costs for element 2.3 & 2.4
|Sub-element |Development Cost |Recurrent Cost |
|Model development |Assumed part of Opps|Additional to billing |
| |Assessment cost |level KPI feedback: Type 1|
| | |$2,500 pa to update |
| | |performance / KPIs and |
| | |distribute; $5,000 pa Type|
| | |2 & 4; $10,000 pa for Type|
| | |3 |
|Use model to |Type of model | |
|provide feedback |developed on a | |
| |cost-justified | |
| |basis, internalised | |
| |within project cost | |
|Use energy models |Uniform $5,000 to |Variable depending on |
|with designers |document |level of new plant |
| |requirements within |installation, assumed |
| |internal systems and|additional $2,500 pa for |
| |communicate to |Type 1; $5,000 for types |
| |designers / |2, 4 to ensure conformance|
| |suppliers |to reqmts; $10,000 pa for |
| | |Type 3 to reflect |
| | |significantly higher |
| | |number of sites / projects|
|Compare with best |Uniform $10,000 per |Uniform $5,000 per firm pa|
|practice |firm to acquire |to compare, update best |
| |relevant data |practice data |
| |(quantitative / | |
| |qualitative) | |
This leads to the following estimate of compliance costs:
Table 21: Base cost of compliance with element 2.3 & 2.4 - no current
action
This implies an average cost per entity of $15,000 to develop minimum
requirements regarding selection / design for energy efficiency and
acquisition of best practice information, with costs for tools / models
assumed to be justified on a cost-benefit basis. Recurrent costs for
ongoing feedback on performance, ensuring conformance with design
requirements and updating best practice data for comparison are estimated
at $16,000 per year (rounded to nearest $500).
Additionality
2.1 & 2.2: Mandatory Elements
The above cost estimates reflect a scenario where firms / entities do not
currently have systems in place to collate billing information that enables
regular performance reporting. While reporting frequency and KPI
development may not be at the level called for, we believe it is almost
certain that many large energy users have systems in place for acquisition
of centralised billing data on a regular basis. As discussed above this is
often justified for non-energy efficiency reasons such as procurement, bill
processing and checking, etc.
For both of these elements we estimate that 75% of the requirements are
already in place in terms of having bill collation systems that can
facilitate monthly reporting, trends analysis and comparison of
performance. However we believe it is less the case that monthly reporting
at the level required is widely implemented, and assume that 75% of the
estimated costs on a recurrent basis are additional to current processes.
This gives the following estimate of additional costs for these elements:
Table 22: Additional cost of compliance with element 2.1 & 2.2
This implies an average cost per entity of $9,000 to augment current bill
collation systems to facilitate reporting requirements - i.e. at business
unit / board level including performance against target and trends; and
about $13,000 per year per firm to maintain reporting systems (estimates
rounded to nearest $250).
2.3 & 2.4: Flexible Elements: we would expect many of the sub-elements here
to be additional to current processes. Best practice information, which we
expect will be known by some large users (and possibly building owners via
ABGR performance for example) will be either unknown or not particularly
relevant (in a quantitative sense at least) to many firms. We expect the
use of energy-based models is the exception rather than the rule, as is the
provision of monthly feedback on performance at a plant level. We note
however that for some firms, performance data is collated at a corporate or
business unit level, and would be disseminated to plant level where trends
/ KPIs show anomalies compared with typical or expected performance - i.e.
if there is no apparent problem there may not be a need at plant level to
see the information. Where a problem is picked up at a high level, more
detailed assessment of energy flows may be carried out at a plant level,
using monitoring systems or models that have been implemented on a cost-
benefit basis.
We estimate that, for best practice additional costs are 50% of those
indicated, while for remaining sub-elements additional costs are estimated
to be 90% of base costs. This results in the following estimate of
"additional" costs for elements 2.3 and 2.4.
Table 23: Additional cost of compliance with element 2.3 & 2.4
This implies an average cost per entity of $9,500 to satisfy the above
requirements, and about $12,500 per year thereafter to update these
(estimates rounded up to nearest $250).
Summary - Data and Analysis
The additional costs of compliance with Element 2 to achieve the minimum
compliance score is estimated to be $18,500 on average per firm / entity to
develop, and $25,000 per year recurrent. Total costs are estimated at $4.6
million upfront and $6.3 million recurrent. This is shown below.
Table 24: Summary of Additional Costs - Policy, Management & People
Re-iterating a key point related to this element, we believe that the level
and type of sub-metering systems and energy models is likely to be
determined on a cost effectiveness basis rather than being seen as a
compliance requirement. Development of an energy-based model should be
done at the Opportunities Assessment level and used to determine suitable
ongoing analysis models.
Opportunity assessment
The conduct of audits or assessments of energy efficiency opportunities at
individual sites, and/or the formulation of strategies within firms to
address energy efficiency opportunities has characterised the way in which
energy efficiency has traditionally been advanced.
The steps undertaken above (and augmented with documentation on the process
that should be followed) are, to some extent, a departure from the
traditional approach. From the above steps, the following may be
considered to be additional to traditional auditing approaches:
. 3.2 - in general these requirements exceed the requirements for a level
3 audit;
. 3.4 - in general shop-floor / cross-functional teams have a role in
energy audits, however in general external specialists are left to
their own devices to come up with recommendations on cost-effective
actions
. 3.5 - in general processes for tracking opportunities and providing
feedback would not be included in a typical level 3 audit.
At a more specific level, the proposed process for the opportunities
assessment stage includes several tasks / elements that would typically be
additional to a traditional audit approach. These are shown below.
Basic costing approach
Rather than seek to cost each individual item identified as part of the
Opportunities Assessment process, we have sought to utilise typical audit
costs, augmented by the additional works as identified below.
A position put forward by previous work, provided for this project by DITR,
suggests that, where energy use represents 6% of annual operating expenses
or less, a 1% of energy cost outlay per year to meet the requirements of
the opportunities assessment component of the measure may be an appropriate
level of expense, while companies that spend more than 6% of operating
expenditure on energy could reduce compliance costs by adopting a percent
of total operating expense approach.
In general we concur with this broad approach, with some exceptions. The
level of expense for smaller energy users (1% per year on average for 5
years or 5% once-off for firms spending less than 6% of operating costs on
energy and/or spending less than $15 million per year on energy in total)
is greater than would be incurred in a traditional approach (2-3% of energy
costs), and the higher costs appear reasonable given the additional tasks.
For large users (>6% of operating costs for energy and/or over $15 million
in total on energy), a similar approach is adopted but linked to operating
costs rather than energy costs. While previous work suggested costs of 5%
of the annual energy cost proportion of total operating costs would be
spent over 5 years, our modelling and experience suggests that in general,
costs of about 0.3% of annual operating costs over 5 years (0.06% per year)
could be expected to be spent, rather than a percent that varies with
increasing proportion of energy to total operating costs.
