A business carbon transition plan is needed

01 Dec 2008Archived News Energetics in the News

The article below is an updated version of an editorial Energetics' founder, Jonathan Jutsen, wrote for The Australian, published in October 2008. Jonathan's article explains why a transitional plan is essential to achieve rapid and substantial cuts in carbon emissions.

 

As we await the release of the White paper on December 15 to define our emissions trading scheme, the focus has been primarily on scheme design. While this is very important, we need to focus on the purpose for setting a price on carbon pollution in the first place – that is to achieve substantial cuts in carbon emissions.

The Rudd Government is just starting to confront the reality that in the first three to four years of the carbon pollution reduction scheme (CPRS), the low carbon price anticipated is unlikely to deliver a significant reduction in carbon emissions.

By itself it will not provide a sufficient incentive for businesses to invest in significant energy efficiency measures. To illustrate this point, if the CPRS drives a 10 per cent energy price increase on average in 2011, emissions are likely to reduce by only 2 to 4 per cent in the long term, because past experience shows us that business energy usage is relatively inelastic to modest changes in price.

And we are starting in an environment where Australia's fossil energy use is continuing to increase by 2% every year. Therefore, the scheme needs to be supported by a transition plan for reducing greenhouse gas emissions through acting more directly in energy efficiency. Such a transition strategy would prepare business and the community for the challenge of rapidly diminishing our carbon dependence. It is a vital measure to ensure the success of the CPRS. It is also vital to ensure future competitiveness of Australian industry, as our businesses were designed in expectation of low energy costs and as a result have a competitive disadvantage in energy efficiency. As business now faces world parity energy pricing plus a carbon price it is critical to rapidly transition business capital equipment and systems to higher energy efficiency/lower carbon emissions.

The kind of transition strategy needed will involve implementing a range of policy measures, combined in a cohesive energy/carbon policy framework. To encourage accelerated investment in energy efficiency, the Government should offer tax credits, depreciation allowances or other investment incentives, together with well-targeted energy efficiency performance regulations.

In addition, the Government should extend the mandatory Energy Efficiency Opportunities savings reporting schemes to cover all energy users captured under the National Greenhouse and Energy Reporting system. This reporting scheme has been established to collect information for government on businesses' greenhouse gas emissions, energy consumption and production.

The mandatory Energy Efficiency Opportunities program has been effective in getting companies to identify opportunities and drive energy efficiency. However, over half the companies surveyed saw financial incentives as being critical to ensure implementation of these measures.

As with all major government initiatives, not least the CPRS, there should be appropriate information and advertising programs to ensure the messages are adequately conveyed to the public. Finally, there should be incentives and support for companies to train their staff in energy management.

The transition plan should be implemented as a matter of urgency, and will be crucial for the next three to five years until the CPRS starts to gather momentum. By continuing this transition program as a complementary measure, the Government can soften the economic impact of a trading scheme.

Based on international experience, for this transition plan to reduce energy growth to zero over five years with a modest price on carbon, it will be necessary to provide up to $2 billion per year of incentives. A key source of this funding would be revenue from the auctioning of carbon permits. But much of this has been committed to trade-exposed industry, the cutting of fuel excise, compensation to coal-fired power stations and compensation to households. Business is awaiting some clarity on the funding it will be allocated from the White Paper on December 15.

Jonathan Jutsen

Jonathan Jutsen, founder of Energetics:

Internationally recognized as a leader in the energy efficiency field, Jonathan Jutsen’s name is synonymous with energy and carbon management. Since 1984 when he founded Energetics, Jonathan has played a major role in transforming the energy management industry in Australia and his 27 years of innovation and policy leadership has been recognized by a series of awards including engineer of the year and a Millenium medal.

Jonathan has been a prominent public speaker on climate change and resource efficiency topics and is invited to deliver keynote speeches at major seminars across the country and he regularly addresses Boards and executives.

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