Victorian energy and climate change minister, Lily D’Ambrosio said the new RIS " fails to capture the benefits of moving to more efficient homes." Image from CEDA.

If there is one thing certain following the quiet release on Monday of the regulatory impact statement, or RIS, that accompanies the proposed upgrade to the National Construction Code it’s that this will be one of the more scrutinised documents to come out of government in recent times.

Prepared by ACIL Allen the RIS is officially called the National Construction Code 2022 Consultation Regulation Impact Statement for a proposal to increase residential building energy efficiency requirements.

It’s complex, it’s dense and it seems to contain some strange assumptions. For instance, there’s a “do nothing” scenario. Seriously? To even contemplate such a possibility or give it a skerrick of oxygen jars badly with the “ink” still wet on the latest report from the Intergovernmental Panel on Climate Change, which blatantly said, we’re at Code Red for the planet. 

This means we have to do all we can – not by 2050 but by 2030. It means we need to get to net zero, urgently. Not “if possible” as our prime minister would have it, but in the words of another leader from another era: we need to do “whatever it takes”. Winston Churchill said that because he understood the meaning of existential threat. He did not send in the accountants to do a cost benefit analysis of fighting for his country’s survival. 

But here we are at 2021, with eight and a tad years to 2030 and the RIS supplied to help us decide on whether or not to ramp up energy efficiency on our appalling quality of regular housing is twiddling its thumbs wondering whether the cost benefit scenario says stay or go.

Expect a load of slicing and dicing from the pundits, experts and commentariat as they plough through the document and discover what we can see already are some serious flaws.

The Victorian government has already made its response clear. So far, it doesn’t like what it sees.

Minister for Energy, Environment and Climate Change Lily D’Ambrosio said in a statement on Monday, before most people had enough time to brush off their weekend cobwebs, that Victoria means business on climate change.

“Victoria has led the way in Australia with energy efficiency standards for new homes and is ensuring our building code is fit for a low emissions future,” the minister said. 

“If the national process fails to deliver new homes that are comfortable to live in, cheap to run and climate resilient then we will step in.”

“If the national process fails to deliver new homes that are comfortable to live in, cheap to run and climate resilient then we will step in.”

Lily D’Ambrosio

The strong tone and big “mandatory” word has already been flagged by Infrastructure Victoria with its recent slew of recommendations for mandatory action to combat climate change and improve resilience. We’ve seen it again with a bunch of savvy feisty councils in Victoria ready to challenge the weak legal status quo and go “above code” on what kind of developments they want in their hood. 

Victoria’s goes mandatory in plans to fight climate change

Local councils in Victoria investigate mandatory net zero carbon buildings, but that’s not all

The RIS meekly mentions we already have some mandatory rules, the existing building code and the NABERS rating tool as its used in the Commercial Building Disclosure program. The first has been unequivocally hobbled and then ignored by the less sophisticated elements in the industry and the second has been actually quite successful (except for the dogged determination by the less sophisticated elements in the shopping centre industry to keep its nose free of the “big M”).

According to D’Ambrosio things are not shaping up well with the next National Construction Code. Here is the statement in full.

An assessment of proposed national energy efficiency standards for new homes released today understates the health, climate and energy benefits of moving to 7-star building standards. 

The National Construction Code 2022 Consultation Regulatory Impact Statement, released by the Australian Building Codes Board, fails to capture the benefits of moving to more efficient homes. 

The Trajectory for Low Energy Buildings agreed by all states and territories in February 2019 anticipated strengthened energy provisions in the NCC 2022, including an increase in building efficiency and stronger standards for fixed appliances such as heating, cooling and hot water. 

However, the Consultation RIS skews its assessment of these provisions with conservative inputs and assumptions. It focuses more on costs while understating the emissions reduction, energy bill savings and health and wellbeing benefits of efficient homes.

To ensure Victorians get the benefit of lower power prices and more comfortable homes, the Victorian government will continue to pursue its Climate Change Strategy, which improves energy efficiency standards to slash emissions, reduce costs and increase comfort. 

A 7-star increase would also help maximise the benefits of solar panels and all-electric new homes. Victoria’s 6-star standard has been in place since 2011 and must evolve to meet the needs of our rapidly transitioning grid, the impacts of climate change, and our shift to a net-zero future. State and territory building ministers will decide whether to incorporate new standards in the National Construction Code in September 2022. 