This arises in part from the fact that, for many large energy users,
increased energy use is often related to a small number of larger-scale
equipment items rather than a greater number of items of equipment
requiring a detailed assessment. In general then, the opportunities
assessment costs for large users were assumed to be 0.06% of annual
operating costs per year. Exceptions to the suggested approach will arise
in 2 principal areas:
. For firms with a large number of sites using comparable technology,
assessment costs should be discounted to reflect the ability to
extrapolate based on limited assessment;
. For the largest energy using firms, assessment costs should be
discounted further than that suggested under the "operating cost"
method (e.g. where energy spend is over $50 million per year.
Table 25: Opportunities Assessment Tasks Additional to Traditional Approach
& to measures addressed in other elements of 3-plus
Factors influencing the analysis of per-firm and total costs
Estimating per-firm and total compliance costs using this approach is a
highly subjective process. Beyond the influencing factors noted above,
this estimation requires that several assumptions be made that may have a
material bearing on the total costs incurred. These include:
. What companies / business units are required to comply?
. What sectors of industry and commerce are represented, and to what
extent?
. What proportion of sectoral energy use, by source, is likely to be
covered by the measure; and/or what proportion of sector total energy
is likely to be covered?
. What do individual firms, and firms within sectors pay for their
various energy input sources?
. What does energy use represent as a percent of operating costs for
firms / sectors where this is greater than 6%?
. Which firms / sectors have energy costs as a percent of operating costs
greater than 6%?
These are important questions that, either individually or collectively,
may materially impact on the estimated cost of compliance.
Adopted approach
For this project we have taken the following approach:
Step 1: We took key manufacturing, mining, transport and commercial sector
data from ABARE, with energy use by source for 2000/01. Within this data,
"Derived Energy" was omitted; for example petroleum products produced in
the refining process, production of brown coal briquettes from brown coal
in the mining sector.
Step 2: Within the Road Transport sectors we assumed, as a preliminary
step, that 65% of ADO, 5% of LPG and 2% of petrol consumption was
attributable to commercial transport activities.
These steps produced the following output in terms of fuel use by source
and sector.
Table 26: Summary of total energy use from ABARE
Step 3: A proportion of energy use in each sector was assumed to be covered
by the measure. In the absence of detailed information, we assumed in
general that sectors would have 25%, 50%, 75% or 90% of total sector energy
included in the measure. We assumed that no sector would have 100% of
energy included. An exception is transport where we have taken just 10% of
energy (stationary) to be included - further clarification on the inclusion
or exclusion of mobile fuel for air, sea, road and rail transport would
help to refine this figure.
The following sectors were taken to have 25% of energy use included in the
measure:
. 22 Textile, clothing, footwear and leather, Div E: Construction and
Commercial and services
The following sectors were taken to have 50% of energy use included in the
measure:
. Div B: Mining, 21 Food, beverages, tobacco, 28 Machinery and equipment
and 37 Water sewerage & drainage
The following sectors were taken to have 75% of energy use included in the
measure:
. 25 Petroleum, coal and chemicals
The following sectors were taken to have 90% of energy use included in the
measure:
. 23-24 Wood, paper and printing, 26 Non-metallic minerals and 27 Metals
As noted these assumptions are indicative only and while they could be
expected to reasonably estimate the capture in some sectors, this may not
be the case in others - for example transport as discussed above.
Step 4: An approximation was made of the number of firms that could
potentially be captured within each sector. Again the number per sector is
unknown, and estimates are made both to reflect "best guess" based on
industry knowledge, and to "fit" the overall assumption that about 250
firms would be captured under a "common" energy use definition. Estimating
the number of firms thus enables the per-firm energy use to be calculated,
as shown below.
Table 27: Estimated energy use per EEOA reporting entity
That is, some 54% of total estimated energy use by these sectors (includes
transport sector fuel) is estimated to be captured by the measure, with an
average of 4.6 PJ per business entity that may be required to comply and a
range of average energy use per firm within a sector of 0.8 PJ to 20.9 PJ.
Step 5: An estimate of sector energy spend was made, using upper estimates
by DITR in the "Energy Efficiency Opportunities_package_27April05.pdf" file
provided for this project (we note the assertion that the figures provided
are indicative only and will vary, sometimes significantly, on a per-firm
basis). In addition to sources here, coal was costed at $2/GJ, coke at
$3/GJ, brown coal briquettes at $4/GJ, aviation fuel at $15/GJ and other
fuels at $22/GJ (same as diesel). Total costs were then calculated using
estimated source input quantities by ABARE. The resultant "base" costs
were then adjusted for certain fuels in certain sectors such as metals,
mining, gas distribution, chemicals and commercial to reflect lower or
higher per-unit charges for major energy inputs to these sectors. This
gives sectoral cost estimates as below:
Table 28: Estimated energy spend by sector
Step 6: An estimate was made of the number of firms of each Type in each
sector, and of the proportion of total "EEOA-sectoral" energy included in
the measure.
Table 29: Estimated number of firms / entities by Type & energy use
The estimated energy use per entity can be converted to estimated energy
spend per entity by pro-rating total sector spend (from Table 28) in the
same proportions to energy use from Table 29. This gives:
Table 30: Estimated energy spend ($million) by Type & per entity in each
Type
Step 7: An estimate was then made of what firms within sectors would spend
on this element, drawing on the basic costing approach outlined above on
page 29 & page 30. Four scenarios were used;
. 1% of annual energy cost per year for 5 years where energy spend per
firm (on average) is less than 5% of operating costs and/or <$15
million pa. This implies that firms with this level of spend on energy
would typically spend up to 5% of annual energy costs conducting a
detailed assessment suitable for making investment decisions;
. 0.06% of total operating costs per year for 5 years where energy spend
is greater than $15 million but less than $50 million pa. This implies
that firms with large energy spend would typically take a "% of
operating costs" approach to conducting a detailed assessment, with
energy spend typically a significant proportion of total operating
costs. Estimates were made of the operating costs for applicable
sectors based on estimated proportion of costs that are energy-related,
including;
o 15% of operating costs for Mining;
o 20% of operating costs for Wood, Paper & Printing; Non-metallic
Minerals and Metal Products;
o Up to 30% of operating costs for Transport and Chemicals;
o 5% of operating costs for Water, sewerage and drainage;
. For these sectors 0.06% of annual operating costs were calculated where
energy costs exceed $15 million per year. Where energy costs are
estimated to be less than $15 million per year, the 1% of energy costs
method was applied. As discussed on p29 this level of cost broadly
reflects costs that could be incurred from our experience and based on
the modelling conducted. At the margin (i.e. close to $15 million
annual energy spend) estimates of per-entity spend on the Opportunities
Assessment can differ markedly between the "1% of energy" and "% of
operating cost" methods, however we would expect that entities around
this level could employ a method that reflects their current level of
knowledge of opportunities and perceived benefits from the measure. We
would not expect that overall costs for this part of the measure would
be materially affected;
. Two-thirds of 0.06% of total operating costs per year for 5 years where
energy spend is greater than $50 million, to reflect further economies
of scale compared with the basic "% of operating cost" method for sites
with very large energy spend, typically reflecting large-scale items of
equipment rather than necessarily more items of equipment;
. Two-thirds of 1% of annual energy cost per year for 5 years for
commercial and construction sectors, to reflect an approach that would
be based on a detailed assessment at representative sites / applicable
technology levels, with results extrapolated to a whole population of
sites
This gives the following estimate of compliance costs (all figures in
$millions):
Table 31: Estimated base cost of opportunities assessment
That is, some $30 million would be expected to be spent on opportunities
assessment per year. This equates to $120,000 per firm / entity per year.
