The draft methodology for commercial building energy projects under the Emissions Reduction Fund has been sitting quietly on the government’s website since 25 September, but hardly anyone in the property industry knew. There’s only a few days left for the industry to make submissions before the 23 October deadline and the industry is scrambling to analyse the proposals to see if they work.
Direct Action was to be implemented by July. This year.
The Property Council on Wednesday afternoon seemed not to know the draft had been released when The Fifth Estate called to gauge a reaction. Other industry organisations, such as the Australian Sustainable Built Environment Council, admitted they only became aware of the draft today (Thursday).
Australian Institute of Architects chief executive David Parken said his first briefing on the issue was through a teleconference briefing with a technical working group on Thursday.
A briefing note from a local government sustainability manager and researcher sent to The Fifth Estate set off the chain reaction alerting industry it was fast running out of time.
So what’s proposed and what’s the early thinking?
Comments were few and far between, as industry leaders scrambled to analyse the draft and confer with stakeholders.
Mr Parken said early indications on the ERF were positive.
“Obviously we will go through it in detail but it looks robust and it looks like the method is good,” he said.
Much depended though on the support of the cross benches “and that’s a very difficult process and we’ll need to see what the actual legislation looks like and delivers”.
Senator Nick Xenophon has proposed amendments, detailed below.
A good result is that a deeming provision was included in the draft, Mr Parken said. This provides for an aggregator or agent to provide a financial instrument that would allow property owners to be compensated for emissions savings ahead of the government’s timelines for proof to be accepted.
A local government source said it was unlikely that local government could participate with residents on this directly. Mr Parken said it might be possible for an energy retailer to be the aggregator.
But there was still uncertainty over whether large property owners would take advantage of the scheme and compete with much bigger carbon emitters in the mining sector or the agricultural sector, he said.
“The proof is in the eating… If there is no interest in the built environment, the concern is that this is where we are going to slide backwards. It could send the wrong signal.”
The methodology applies only to offset projects that aim to reduce greenhouse emissions through reducing energy consumption in buildings or groups of building that qualify or have NABERS ratings – specifically, offices, hotels, shopping centres and data centres.
Projects can involve modifying, removing or replacing energy-consuming equipment or changes to the building that demonstrably reduce energy consumption.
One of the conditions where energy-using equipment is removed from a building is that it must be disposed of, not refurbished, resold or reused.
Projects also cannot involve installing any equipment that would qualify for a renewable energy certificate under the Renewable Energy (Electricity) Act 2000. So, for example, if solar power is installed, the amount of abatement it contributes to GHG emissions will not by counted as contributing to the net abatement amount an ERF project achieves.
Commercial buildings projects are required to use an accredited NABERS assessor to generate an energy rating certificate, and the NABERS energy reverse calculator must be used to calculate the quantity of abatement. The minimum abatement required is an equivalent to a one star increase in the NABERS rating compared to the initial baseline rating.
Kristin Pryce, the Shopping Centre Council of Australia’s recently appointed senior adviser responsible for sustainability said she was working on a submission to the government’s draft methodology for commercial building energy projects under the ERF.
Ms Pryce said the SCCA was hopeful the shopping centre industry could benefit from the ERF.
“We are very hopeful there will be opportunities to get access to some of the funding,” she told The Fifth Estate.
She said the SCCA wanted to make sure the ERF for commercial buildings worked in as many scenarios as possible, and not just for shopping centres.
To be attractive, it needed to be simple as well as cost and time efficient, she said.
Dr Peter Holt, principal consultant Carbon Strategy for Energetics, said that there will be a need still for the government to offer alternative mechanisms for smaller buildings that do not qualify for a NABERS rating, including methods that can be used by aggregators to bring together a number of small projects in a proposal. In the current commercial buildings proposed methodology these are not eligible.
Dr Holt said that the methodology as it is “will provide a little bit of an incentive” for commercial building projects, and that “good projects will stack up regardless” of whether they are successful in the government’s reverse auction model.
As to whether the reverse auction could result in a race to the bottom, he said proponents will be assessing their own risks and only bidding in at a viable price.
His expectation is that the price of abatement per tonne will be at its highest in the first round of the reverse auction process, after which Dr Holt said the price will go down as the market stabilises.
“An important thing for clients to know is that if they are putting a project together now, they need to lodge a Notice of Intent form – these are at the website of the Clean Energy Regulator – and then they can commence a project once that form has been lodged and still be eligible to submit it to the ERF,” he said.
“I do think we will see a lot more [Energy Performance Contracts], and a lot more proponents with whole-of-building solutions.
“The difficulty for clients with EPCs is having clarity and understanding where true value lies in terms of behaviour measures as well as technology.”
