Tony Abbott

14 November 2013 – So who believes in Direct Action then?

Well there’s a lot of people trying hard and working double time to make their submissions to the public consultation process before it closes on 18 November.

Among these is the property industry and the entire might of the Australian Sustainable Built Environment Council, which is engaged in crafting a workable response that includes the residential sector.

The Australian Institute of Architects chief executive David Parken who is chair of the ASBEC committee working on Direct Action says the scheme can work; the question is to find out how.

After all there’s $3.5 billion on the table over the net few years to pay for retrofits that will bring down carbon emissions.

Or is there?

Energetics, which deals with some of the biggest energy users in the country, has serious concerns.

Exergy’s Paul Bannister, a leading authority in energy efficiency in buildings, says the idea is “crazy” and a “triumph of politics over common sense”.

Bruce Easton

Bruce Easton, chief executive of EcoVantage and president of the newly formed Energy Efficiency Certificate Creators Association says reverse auctions are “the worst ways to fund this. It’s just the government trying to pick winners.”

Some people are concerned this idea will simply fade away. There’s not an awful lot to tether the DA “plan” to reality. A few dot points, that look like they could float away.

However the consultation process is an invitation for the industry to flesh out the missing bits and come up with a strategy.

Not the least of those trying to make DA a reality is no doubt, the environment minister himself Greg Hunt. Hunt, it’s generally agreed, has good intentions and wants to do something for climate change and the environment.

The minister wants it to work.

In response to our inquiry a spokesman for Mr Hunt said:

“The Emissions Reduction Fund will purchase emissions reduction at the lowest cost. The Government sees significant potential in the built environment through improved energy efficiency.”

 “The public consultation into the Emissions Reduction Fund will inform the green paper which will set out the Government’s preferred options for design of the fund later in the year ahead of the White Paper outlining the final design of the fund in early 2014.”

ASBEC

The AIA’s David Parken says it can work. The question is to find out how, and there is certainly money on the table to make it work.

Parken, who chairs a committee looking into DA for the Australian Sustainable Built Environment Council, says that “obviously ASBEC has an interest in abating carbon; this sector has substantial capacity.

The biggest question he says is how to package up sections of the industry in order to compete on the lowest cost abatement criteria against sectors that might have a bigger natural advantage because they can curb emissions at a lower cost.

Large real estate investment trusts have ready-made packages – their portfolios. But the industry is wondering if housing too could be amalgamated by suburb or perhaps utility suppliers could be co-opted to manage the scheme.

“What could be possible is to look at organisations that already have existing relationships –who have a customer base and who can aggregate hundreds if not thousands of homes – and deliver a program of measured improvement and that’s the key thing.”

These could be councils, electricity providers or telcos, Parken suggests.

An aggregation of carbon savings is one of the reasons that ASBEC called for a national white certificate scheme, he says.

“We’ve spoken to advisers of Greg Hunt and the PCA (Property Council) has engaged Allen Consulting to do report because we want to have input into the design and how it will work to make sure it’s fair and equitable.”

There is certainly potential for emissions reductions.

“The government has done some estimates. Their guess is that 30 per cent of the abatement can come from the building sector,” Parken says. “We think it can do better than that.

“The good news is that with a lot of new improvements with high performance buildings and good design principles, double glazing and so on we know that it’s got the potential to reduce predicted emissions by about 30 per cent.”

“So the Direct Action story is paying for abatement where abatement is achieved and what I would say is that the built environment is one of the few sectors putting its hand up that can make a contribution and that we’re interested in incentives.

“No one is saying that Direct Action is the one and only answer to investors’ dreams, it is simply an incentive available.

“In the commercial space people are not just going to upgrade their buildings because they are going to get a payment. It will be one part of the decision making.”

Paul Bannister

Sceptical

Exergy director Paul Bannister is far more sceptical.

Firstly he finds it surprising that “a government so ostensibly market based, is so heavily interventionist.”

“It’s a very curious position they’ve backed them selves into. But if it goes ahead it’s likely to be a bonanza for consultants.”

But that doesn’t mean it will be good for all.

“It’s entering into a process that’s going to be very expensive for the industry to engage in,” Bannister says..

“You’ve got to raise proposals to win funding. The Green Building Fund was great for consultants. It’s a great economic stimulus activity.