Step 8: the above costs represent possible costs if all energy use by
liable firms was assessed, and if no current attention was paid to energy
efficiency opportunities. This is not the case, so the impact of two
primary factors was assessed:
. Influence: many firms, particularly energy intensive / high $ as a
percent of operating cost sectors like aluminium, pulp & paper and many
transport modes may have little ability to influence processes or
technologies that use the vast majority of their energy use. They may
therefore either not perceive economic value in developing
opportunities that will not eventuate in the near term, or may seek
only to invest in these assessments at periodic intervals when
potential replacement or upgrade strategies merit serious
consideration.
. Additionality: many firms are already participating in energy
management to some degree, and assessment of opportunities under EEO
may be an extension of what they already do to some degree. For
example, the Aluminium industry welcomed the EEO measure as an
extension of work that they already do on energy management, owing to
the significant impact energy has on overall operating costs and
profitability. We are aware of significant activities to manage energy
use by a number of large energy users, and programs such as Energy
Efficiency Best Practice, Greenhouse Challenge Plus and DEUS' Energy
Smart Business Program have (had) good participation by many large
users.
Both of these factors will serve to diminish the total additional amount
spent, in some cases significantly. An estimate of the impact of
"influence" and "additionality" on base energy usage is shown below,
indicating the % of energy by fuel source that may be impacted:
Table 32: % of base energy that may be impacted by Opportunities Assessment
This results in an estimated 30% of energy use (353 PJ) that will be
impacted by the assessment of opportunities, over and above what firms
currently address as part of normal business. Translating this into
estimated cost for opportunities assessment, using the same approach to
costs of assessment as described above, we estimate the following:
Table 33: Estimated additional cost of opportunities assessment
That is, some $14.66 million would be expected to be spent on opportunities
assessment per year. This equates to $58,500 per firm / entity per year,
with a range from $16,000 to $150,000 per year on average for firms within
sectors. We note that the inherent statistical nature of the analysis will
produce outliers, and cost ranges on an average-per-firm within each sector
may not be so diverse. We note also that annualised averages are unlikely
to reflect the nature of expenditure for some firms. In many cases it could
be expected that much higher costs would be incurred in Year 1, with lower
costs in subsequent years to assess progress of individual opportunities
and identify / evaluate new opportunities.
What is needed to refine estimates?
To a significant degree the above estimates, and the process adopted to
arrive at these figures, are a "best-guess" based on data that is available
and knowledge in some areas of key firms that are likely to be required to
comply with the measure, including both the size of their energy use /
spend and, perhaps more importantly, firms' existing processes and
practices with regard to assessing opportunities to improve energy
efficiency. As such this should be seen as a "first cut" at determining
reasonable and defensible estimates of costs.
Improvements can be made to this estimation process, in particular:
. Further knowledge of what firms are likely to have to comply with the
measure, including taking into consideration firms' structures and any
impacts this has on who will be required to comply;
. Further refinement of energy unit costs for firms within sectors, and
sensitivity analysis around these estimates as this relates to scale of
energy use;
. Refinement of the % of total energy or operating costs that could be
spent on this aspect of the measure, including basic sensitivity
analysis within sectors and more detailed assessment of "additionality"
and "influence" factors on total expenditure for this aspect and
possible timing-of-investment factors.
Innovation and excellence
Base cost - no current innovation and excellence commitments
Under an approach where firms sought to achieve a medium-level compliance
with the requirements of this element, we estimate costs in excess of $300
million per year would result. This would arise from, say, RD&D
expenditure equal to 3% of energy spend ($240 million pa), and facilitation
of upstream and downstream innovation and education ($80 million pa based
on 1% of energy cost). Clearly costs of this magnitude would need to be
cost-justified. In many cases it is unlikely that expenditure on RD&D is,
or should be, related to energy costs - many companies will be aware of
best practice technology (e.g. via US DOE Industries of the Future), and
could feasibly comply with the requirements of this sub-element without
significant expenditure at all.
We have focused here on measures that could be implemented to enable a
minimum 50% compliance score to be achieved. As shown above this is
limited to internal policy commitments only, related to commitments to
improve product / service energy efficiency through design and to apply LCA
costing to procurement and design processes.
4.3 Internal Policy: the thresholds for a number of the aspects of these
elements have not yet been set. For the three aspects of internal policy
selected, development costs will be nominal, and could include
modifications to relevant company documentation related to design /
procurement, and communication to internal staff and suppliers. A cost of
$5,000 per entity is assumed.
Recurrent costs would depend on the degree to which new equipment /
processes / services are procured or designed. One possible scenario is:
. Energy use increases under a BAU scenario are 1.5% per year, related to
installation of new equipment / refurbishment;
. 40% of this energy use could be mitigated via LCA approach to design
and purchasing with, say, a 3-year payback;
. 5% of project costs are spent on LCA / design / procurement activities.
Under this scenario Type 1 entities would spend about $12,000 per year on
this approach, Type 2 would spend $33,000, Type 3 would spend about $23,000
and Type 4 entities would spend $70,000 per year. These single-scenario
costings are used in the model. This gives the following:
Table 34: Base cost of compliance with element 4.3 - no current action
This implies an average cost per entity of $9,500 to satisfy the above
requirements, and about $31,000 per year thereafter to update these
(estimates rounded to nearest $500).
Additionality
For many end users, particularly large users, investments in new equipment
and technologies that materially change energy consumption patterns will be
"lumpy" and averaging of costs even over a 5-year timeframe is unlikely to
be representative of the timing of investment. Notwithstanding this, we
expect that in most cases the importance of energy costs for these large
users is such that, at the time of replacement, high levels of energy
efficiency are generally specified to ensure competitiveness is maintained
over the long term, and that this commitment is reflected in internal
processes.
In addition, the commercial sector appears to be increasingly driven to
improve the energy performance of new buildings and refurbishments; hence
to the extent the above policy initiatives are taken to apply to new
equipment / systems / buildings and major refurbishments / expansions only
it might be expected that little additional costs for LCA approaches would
be directly associated with EEOA, but would be in response to other
policies / initiatives.
