BEN talks to Jonathan Jutsen, Executive Director, Energetics

09 Jul 2012Archived News Energetics in the News

PUBLISHED: Business Environment Network (BEN).

Max Pichon from BEN, spoke to Jonathan Jutsen about the new carbon price.

 

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1. The business sector seems to be deeply divided with one section praising the carbon tax and coming out supporting it, while the other half are labelling it a ‘burden’ and are threatening to increase prices, what is your take on this matter? 

JJ: Let’s break business into broad categories and each will have a somewhat different view.

Most small business will find the carbon tax to be a minor extra cost for doing business that will soon be forgotten. For example, a friend has a retail store with lighting, air conditioning and a couple of refrigerated cabinets and has an electricity bill of about $4,000/year (reduced 20% by retrofitting LED lighting throughout). The Carbon price will add about $500/year to her costs - $10/week. Hardly a game changer, though if you listened to the mis-information in the press you would think that these businesses were now doomed. 

I have had conversations with a hairdresser who was very concerned about her business (works out a $7/week cost), and a taxi driver who told me he saw on Channel 7 news that brakes would cost $2000 more per set, and thought that his morning coffee would go up significantly in cost – I told him if it did to go elsewhere as there is no justification. I can’t see many small businesses being able to legitimately pass on material price increases, and I think the hysteria will also soon pass. 

The same is true for large, non-energy intensive businesses like banking, but many of these businesses are taking active steps because they acknowledge the broader sustainability benefits of improving energy efficiency and reducing their carbon footprint. 

Very carbon intensive businesses will largely be protected from international competitive damage by free permits that will reduce the carbon impost to modest levels and mean that their products will also have a low carbon cost impact downstream. 

In the middle we have process industries – like the food industry, for whom the roughly 15% electricity and gas price increase will be felt as yet another cost pressure on the business that may be hard to pass on due to the market situation. This price increase is hot on the heels of 50%+ increases over the last 4 years from network price escalation, which has made energy a significant operating cost. 

The positive side for these businesses is the availability of Commonwealth (CTIP) funding assistance for capital investment to reduce emissions and improve energy efficiency. We are seeing a rapid increase in interest from these businesses to take up these and also State incentives to achieve a step change in their cost base. One restraining factor on large projects like cogeneration is the concern about risk factors, particularly uncertainty about the longevity and price level of the carbon price. 

2. Do you think the carbon tax will deliver on its promises in terms of greenhouse reductions within the timeframes it has imposed? 

JJ: If you would have asked me whether Australia could meet its GHG reduction targets by 2020 3 years ago I would have said ‘probably not’. However, we have substantially deviated from the originally predicted business as usual line in the last 3 years. Instead of increasing electricity consumption by 2+% p.a., the NEM electricity consumption has declined by 3% and shows signs of continuing to decline. 

At least part of this can be attributed to government policy – though at present no-one has comprehensively modelled the market change to enable us to attribute the decline to the large range of potential influencing factors. 

The Clean Energy Futures package and previous government carbon mitigation measures amount to much more than ‘the carbon tax’. At present for example we are seeing process industry rapidly mobilise to take advantage of grant funding under the CTIP program. The $1 billion available will ultimately leverage $2.5-3 B of investment and generate say $1B/year of energy savings from the manufacturing sector. 

Business is seeing that the rapid rise in electricity prices, now topped up with about 15% increase from the carbon tax, the high exchange rate which makes imported capital equipment for energy savings cheaper, and the range of grants and State funding schemes available provide a unique opportunity to reduce their energy cost base. 

3. What role does energy efficiency play in the carbon tax debate, Is it a major part of the solution or do you see it as just one piece of the puzzle with many other players participating in it? 
JJ: Energy efficiency (including efficiency improvements in the energy supply chain from measures like cogeneration/distributed generation), will deliver well over half of all the carbon mitigation over the next decade or two. Central renewable power generation and also on-site renewables in business applications will supplement this. 

Unfortunately there has been a misunderstanding about the nature of energy efficiency. Firstly it is often seen as only an end use issue, but by implementing cogeneration you can substantially reduce supply chain losses in the power system and dramatically reduce emissions. Secondly it is often seen as 5 or 10% savings from ‘low hanging fruit’. 

The reality is that many businesses have been able to improve their energy productivity (energy/unit output) by over 50% through a combination of capital investment in new process lines, improved business systems and improved technology, and thirdly energy efficiency is not a static measure but rapidly developing – a classic example is in lighting where LED’s will move from a curiosity 5 years ago to being the standard lighting technology for most applications in the next 3 years as the price drops with Moore’s law now that lighting is an electronics product rather than being about lights and fittings. 

4. If the carbon tax was to be axed by Tony Abbott if he wins the next election, how would it impact the fight against climate change? 
JJ: It really depends on the alternative policies put in place. The benefit of the carbon tax is that is simultaneously increases the price of energy while also raising the revenue to provide targeted incentives to drive capital investment in carbon mitigation. If the Carbon tax were removed, presumably the incentives would also be removed, as there would not be a funding base. 

The ‘direct action’ policy of the Opposition is very poorly enunciated and there is no detail about how savings will be generated, so it is hard at present to see how it will impact on carbon mitigation efforts. Gut feeling says that the uncertainty and withdrawal of incentive funding would substantially set back efforts to reduce emissions. 

We are already seeing companies holding back on capital-intensive investments like cogeneration because of uncertainty about the carbon policies under a Liberal government. 

5. Do you think the $23 price on carbon is too high, just right, or is it a case of ‘wait and see’? 
JJ: I think let’s wait and see. In some respects the actual carbon price is not nearly as critical as you might think. Given the fact that most businesses that would otherwise be heavily impacted are receiving very high proportions of free permits, I doubt that reduction to say a $15/tonne price make any substantially change to their business outlook. The fact that so much of the carbon tax (actually over 100%) is being paid back in compensation means that the exact price is not that material – lower price=less compensation. 

And for companies not compensated, the electricity price increases we have been incurring from network charges have been 50-60% over the last 4 years compared to the 15% from the carbon price, so would it be a substantially different impact if that price increase was 10 instead of 15% - I don’t think so. 

6. Energy prices are going to increase due to the carbon tax, businesses and the community are opposed to it too, QLD and VIC governments have been busy rolling back energy programs and funding, and axing key climate departments. Do you think the Government’s message has been well delivered in terms of explaining to the business sector and the community that a carbon tax and ETS will benefit them and the environment in the long run?
JJ: No, I think the government as well as other interest groups in the area need to do a better job in demonstrating the business benefits of making the transition to a lower carbon economy now. In addition, we need a much stronger marketing effort on the savings being achieved by businesses and individuals through improving energy application – lots of well documented case studies of real people in different demographics, and a wide range of businesses showing the full scale of energy savings opportunities and the benefits accrued to their businesses.
 

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