One of the major pillars of the argument against an emission trading scheme and the pricing of carbon is that it would undermine the international competitiveness of Australian industry.
So it’s interesting to hear the arguments of someone who suggests Australian industry will lose its competitiveness if it doesn’t introduce a price on carbon and offer other incentives to become more energy efficient.
Australia has long enjoyed cheap energy, courtesy of its abundant supplies of coal. This has given local industries a competitive advantage, and become the basis of business systems and capital decisions.
It has also meant that Australian boards have not had to try too hard on the energy efficiency front. Indeed, according to the experience of energy consulting and advisory firm Energetics, less than 15 per cent of Australian companies have any sort of energy management systems.
That may be okay in a world that doesn’t change, but in a world heading for price parity – because of a search for clean energy and carbon pricing – Australian business suddenly finds itself on weaker ground.
“Australian business has enjoyed low cost energy and assumed it will remain low cost into the future, and … a lot of our facilities, and business practices and systems, reflect low cost energy,” says Jon Jutsen, the founder of Energetics.
“We’ve always bought lowest cost rather than higher efficiency. But we have built ourselves a competitive disadvantage. That doesn’t show until you get to a point where start to have energy sources such as natural gas at global parity pricing.”
And, Jutsen notes, that occurred in WA last year, because of rising gas prices that followed the surge in demand, and pricing, for the state’s supplies of LNG. He says that to protect the country’s competitiveness, it needs to transform its business, systems and capital equipment to prepare for a low carbon future.
It is estimated that Australian energy costs for business amount to up to $40 billion a year, so efficiency improvements of 10 to 20 per cent could save business between $4 billion and $8 billion a year. Some of this is easy – simply changing behaviour and introducing some efficiency measures at no, or even negative cost.
Some of this requires capital investment in systems, efficiency pumps and motors, and could still be achieved at an abatement cost of $10 a tonne of CO2 equivalent or less – cheaper than a carbon price of $20/tonne. And even more could be achieved through process changes such as fuel switching and other investments which could be achievement for a cost of up to $20/tonne.
But Jutsen says, for this to occur, there needs to be a price incentive, along with other specific measures to support energy efficiency at a broad level in business.
At a conference in Sydney this week, he highlighted Australia’s inefficient model with the way we heat water for a bath – digging coal out of the ground, transporting it, and burning it, creating emissions along the way and generating energy at just 35 per cent efficiency. Then we lose more in transmission and finally deliver the energy to heat water to just 35c. Compared to the delivery of solar, or gas-based, hot water systems, it is highly inefficient.
“We have to look at every end use and redesign how these needs are delivered, rather than thinking how to replace coal fired power station with another power station,” Jutsen says. Co-generation, where excess heat from a natural gas fired turbine is used in the industrial process, is a fine example.
The conference heard from Dian Grueneich, a commissioner from the California Utilities Commission, which regulates utilities in the state which has been on an efficiency drive for the last 30 years.
According to Grueneich, it began when surging fuel prices led to a campaign to install nuclear energy power plants along the coast, at a frequency of around one every 50 miles. The government decided that using less energy might be cheaper than building new plant.
The combination of clear policy, financial incentives, measurement and strict enforcement has meant that over that time, the energy use per capita in California has not increased. In the rest of the US, and in Australia, it has risen an average 50 per cent.
Energy efficiency is now one of the major pillars of the Obama Administration’s efforts to reduce emissions. Jutsen says Australia needs to do the same. “We have to take away the fear of acting alone.”