A further example of where life cycle approaches may already be in train is
in supermarkets, where the uniformity of designs lends itself to the
development of integrated energy efficiency solutions at one or a small
number of stores, with cost-effective solutions then simply rolled out to
new / refurbishment stores.
For the purpose of this assessment we assume that sectors with low energy
spend as a % of costs will spend 50% of the base value recurrent, excepting
commercial where 25% is taken to be additional. For all sectors with high
energy costs as a % of operating costs, additional costs associated with
this approach are estimated at 25% of base costs. Policy establishment
costs are estimated at 25% of base costs. This gives estimated costs of:
Table 35: Additional cost of compliance with element 4.3
This implies an average additional cost per entity of $1,250 to develop the
above requirements, and about $8,500 per year thereafter in additional
costs to comply (estimates rounded to nearest $250).
Summary - Innovation & Excellence
As the above sub-element 4.3 is the only aspect of element 4 assessed here,
the above table and per-firm costs constitute an estimate of minimum costs
that could be incurred to meet the minimum level of compliance under 3-
Plus.
Reporting
Base cost - no current reporting
Under a base cost scenario we assume that firms / entities develop their
own template for reporting (i.e. no default template supplied by DITR), and
that this is developed from scratch to incorporate results from the
development of action plans and summary progress and forecast information
drawn from company energy, financial and other relevant systems. We have
assumed a fixed cost per entity for reporting, made up of:
. Type 1: $15,000 average cost per entity for establishment of the first
report, with two-thirds of this cost incurred annually to produce
updates to DITR.
. Type 2: $30,000 average cost per entity for establishment of the first
report, with two-thirds of this cost incurred annually to produce
updates to DITR.
. Type 3: $22,500 average cost per entity for establishment of the first
report, with two-thirds of this cost incurred annually to produce
updates to DITR.
. Type 4: $30,000 average cost per entity for establishment of the first
report, with two-thirds of this cost incurred annually to produce
updates to DITR.
. For all types we assumed $5,000 in the first year and $2,000 in
subsequent years is spent on development of a summary report for web
publication.
This gives the following estimate of costs:
Table 36: Base cost of compliance with element 5 - no current action
This implies an average cost per entity of $29,500 to develop suitable
reporting templates to DITR and web summary publications. Recurrent costs
are estimated at an average of $18,500 per entity (rounded to the nearest
$500).
Additionality
In reality, many firms will already report their energy efficiency progress
to varying levels under a number of programs, in particular Greenhouse
Challenge Plus. Increasingly firms are reporting energy performance in
Annual Reports and in CSR forums. It could be argued that even in the
absence of EEOA this trend would continue.
We expect that the requirements stated here can be substantially met by a
large number of firms in EEOA, and additional costs for the level of
reporting required are likely to be no more than 50% of the costs estimated
above. This gives the following estimate of costs:
Table 37: Additional cost of compliance with element 5
This implies an average cost per entity of $15,000 to develop suitable
reporting templates to DITR and web summary publications. Recurrent costs
are estimated at an average of $9,000 per entity (rounded to the nearest
$500).
Costs of Minimum Performance Against 3-Plus Standard - Order 2005.3a
In assessing the costs to comply with the requirements of 3-Plus
(simplified structure) we have looked at "additional" cost estimates for
the full "minimum-compliance" model as described above, and adjusted costs
downwards to reflect the simplified criteria.
Policy, management and people
Based on the revised criteria, compliance could be achieved via completion
of the following sub-elements.
Table 38: Simplified element 1 requirements to achieve compliance
Requirements for 1.1 remain as per the initial model and hence are
unchanged in costs under this simplified approach. The requirements for
1.2 are substantially different, with requirements to integrate action
plans with OH&S / enviro systems, and communications strategies removed.
We expect that additional costs for this sub-element are 50% of those in
the initial model. For 1.4, the nomination of key staff responsible for
energy management at site / business unit level should be nominal, and
costs of 20% compared with the initial model are estimated - i.e. the more
sizeable costs related to requiring contractors to submit energy policies,
development of KPIs in staff duty statements and "bottom-up" contribution
to policy development are removed.
Table 39: Estimated "additional" costs for element 1 under simplified model
This is equivalent to $18,700 on average per firm in upfront costs and
$5,700 per year recurrent costs. Total "additional" costs are $4.7 million
upfront and $1.4 million recurrent.
Data and analysis
Based on the revised criteria, compliance could be achieved via completion
of the following sub-elements.
Table 40: Simplified element 2 requirements to achieve compliance
. Sub-element 2.1 is similar to that described in the initial model, the
exception being monthly reporting of collated data at a business unit
level and quarterly reporting at a board level. Compliance costs are
estimated at two-thirds of estimated "additional" costs from the
initial model.
. Sub-element 2.2 is the same as per the initial model, hence
"additional" costs are assumed to be the same.
. As discussed above, we believe that the stated requirements for 2.4 as
above are best met in the Opportunities Assessment stage, as this
should be an essential component of this work. It would be the use of
models to interpret anomalies in billing level KPIs and trends that
would represent "additional" costs at a fairly basic level.
. The requirements in respect of 2.3 do, we believe, require
clarification, as there is a significant difference between temporary
sub-metering (which would be installed where appropriate at the
Opportunities Assessment stage to facilitate model development and
prioritisation) and permanent sub-metering, which is a much higher
level of commitment and cost, and materially impacts on the frequency
with which sub-system performance data / trends would be available to
management and operators. As discussed above we believe that the case
for sub-metering generally needs to be made on a cost-benefit basis.
. For example: A supermarket company considering new lighting technology
installs temporary sub-metering on a few trial stores to prove the
savings level and hence economic viability of the new technology. The
trial is successful, and supports the level of savings that justifies
the investment at the trial stores. A company-wide energy model that
recognises differences in trading hours, lighting technologies and
energy cost rates is then used to determine stores where the project is
economically justified at refurbishment. In this case the use of
temporary sub-metering at trial stores, at very low cost relative to
the consumption by lighting systems across the supermarket network, is
adequate to justify the roll-out of the initiative. The installation
of permanent sub-metering on all stores lighting systems would deliver
little or no additional benefit for very high cost.
Taking this example, it will be the case in many instances that high
levels of sub-metering and high frequency of data collection at sub-
metered level are not of themselves pre-requisites to achieving good
practice. Rather, the practice of employing M&V that is appropriate to
particular needs should be encouraged; the costs and benefits of this
will vary widely from firm to firm, and in each firm should be
incorporated as part of the business case(s) that seek to justify
investment in energy efficiency.
For the purpose of this analysis, we have assumed that sub-element 2.3
can only be justified (for permanent sub-metering) as part of the cost
of energy efficiency initiatives, or (for temporary sub-metering) as
part of the cost of conducting the opportunities assessment stage.
