No Energy Efficiency in the Emissions Reduction Fund.

Australia’s $2.5 billion emissions reduction fund aims to achieve carbon abatement through a reverse auction process. The first auction was held last week. At an average price of just under $14 a tonne the majority of projects successful in the auction were either for land-based carbon sequestration (for example tree plantings) or for methane capture from municipal tips.

With energy efficiency commonly portrayed as “the low hanging fruit” one could have expected that a range of energy efficiency projects would have been successful in the auction. However, no energy efficiency projects were listed in the list of successful projects.

Only those projects which were successful in the auction process are known, so it’s not possible to know how many energy efficiency projects, if any, were submitted.

Under the now closed Energy Efficiency Opportunities scheme many of Australia’s largest businesses would have developed energy efficiency projects that for relatively little effort potentially could have been submitted for the auction process. Were these companies playing a wait-and-see game to see what the price would be? Or did some of them they try to get in on the first auction and were simply unsuccessful? Or did they anticipate a relatively low price, and figure it would be a waste of time participating?

Many in the energy efficiency industry have endeavoured to influence the design of the emissions reduction fund, principally by engaging in the public consultation around scheme design. But they may be feeling that their effort has been wasted.

Energy efficiency, contrary to popular belief, actually doesn’t usually provide no cost returns. Instead it provides a reasonably good return on investment. By if the first auction is any indication, clearly not good enough to deliver abatement at $14 a tonne. Which actually isn’t rocket science to figure out.

Consider for example, a lighting upgrade – a pretty typical EE measure. For argument’s sake let’s say that we are replacing twin 36 W fluorescent fittings in an office with LED light fittings each consuming 40 Watts. Allowing for ballast energy consumption associated with the fluorescent tubes the saving per fitting is 40 Watts. If we assume that the lights operate for 50 hours a week, or around 2500 hours a year, annual energy savings per fitting are 100 kW. Assuming that this is a commercial office where the peak tariff is say $0.20/kWh, annual savings are $20. If the cost of the new fitting, installed, along with the cost of disposing of the old fitting, was $100 then the simple payback would be five years. The carbon savings would be roughly 100 kg per year. At a carbon price of $14 a tonne, this would yield $1.40 year. As can be seen this is a relatively small amount, and essentially only improves the economics of the lighting upgrade by around about 7%. So why would anyone bother aggregating a whole lot of savings from various light upgrades and go to the effort of annual verification and reporting?

With respect to energy efficiency, the emissions reduction fund makes sense if you have a project ready to go, that you are going to do anyway so you only need to put in a low bid, and where the cost of annual reporting is less than a benefit gained from the fund. Did you mention the word additionality? If any EE projects are successful in future auctions it’s going to be hard to prove that the emissions reduction fund has actually generated more savings from energy efficiency than would have been the case without the fund.

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