NABERS ratings are becoming a type of financial product
Dr Holt said increasingly NABERS ratings were becoming a type of financial product, in that it is possible to see the increase in value with high performing properties and the return on the capital and investment. Properties that tap into driving energy efficiency, resulting in a higher NABERS rating, and where renewable energy supplies are also added, has a strong point of difference in the market, he said.
The use of accredited NABERS assessors for ERF projects, he said, meant the energy performance is being benchmarked in keeping with international performance measurement and verification protocols.
“There is a level of consistency with international standards.”
Overall, Dr Holt said the ERF proposal is “efficient, in that it is building on existing methodologies, which makes it easy then for property portfolio managers to access”.
Schneider Electric sees the upsides
Schneider Electric’s sustainability manager – energy and sustainability services, Lee McGhie, also sees merit in the proposal in terms of building on existing work and potentially creating new financing options for states where no schemes currently exist to fund energy-efficiency upgrades.
“The commercial building energy efficiency projects under ERF would be beneficial, the ERF utilises the good work our clients have already implemented under the NABERS scheme,” Mr McGhie said.
“The ERF looks to extend this work by expanding beyond just electricity to include all other fuels as well.
“The good news here is that the ERF could reduce the capital strain on building owners; under the ERF, if approved by the Clean Energy Regulator, there is potential to generate Australian Carbon Credit Units and sell them back to the government, reducing the capital strain. Whereas with the current NABERS scheme, the building owner, outside of NSW and VIC, where assistance is available, has to find the capital for energy efficiency changes to increase the star rating.”
- Download the ERF Commercial Buildings draft methodology and lodge comments here.
Senator Xenaphon puts exposure drafts out for discussion
Meanwhile Senator Nick Xenaphon has proposed the following amendments:
- Objects of the Act (Set 1): The aim of this amendment is to include specific references to Australia’s obligations under any future international agreements to reduce greenhouse gas emissions, to ensure these obligations are taken into account in the operation of the Act.
- Contract Duration (Set 2): The aim of this amendment is to allow the minister to make legislative rules that the Clean Energy Regulator must have regard to when determining the duration for carbon abatement contracts, and the principles the minister must have regard to when making the legislative rules. This includes the principle that, in general, a contract should be seven years (in line with the crediting period), but allows longer contracts to apply if appropriate. This is to provide greater certainty to project proponents wishing to enter into a contract, and will encourage capital- intensive abatement projects.
- Crediting Extension Review (Set 3): The aim of this amendment is to require the Emissions Reduction Assurance Committee to undertake a review of the crediting period applicable to each methodology, and advise whether an extension to the crediting period should apply. This review must occur before the first project registered under the methodology starts the last twelve months of its crediting period. This review process, and any subsequent extension, can only occur once. This amendment does not limit any other review the Committee may undertake regarding a methodology. This amendment is to balance the integrity of the scheme and protect additionality while providing project proponents with greater certainty, and to support and encourage projects capable of longer term abatement.
- Strategic Reserve (Set 4): The aim of this amendment is to allow the Commonwealth to establish a strategic reserve of international emissions units to assist Australia in meeting its international climate change targets. There are robust mechanisms to ensure the integrity of international units purchased, and a limit of $500 million (in effect 20 per cent) of the Fund up to 2020. Due to the complexity of this amendment, an Explanatory Note is attached.
- Safeguard Mechanism (Set 5): The aim of this amendment is to introduce a legislative framework for a safeguard mechanism to ensure operators of large facilities keep their net emissions within their baseline levels. In essence, this will ensure the integrity and enforcement of the scheme. Due to the complexity of this amendment, an Explanatory Note is attached.
The Guardian said Senator Xenophon’s amendments would “give the policy credibility and may even allow for Australia to make deeper cuts to its carbon emissions”.
The safeguards proposed by the senator “would ensure that emissions would not go up elsewhere in the economy, thereby replacing the pollution prevented by the fund”.
The Greens are considering the amendments and said they would support improving Direct Action, while Labor and the Palmer United Party are opposed to the program.
The Australian Industry Group said Senator Xenophon’s were “substantial and merit serious discussion”.
“Senator Xenophon’s proposals would build on the Government’s mooted Emissions Reduction Fund,” Chief Executive of the Australian Industry Group Innes Willox said. “The proposals are complex and will require close consideration from industry, which faces potential additional costs from the ERF. But it is already clear that the Xenophon amendments would improve on existing proposals in at least two ways.
“Firstly, by providing an avenue for longer crediting periods and offtake contracts that are better tied to project economics and investor needs, they would help make commercial involvement in the Emissions Reduction Fund more attractive and sustainable.
“Secondly, they would guarantee the achievement of Australia’s targets at low cost by establishing a reserve of international carbon units. High quality Kyoto-compliant credits are available in high volumes at low prices, and bringing them in to the ERF as proposed should be a key part of the policy approach.”