Hence "additional" costs are nil. The cost of the other elements under
the simplified model are estimated to be:
Table 41: Estimated "additional" costs for element 2 under simplified model
This is equivalent to $7,000 on average per firm in upfront costs and
$14,000 per year recurrent costs. Total "additional costs" are $1.75
million upfront and $3.55 million recurrent.
Opportunities assessment, innovation & excellence, and reporting
Simplified requirements for innovation and excellence eliminate the need to
comply with this element, hence costs are nil.
No simplified requirements are provided for opportunities assessment and
reporting, hence costs are as estimated above for Order 2005 3.
Alternative energy definitions
Alternative energy forms
There are a number of forms of energy that are not conventionally included
in energy use reporting. In general they are:
. standard fuels used as a feedstock or input material for the production
of a non energy product;
. non-standard forms of energy used as a feedstock; or
. Non-standard forms of energy such as explosives.
An extension of the feedstock type is the transformation of energy through
petrochemical refining or electricity generation. In both cases energy is
the output product, which is on sold to other end uses. It is assumed in
these cases it is the net or on-site use of energy that would be applicable
under the program.
Standard fuels as feedstock
Where an energy form such as natural gas or ethane is used as a feedstock
to produce a non-energy related product there is a minimum requirement of
the feed material to produce the end product. This can be determined from
a stoichiometric evaluation. Additional feedstock material may be lost
through inefficiencies in the transformation or production process. Some
processes may utilise some or all of the feedstock material to provide heat
to the process through chemical reactions or direct combustion of the feed.
The quantity of feedstock used beyond that physically required to produce
the quantity of final product could be accounted as energy use within the
bounds of the program. This could encourage the effective use of the
feedstock. This would be relatively easy to include in the program and
should not have any significant additional costs for compliance beyond
possibly capturing some additional companies or, as is more likely,
increase the baseline energy use for companies that would already be
captured by the measure. The ability to influence energy efficiency (i.e.
feedstock efficiency) may be limited though, assuming that feedstock yield
is critical to overall productivity and is a primary focus already.
Non-standard forms of energy as feedstock
Some non-standard forms of energy are used as feedstock such as sulphur in
the production of sulphuric acid. Sulphur is not usually included in
energy use reporting, but in this case may provide more heat than is
required for the process and offer opportunities for alternative uses for
the waste heat. The difficulty here is to quantify the available waste
heat, which may be dependent on technology or even the opportunity to use
the waste heat.
An alternative case would be the inclusion of sulphur in pyretic ores.
During the smelting stage the sulphur is removed through oxidation to
produce SO2. The oxidation of the sulphur provides heat to the smelting of
the ore and benefits the process through the reduction in the fuel used for
direct heating. While there may be opportunities for waste heat capture in
some cases, modern smelting design is directed towards reducing the
quantity of direct heating by utilising the sulphur oxidation process.
The difficulties in evaluating the available waste heat makes these energy
forms difficult to include in the program. For the smelting process, some
sites are large and likely to be included in the program anyway, however
some may not already be included. Improvements in waste heat recovery will
be available to some sites and would result in reductions in direct
heating. However in some cases there will be no sink for waste heat, and
inclusion in the program owing to the quantity of "free" energy usage by
the site / firm could lead to an expensive cost of compliance with little
possible benefit.
On the whole, it is likely that a case-by-case assessment of relevant
factors such as those above would need to be carried out to ensure that
benefits are potentially available to individual sites or firms.
Non-standard energy forms
Some forms of direct energy use are not usually included in energy use
reporting. This includes explosives and solar heating.
Explosives used for mining or other demolition work. For mining companies
explosives may represent an additional one per cent of the energy use
normally reported. Though explosives are not normally equated to other
forms of energy use at a site, there is significant quantity of energy used
in their manufacture through the use of natural gas as a feedstock in the
production of ammonia nitrate. The energy content of explosives is around
3.2 GJ per tonne.
Including explosives within the program would not be expected to increase
the number of participants. It should be recognised within the program
that explosives do represent a source of energy, and changes to the use of
explosives could be evaluated in terms of the overall impact on energy use
at a site. Compliance costs would not be affected significantly though
modest additional reporting may be required. Many mining companies already
track the emissions from explosives for NPI or GHC+ reporting.
Solar heating is often used for product drying including salt. The actual
energy use can be very high and if included in the program for registration
purposes would create a distortion. Solar heating is an alternative to
direct heating from fuel use or mechanical processes, and as such
represents an opportunity to reduce traditional energy use.
ENERGY EFFICIENCY OPPORTUNITIES BILL 2005
NOTES ON CLAUSES
PART 1 - PRELIMINARY
Short Title
The short title of the Act will be Energy Efficiency Opportunities Act
2005.
Commencement
The Act will commence on the day it receives Royal Assent.
Object
This clause outlines the object of the Act.
Definitions
This clause defines terms used throughout the Bill.
Schedule 1 (consequences of contravening civil penalty
provisions)
This clause gives Schedule 1 effect.
PART 2 - DEFINITIONS RELATING TO GROUPS
Holding company
This clause provides the definition for a holding company. The holding
company is a company that holds a controlling interest in another company,
or companies, that are its subsidiaries.
Controlling corporation
Subclause (1) provides the definition for a controlling corporation under
the scheme. The definition includes all constitutional corporations, that
is foreign corporations and trading and financial corporations formed
within the limits of the Commonwealth. Controlling corporations will either
have subsidiaries or be a single corporation, but in either case will not
have a holding company incorporated in Australia.
Subclause (2) provides a power for the regulations to exclude certain
classes of controlling corporations from the requirements of the Act if
their activities are mainly in the electricity generation, electricity and
gas transmission or electricity and gas distribution sectors.
Group and members of a group
Subclause (1) defines a controlling corporation's group as the controlling
corporations and its subsidiaries (if any). It is intended that the members
of the group will include corporations that control trusts.
Subclause (2) defines the members of a group.
Subclause (3) deals with situations in which more than one holding company
holds a controlling interest in a subsidiary and vests control in the
subsidiary according to the rules outlined in the Corporations Act 2001. In
such a case, if the other holding company is not a member of the group, the
subsidiary will not be covered by this section.
Subclause (4) provides a power for the regulations to exclude certain
classes of subsidiary corporations from the requirements of the Act if
their activities are mainly in the electricity generation, electricity and
gas transmission or electricity and gas distribution sectors.
PART 3 - CORPORATIONS REQUIRED TO REGISTER
Obligation to apply to register
Subclauses (1) to (3) provide the circumstances when a controlling
corporation must apply to be registered under the Act including the
definition of the trigger year. Companies will be required to register when
the energy use of their group exceeds a threshold of 0.5 petajoules in the
previous financial year. This previous year is referred to as the trigger
year. A penalty applies to a breach of this requirement.
