OPINION: CPRS White Paper Release

01 Dec 2008Archived News Energetics in the News

Jonathan Jutsen - Executive Director and Founder, Energetics Pty Ltd - shares his opinion on what the CPRS White Paper should have included for Australian business.

 

The Rudd Government should be congratulated for its political courage on Monday when it recognised the seriousness of climate change and the urgent need for Australia to take action, regardless of the current economic cycle.

That said, I also have significant concerns about the approach defined in the White Paper on the Carbon Pollution Reduction Scheme (CPRS). Chief among these is that the target of 5 percent below our emissions levels in 2000 is not adequate to do our share to mitigate climate risk. This target will effectively mean an emissions cut of 14 percent in 10 years, which is a large deviation from our historical growth of fossil fuel-based emissions of 2 percent growth annually. The international community will be looking for far deeper cuts.

What is the best way to achieve our target? Logically we should start by determining the most economically beneficial and simplest measures to reduce emissions now. By improving the energy efficiency of the economy and hence using less energy, we reduce costs as well as cutting emissions.

Large and medium-sized businesses and government agencies have the most significant opportunities to improve energy efficiency, which are not yet being achieved due to competing business priorities. Around $25-30 billion a year is spent by Australian business on energy, with 45 percent of total Australian energy end use by the top 220 users (accounting for 60 percent of business energy use) and about 10 percent by the next 2,000. The savings opportunity from energy efficiency measures is $5-6 billion per year, which would reduce Australia’s total emissions by over 10 percent.

To achieve these improvements in energy efficiency, it will be necessary to drive the outcomes through incentives combined with targeted regulation to change business priorities and overcome other market barriers. These incentives of up to $2 billion per year over 5 to 7 years (either direct, or through the tax system through depreciation allowances or tax credits) will leverage business spending in the order of $25-30 billion. Further, the program would generate increased tax revenues through increased business profits and would actually be revenue-positive for government within 7 years.

The justification for this interim business transition program is clear: we have built our enterprises on the promise of low cost energy and as a result have also built in a competitive disadvantage for energy efficiency. If energy prices now move rapidly toward parity with international competitors we need transitional investment to change out capital and systems to be efficient in a low carbon, high energy cost world.

Surely this type of transformational investment in productive infrastructure, which provides long term improvements in competitiveness while cutting emissions, is exactly where the government should be investing stimulatory funding now. Instead, the White Paper provides handouts to many affected classes of business and the public, which will only delay the necessary adjustment to a low carbon economy.

The next requirement is to set the right price for carbon emissions. Significant carbon prices will be required to achieve the targeted reductions if implemented alone. The only way we can achieve the reductions required within the proposed price cap of $40 per tonne is through improving energy efficiency. However, the government has been distracted from taking action on this critical second pillar for carbon mitigation by the complexities of the trading scheme design.

Additionally, renewable energy investments can be made in parallel with energy efficiency measures, but as a lower priority based on the fact that energy efficiency investments will be far more economically beneficial. But Australia does not yet have a consistent energy efficiency policy and there are no targets for reducing fossil fuel consumption. As a result, energy efficiency is seen by the government at best as a ‘complementary’ measure to the CPRS and at worst a neglected afterthought.

Those efficiency measures which are currently being contemplated focus primarily on households and the small business sector, the least cost effective and hardest to reach sectors of the economy. This is hardly economically rational.

Let’s learn something from the European approach. The climate accord reached last week requires Europe to cut greenhouse gas emissions by 20 percent by 2020 compared with 1990 levels. Europe also set a target of 20 percent greater energy efficiency from stationary sectors by 2020 and a cut in CO2 emissions from cars by 19 percent by 2015. And in addition they have a 20 percent renewable energy target.

Australia needs an integrated energy and carbon policy that will reduce its carbon emissions at the lowest cost, for the benefit of all Australians. Logically, this would focus on energy efficiency as it is without doubt the most economically effective way to achieve our emission reduction targets. According to the International Energy Agency, energy efficiency offers 55 percent of the solution to achieving global 2050 carbon mitigation targets, and so is hardly something to be seen as a secondary consideration in designing our carbon pollution reduction scheme.

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