“But the money tends to go to the organisations that are best resourced.

“And that’s what you saw with the GBF. It went to the REITs that are well organised and well equipped and had the resources to access the GBF.”

“We don’t know what the entry cost will be to the Direct Action and we don’t know the costs of participating in the fund.

“The cost to participate might be way in excess of whatever you might earn. It might generate you $20,000 or $30,000 but it might cost $30,000.”

He also wonders how the building sector could compete with say, an aluminium smelter in terms of achieving large scale emissions reductions.

“At this point with the direct action scheme we don’t know any of those details.

“It seems like a triumph of politics over common sense. It  seems crazy.”

But there’s more and Bannister says the scheme could well end up looking like the insulation debacle because public servants are not equipped for what will be in the end need to be a highly managed process.

“The other thing that worries me is that the Feds don’t have a program implementation structure. Look at what happened with the insulation scheme,” Bannister says.

The department that implemented the scheme was basically staffed by “policy wonks”, he says, “so how are they going to implement this?

“Not that there aren’t alternatives to a carbon tax. But this area of policy has not been well thought through.”

“Ultimately there are not serious about it.”

Business can’t wait

Bruce Easton, chief executive of EcoVantage and president of the newly formed Energy Efficiency Certificate Creators Association says businesses outside of property are unlikely to fare any better.

“Reverse auctions are the worst ways to fund this. It’s just the government trying to pick winners,” Easton says.

Say it’s a company in the dairy industry that has big compressors and looking to replace them, “they are rarely in a position where they can go through a tendering process to support this.

“They won’t want to wait for eight months. They’re likely to need to replace something straight away. So companies don’t work like that; at least they prefer not to work like that.

“So you end up supporting the large companies doing stuff that is not time critical. And those smaller ones that live hand to mouth don’t have a chance. They won’t engage a consultant and pay $10,000 on the off chance that they get some funding from the federal government.”

Big questions

In a helpful written summary Energetics recently outlined some key points and some very big questions:

The government Terms of Reference, it said, was ” notable for its lack of detail”.

“The upside is that Australian business has the opportunity to comment on the basic elements of its design.

There are five major design questions:

  •  How will the baselines for emissions reductions be determined?
  • How will penalties be applied?
  • Should participation be mandatory for some companies?
  • What types of projects should be rewarded and when should funding be made available?
  • If revenues are raised, how should they be used?

The Emissions Reduction Fund component of the Direct Action plan needs the greatest scrutiny and business input.

  • What are the Business as Usual (BAU) baselines to be used to measure abatement?
  • What are the possible sources of abatement that will be eligible under the ERF?
  • How will the Carbon Farming Initiative (CFI) and NGER Act inform abatement projects?
  • How will auctioning and governance arrangements be made?
  • What are the monitoring, verification and compliance requirements for abatement?

These issues are so big that  some suggestions the government isn’t at all serious and will simply wait for an round of consultation and reworking of the scheme until the next election comes around.

However we are promised a Green Paper by December 2013, with White Paper and draft legislation available for comment early 2014.

It is understood that a separate Terms of Reference for the design of Direct Action will soon be released.

From our own consultation with clients, questions around the design of the Emissions Reduction Fund include:

Baselines:

Businesses report emissions under the current National Greenhouse and Energy Reporting scheme as a single entity, so how will a Direct Action baseline, drawn from the National Greenhouse and Energy Reporting (NGER) Act, account for different business activities?The relationship between production and emissions levels is not always obvious. How would a baseline account for variations?

How does business growth and expansion effect the calculation of emissions reduction baselines?

How would a baseline be established for a new entrant? Will this be based on an industry average?

Additionality (demonstrating carbon emissions reductions beyond BAU):

  • Additionality criteria have the potential to be complex and, if not robust and defensible, could be “gamed”.
  • Assessment methodologies need to be developed that provide business with the confidence to allocate capital, time and resources to pursue emissions reduction projects.

Business is not clear about how a reverse auction would work under the Emissions Reduction Fund. Concern has been expressed that some energy efficiency activities might be regarded as business as usual and therefore not eligible.

Operational questions:

  • Will the Clean Energy Regulator be able to validate enough methodologies to allow the ERF to begin operation of 1 July 2014?
  • What measures will be in place to assist business to reduce emissions and improve efficiency in the interim?