Subclause (2) provides that a controlling corporation that could not have
reasonably ascertained that its group met the energy use threshold is not
obliged to register. However, it must be noted that subclause (3) puts the
burden of proving this on the corporation. This is because the corporation
will have exclusive knowledge of whether it was able to ascertain its
group's energy use.
Subclauses (4) and (5) provide that the application to register must be:
made by 31 March in the financial year following the trigger year; be in
the specified form; and include any information outlined in the
regulations. To avoid doubt, controlling corporations will have nine months
following the end of the trigger year to apply to register.
Subclause (6) limits the application of Clause 8 to trigger years ending on
or after 30 June 2006. This means that as well as those that use over 0.5
petajoules in 2005/2006, other controlling corporations that use over that
amount in later years would also become obliged to apply to register.
Energy use threshold
Subclause (1) provides that a controlling corporation's group meets the
energy use threshold if the energy use of the entities mentioned in
subclause (2) is more than 0.5 petajoules.
Subclause (2) provides that these 'entities' include the members of the
group. The subclause also provides that 'entities' can include joint
ventures and partnerships. If a member of the group is a participant in a
joint venture or a partner in a partnership, and the joint venturers or
partners (as the case may be) have either nominated that member to be a
reporting entity, or have failed to nominate a reporting entity, the energy
use of the partnership or joint venture counts towards whether the
controlling corporation's group meets the energy use threshold. It is
expected that joint ventures and partnerships affected by this provision
will nominate a reporting entity in order to minimise compliance costs for
the joint venturers or partners respectively.
Subclause (3) allows for regulations to define energy used. It is intended
that the definition of energy used will refer to the combustion of fuel and
the use of electricity by entities in Australia.
Subclause (4) and (5) further specify that in defining energy used,
regulations may refer to kinds and uses of energy, specify how energy use
of a trust is to be established, define how energy use in franchise
activities is determined, and how changes to corporate structures will be
dealt with.
Subclause (6) outlines that the regulations may establish rules for making
and revoking nominations of reporting entities for joint ventures and
partnerships. It is intended that this will include the requirement that
the nominated party accept the nomination.
Exemption from registration on application by corporation
This clause provides for exemptions from applying for registration where
the Secretary is satisfied that even though the controlling corporation's
group exceeded the threshold energy use in the trigger year it isn't likely
to do so in the following year.
Subclause (1) provides that controlling corporations will not be required
to register if covered by an exemption in this clause.
Subclauses (2) and (3) set out the circumstances when a controlling
corporation can apply for an exemption from the requirement to be
registered. The application must be made on or before 31 December in the
financial year following the trigger year. This gives corporations six
months from the end of the trigger year to apply.
Subclause (4) requires that the application for exemption must be in a
form, and include the content, specified in the regulations.
Subclause (5) sets out the circumstances when the Secretary must approve
the application for exemption.
Subclause (6) provides that the Secretary will be deemed to have approved
the application for exemption if he or she has not advised a decision not
to grant the exemption within 60 days of receiving the application for
exemption.
PART 4 - REGISTRATION
The Register
Subclauses (1) and (2) require that the Secretary must keep a register
called the Register of Corporations for the Energy Efficiency Opportunities
Scheme.
Subclause (3) allows for the Secretary to cause the contents of the
Register to be made public. This would allow the public to know which
corporations were registered under the scheme. It is intended that
commercially sensitive information would not be released under this clause.
Subclause (4) allows for regulations to specify which information, other
than the name of the corporation, can be entered on the Register. It is
intended that this may include administrative details (address, telephone,
etc) of the controlling corporation as well as those of its subsidiaries.
Subclause (5) provides that a controlling corporation is registered once
the Secretary has entered its name on the Register.
Secretary must register corporation
This clause requires that the Secretary must register a corporation that
applies to be registered if he or she is satisfied that the corporation is
obliged to apply.
Corporation may apply for deregistration
Subclause (1) allows for controlling corporations that are already
registered to apply to the Secretary for deregistration.
Subclause (2) provides that the regulations will provide the requirements
for the application for deregistration.
Subclause (3) provides the circumstances when the application for
deregistration must be accepted and the controlling corporation's name
removed from the register. The Secretary may approve de-registration when
satisfied the controlling corporation's group is not likely to meet the
energy use threshold for three consecutive years. This avoids the prospect
of corporate groups with variable energy use having to frequently register
and apply to de-register.
Subclause (4) provides that a controlling corporation is no longer
registered if its name no longer appears on the Register.
PART 5 - ASSESSMENT PLAN
Registered corporation must submit assessment plan every 5 years
Subclauses (1) to (3) provide that registered corporations must submit an
assessment plan to the Secretary in line with specific time period
requirements. Corporations will initially have 18 months following the end
of the trigger year to submit their assessment plans. They will then be
obliged to submit a new assessment plan (if they continue to be registered)
every 5 years.
The information provided to the Department under this clause will be
treated as commercial in confidence. Reference is made to section 70 of the
Crimes Act 1914 to make clear that the appropriate treatment of
confidential information by Commonwealth Officers is covered by that
provision.
The requirement for an assessment plan has a dual purpose. Firstly, it
provides flexibility for corporations to undertake assessments in line with
their other business processes while still satisfying the Department they
are compliant with the Act. Secondly, it will enable the Department to
effectively manage the administration of the assessment and reporting
functions by monitoring the timing of assessments over the five year cycle.
Subclause (4) allows for a controlling corporation to submit an assessment
plan prior to its registration being accepted under Part 4. This means that
it can submit an early plan if it wishes to undertake assessments to
identify opportunities quickly.
Subclause (5) provides that a controlling corporation will have contravened
this subclause if it fails to comply with subclauses (1) and (2). A penalty
applies for a breach of these requirements.
Approval of assessment plan
Subclause (1) limits the application of this clause to those situations
when the Secretary has been given an assessment plan under clause 15.
Subclause (2) outlines the circumstances when the Secretary must approve
assessment plans that have been submitted and notify the corporation in
writing. This will occur when the Secretary is satisfied that they meet the
requirements in clause 18.
Subclause (3) provides that the Secretary will be taken to have approved
the assessment plan if he or she hasn't refused to approve it within six
months.
Refusal to approve assessment plan
Subclause (1) and (2) provide that when the Secretary has been given an
assessment plan and he or she is not satisfied that it substantially meets
the requirements outlined in clause 18, then he or she must refuse to
approve it and notify the responsible controlling corporation in writing.
Subclause (3) provides that when the Secretary has refused an assessment
plan, he or she must prepare a revised assessment plan, notify the
corporation and invite comments from it.
Subclauses (4) and (5) allow for the Secretary to consequently approve the
revised assessment plan after considering written comments from the
controlling corporation.
Subclause (6) provides for the continued approval process if the assessment
plan is not approved under subclause (4). This would occur if a
corporation's comments convinced the Secretary that the revised plan was
unacceptable. The Secretary would be required to refuse the revised plan,
and prepare another.
This clause sets up a process for negotiation of an assessment plan that
meets the requirements of both the controlling corporation and the
Secretary. The Secretary will, however, have the power to determine the
final assessment plan that will be used by the corporation.
Requirements for an assessment plan
Subclause (1) provides that the assessment plan must set out the
controlling corporation's plan for carrying out its energy efficiency
opportunities assessment or assessments of its group.
Subclauses (2) and (3) provide that the plan must cover a five year period
from the end of the trigger year and that the required form may be set out
in regulations.
Subclause (4) requires that the assessment plan must set out particular
actions that need to be done to assess those opportunities. These actions
will be further specified in regulations under this clause and under Part
6, Energy Efficiency Opportunities Assessments.
Subclauses (5) provides that the assessment plan must specify how the
energy use of the controlling corporation's group as a whole is to be
assessed or, if more appropriate, how energy use in particular operations
of the group are to be assessed. The controlling corporation may decide
that it will be more manageable to assess different operations of its group
separately. For example, business units that carry on distinctly different
types of activities, or those with a number of large energy using sites.
Subclauses (6) provides that the assessment plan must set out a deadline or
deadlines for the actions referred to in subclause (4).
Subclauses (7) and (8) provide for regulations to set out details of any
extra requirements for the assessment plan. This will include the types of
actions the assessment plan must refer to and will link the requirements of
the assessment procedure under Part 6 to the assessment plan proc
Registered corporation may seek variation to approved assessment
plan
Subclause (1) provides that a registered corporation can apply for a
variation to its assessment plan. This could occur if there are changes to
the corporate group, such as acquisitions, mergers or disposal of
subsidiaries.
Subclause (2) provides that the requirements under Clause 16 and Subclauses
17(1) and (2), regarding approval and refusal of assessment plans, will
also apply to the application for variation to an assessment plan.
PART 6 - ENERGY EFFICIENCY OPPORTUNITIES ASSESSMENTS
Requirement to carry out energy efficiency opportunities
assessments
Subclause (1) sets out the requirement for registered corporations to carry
out energy efficiency opportunities assessments as outlined in their
approved assessment plan.
Subclauses (2) and (3) provide that the regulations may set out further
requirements, and sets out what those requirements will be in relation to.
To meet the requirements of this clause, corporations will have to
undertake a number of activities. Firstly, they will have to assess the
business objectives for energy use and reduction (if any). Secondly, they
will have to measure and analyse energy efficiency data. Finally, they will
undertake a process to a minimum standard that identifies and evaluates
energy efficiency opportunities.
Subclause (4) defines failure to comply with this clause. A civil penalty
applies to contraventions.
PART 7 - REPORTING ABOUT ENERGY EFFICIENCY OPPORTUNITIES ASSESSMENTS
Overview
Provides an overview of the requirement for corporations to provide
information on the outcomes of the assessment in a report to the public in
accordance with Clause 22 and additional information in a report to the
Secretary as per Clause 23.
Reporting to the public
Subclause (1) requires that controlling corporations provide information in
a report to the public on how they have undertaken the energy efficiency
opportunities assessment as set out in their assessment plan.
Subclause (2) allows for the regulations to specify the timing of the
report.
Subclause (3) outlines the requirements for the content of the report. The
report must cover the way in which the energy efficiency opportunities
assessment was carried out and the outcomes of the assessment including the
corporation's response to the assessment. The regulations may specify
detailed requirements.
Subclause (4) allows for the form of the report to be specified in the
regulations. It also requires that the report be signed by the chair of the
board of directors or equivalent to ensure that senior executives give due
consideration to the identified opportunities.
Subclause (5) allows for the regulations to specify the timing and manner
of publication.
Reporting to the Secretary
Subclause (1) requires that controlling corporations provide information in
a report to the Secretary on how they have undertaken the energy efficiency
opportunities assessment as set out in their assessment plans. A penalty
will apply for failure to meet the requirements of this subclause.
Reporting under this clause is for the purposes of ensuring compliance with
the Act and to allow for program evaluation. The information provided to
the Secretary under this clause will be treated as commercial in
confidence. Reference is made to section 70 of the Crimes Act 1914 to make
clear that the appropriate treatment of confidential information by
Commonwealth Officers is covered by that provision.
Subclause (2) allows for the regulations to specify the timing of the
report.
Subclause (3) outlines the requirements for the content of the report. The
report must contain the information provided for in the public report under
clause 22 as well as any additional information required by the
regulations.
Subclause (4) allows for the form of the report to be specified in the
regulations.
Subclause (5) allows for the regulations to specify the timing and manner
of the provision of the report.
PART 8 - POWERS OF INSPECTION
This Part sets up a standard process for verification of compliance with
the requirements of the Act.
Division 1 - Overview
Overview of Part
This clause provides an overview of the main elements of this Part, briefly
explaining the function of each Division.
Division 2 - Appointment of authorised officers and identity cards
Appointment of authorised officers
Subclause (1) provides that the Secretary may appoint a person as an
authorised officer to carry out the inspection and verification functions
set out in this Part.
Subclause (2) provides that authorised officers must comply with any
directions of the Secretary. For example, this may include a requirement to
follow all occupational, health and safety regulations of premises they
inspect.
Identity cards
This clause requires that authorised officers be issued with and carry an
identity card when performing functions under this Part.
Division 3 - Powers of authorised officer
Subdivision A - Monitoring Powers
Authorised officer may enter premises by consent or under
monitoring warrant
Subclause (1) provides that an authorised officer may enter premises and
exercise monitoring powers to substantiate information provided under the
Act, or to determine whether the Act has been complied with.
Subclause (2) provides that an authorised officer may only enter business
premises where the occupier has consented to the entry and the authorised
officer has, on request, shown his or her identity card to the occupier, or
where the authorised officer is entering the premises under a monitoring
warrant.
Subclause (3) provides that an authorised officer must leave the premises
when asked to do so by the occupier if he or she is on those premises with
the consent of the occupier.
Monitoring powers of authorised officers
Subclause (1) sets out the monitoring powers of authorised officers.
Subclause (2) provides that an authorised officer may operate equipment at
the premises to assess the correctness of information provided by the
occupier under the Act.
Subclause (3) provides that an authorised officer may use facilities at the
premises to download and copy certain documents and information and to
remove those copies from the premises.
Subdivision B - Power of authorised officer to ask questions and seek
production in certain circumstances
Authorised officer may request persons to answer questions
Subclause (1) provides that an authorised officer who has been given
permission by the occupier to enter premises, may ask the occupier to
answer questions and produce documents related to the operation of the Act.
Subclauses (2) and (4) provide that where an authorised officer has been
issued with a monitoring warrant, the occupier, and persons who apparently
represent the occupier, must comply with a request to answer questions and
produce documents, unless the answer to the question or production of the
document may incriminate the person or expose the person to a penalty.
Subclause (3) provides that it is an offence to not comply with subclause
(2).
Division 4 - Obligations and incidental powers of authorised officers
Authorised officer must produce identity card on request
This clause provides that an authorised officer cannot exercise any powers
under this Part if he or she does not show his or her identity card at the
request of the occupier.
Consent
This clause provides that an authorised officer can only enter premises
without a warrant if the authorised officer has asked for the consent of
the occupier, having informed the occupier that he or she is entitled to
refuse consent, and the occupier has voluntarily given his or her consent.
Announcement before entry
This clause provides that before an authorised officer enters premises
under a warrant, he or she must announce that he or she is authorised to
enter, and give any person at the premises the opportunity to allow the
authorised officer to enter the premises.
Details of monitoring warrant to be given to occupier etc. before
entry
This clause sets out certain requirements of authorised officers when
executing a monitoring warrant.
Use of electronic equipment in exercising monitoring powers
Subclause (1) provides that an authorised officer may operate electronic
equipment on the premises in order to exercise monitoring powers, as long
as the authorised officer believes, on reasonable grounds, the equipment
will not be damaged.
Subclause (2) provides that the authorised officer may secure the
electronic equipment in certain circumstances where he or she requires
expert assistance to operate the equipment.
Subclauses (3) to (8) set out certain requirements for, and limitations on,
securing equipment for the purposes of executing monitoring powers under
this Act.
Subclause (9) defines premises for the purposes of this clause.
Compensation for damage to electronic equipment
This clause provides that compensation is payable to the owner of equipment
operated under clause 31 which is damaged because an authorised officer has
exercised insufficient care in operating the equipment, or in selecting a
person to operate the equipment.
Division 5 - Occupier's rights and responsibilities
Occupier entitled to be present during execution of monitoring
warrant
This clause provides that, when present, the occupier is entitled to
observe the execution of a monitoring warrant, unless the occupier impedes
the execution. This clause does not prevent the execution of the warrant in
two or more areas of the premises at the same time.
Occupier to provide authorised officer with all facilities and
assistance
This clause requires an occupier to assist an authorised officer executing
a monitoring warrant.
Division 6 - Warrants
Monitoring warrants
This clause sets out the procedures to be followed and requirements to be
met when obtaining and issuing a monitoring warrant for the purposes of
this Act.
PART 9 - MISCELLANEOUS
Delegation
Clause 38 enables the Secretary to delegate his or her powers under this
Act.
AAT review of decisions
This clause sets out the kinds of decisions that may be reviewed by the
Administrative Appeals Tribunal (AAT).
Regulations
This clause provides that regulations may be made under the Act.
SCHEDULE 1- CONSEQUENCES OF CONTRAVENING CIVIL PENALTY PROVISIONS
1 Declarations of contravention
Subclause (1) requires that a Court must make a declaration of
contravention if they are satisfied that a controlling corporation has
contravened one or more of the following subclauses: 9(1) controlling
corporation must apply to be registered; 15(5) provide an assessment plan
in the period specified; 20(4) carry out assessments in line with the
approved assessment plan and regulations; 22(1) reporting to the public in
line with the form and timing specified; 23(1) report to the Secretary in
line with the form and timing specified.
Subclause (2) outlines the requirements for the declaration.
2 Declaration of contravention is conclusive evidence
Clause 2 provides that a declaration is conclusive evidence of the matters
referred to in subclause 1(2).
3 Pecuniary penalty orders
Subclause (1) provides that a Court may order a corporation to pay the
Commonwealth a penalty up to 1000 penalty units if a declaration of
contravention has been made under Clause 1 and the contravention is
serious.
Subclause (2) sets out that the penalty is a civil debt to the Commonwealth
and its enforceability.
4 Who may apply for a declaration or order
Subclause (1) allows for the Minister (or a delegate) to apply for a
declaration or pecuniary penalty order.
Subclause (2) states that no other person can apply except those authorised
by this clause.
Subclause (3) clarifies that Subclause (2) does not exclude the operation
of the Director of Public Prosecutions Act 1983.
5 Time limit for application for a declaration or order
Clause 5 provides that proceedings for a declaration of contravention or
pecuniary penalty order must be started within six years of the
contravention.
6 Civil evidence and procedure rules for declarations of contravention
and civil penalty orders
Clause 6 requires that the Court must apply the rules of evidence and
procedure for civil matters when hearing proceedings for a declaration or a
pecuniary penalty order.
7 Civil proceedings after criminal proceedings
Clause 7 sets out that a Court can not make a declaration of contravention
or a pecuniary penalty order against a controlling corporation that has
been convicted of an offence constituted by conduct that is substantially
the same.
8 Criminal proceedings during civil proceedings
Subclause (1) provides that proceedings for a declaration of contravention
or a pecuniary penalty order against a controlling corporation are stayed
if criminal proceedings have begun for substantially the same conduct.
Subclause (2) allows for the resumption or dismissal of proceedings if the
controlling corporation is not convicted of the offence.
9 Criminal proceedings after civil proceedings
Clause 9 allows for criminal proceedings to begin even after a declaration
of contravention or pecuniary penalty order has been made.
10 Minister requiring person to assist
Subclause (1) allows the Minister to require a person to provide assistance
in connection with an application for declaration of contravention or
pecuniary penalty order or criminal proceedings. A penalty of five penalty
units applies if a person does not comply with the subclause.
Subclause (2) limits the Minister's power to only require a person to
assist with a declaration or order if it appears they did not contravene a
civil penalty provision and they can give information relevant to the
application.
Subclause (3) limits the Minister's power to only require a person to
assist with criminal penalty proceedings if it appears they will not be a
defendant in the proceedings and the person is an employee or officer of
the defendant.
Subclause (4) allows that the Minister can require the person to assist
under subclause (1) even if civil or criminal proceedings have not begun.
Subclause (5) provides that a person cannot assist if they are or have been
a lawyer in the civil proceedings or for a defendant in the criminal
proceedings.
Subclauses (6) and (7) outlined the form of the requirement of subclause
(1).
11 Relief from liability for contravention of civil penalty provision
Subclause (1) defines eligible proceedings for this clause.
Subclause (2) provides situations where a Court may relieve a controlling
corporation from eligible proceedings.
Subclauses (3) and (4) provide that a controlling corporation may seek
relief from a Court if they believe eligible proceedings may be begun
against them.
Subclause (5) outlines the application of subclause (2) in situations where
a case is tried by a judge and jury.
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[1] The exception would be some firms with sites located in Victoria. The
Victoria Environmental Protection Agency (EPA) requires all firms which
hold an emissions licence to undertake an energy audit and implement any
energy efificency opportunity identified with a payback of two years or
less.
[2] Saele H, Nordvik H, Naesje P, Hagen O (2005) "What prevents
organisations from implementing energy saving measures?" ECEEE 2005 Summer
Study.