Victoria will continue to actively engage in the process highlighting economic, health and climate benefits of ambitious energy efficiency standards.

Choosing a plan of attack

Here are the three options the RIS considered  – including the dismal “do nothing” option.

The Business as Usual (BAU) or status quo — an option where there are no changes to the energy efficiency requirements for residential buildings in the NCC 2022. The BAU provides the baseline against which the impacts of the alternative options discussed below are evaluated. 

Option B – this option sets a maximum annual energy use budget (based on societal costs) for the elements of a building regulated by the NCC (space conditioning, water heating systems, lighting and pool and spa pumps). 

The budget is based on a “benchmark home” built with the following characteristics: — building shell performance level: equivalent to a 7 star Nationwide House Energy Rating Scheme (NatHERS) rated dwelling — heating equipment: equivalent to a 4.5 star rated (Greenhouse and Energy Minimum Standards (GEMS) 2012) heat pump heater (Annualised Energy Efficiency Ratio, AEER = 4.5) — cooling equipment: equivalent to a 4.5 star rated (GEMS 2012) heat pump cooler (Annualised Coefficient of Performance, ACOP = 4.5)  — water heater: instantaneous gas — 4 Watts per square metre of lighting. 

Under this option, a societal cost of operating this benchmark building is calculated and a new building is deemed to be compliant if it has the same societal cost as the benchmark building. If a piece of equipment (such as water heating) is installed that performs worse than the benchmark, this will have to be offset either through installing other equipment that performs sufficiently better than the benchmark (such as cooling) or through the installation of on-site renewables (solar PV). 

Option A – this option is based on the same energy use budget as Option B, however, the budget is 70 per cent of the Option B benchmark (that is, a compliant dwelling must achieve savings equivalent to 30 per cent of the societal cost of applying the equipment and building fabric performance level of the benchmark building specified in Option B). 

For example, if the societal cost associated with the benchmark building in Option B is $1000 per annum, then under Option A, a societal cost of $700 must be achieved. Compliance can be achieved either by improving the performance of the building shell, its equipment or by adding some solar PV or a combination of these approaches.

From our initial reading and interpretation of the conclusions, things don’t look good. As we flagged in the lead up to the new NCC and the RIS insiders tipped that that they expected from their gleaning of the process that there was failure to properly measure externalities. So costs of electricity saved by households are measured only in wholesale terms. So you put the solar on the roof and the RIS will measure the savings only in terms of 1-6 cents a kw hour s for the wholesale cost and ignore the much steeper retail cost of buying electricity from the grid, up around 25-40 in NSW.

Highlights from the conclusions

The analysis of the proposed policy options for more stringent energy efficiency requirements for new dwellings in the NCC 2022 indicates (based on the best available data and assumptions) that there would be a net societal cost for both optionsthe costs are estimated to outweigh the benefits by a significant margin [my emphasis and watch how this will be hotly disputed because of the lack of externalities assessed]. 

The capital costs associated with meeting the proposed energy efficiency requirements are estimated to be well in excess of the societal benefits that are largely derived from avoided resource costs in the energy sector (and which are estimated using wholesale energy costs and avoided network investment as a proxy). 

The breakeven analysis undertaken indicates that there would need to be a very significant increase in wholesale energy costs (more than three times) and/or a very significant reduction in the capital costs (a discount of around 70 to 80 per cent) for there to be an Australia-wide net societal benefit associated with the proposed policy options. 

Even when considered from a household perspective, our analysis indicates that the estimated retail energy savings by the household [which look like are based on wholesale energy prices 1-6 cents a kilowatt hour, not the retail price of 25-40 cents] do not exceed the capital costs associated with the proposed energy efficiency requirements:

However, our assessment suggests that improvements to occupant health and amenity and the resilience of a building to extreme weather and blackouts from the proposal would be immaterial. 

Overall, the estimates presented in this RIS point towards the proposed changes to the NCC under both Option A and Option B imposing net costs across Australia (that is both options result in a negative economy-wide NPV). 

So in simple language Mr Churchill, it’s gonna cost and we should just stay at home, with the curtains drawn and with the radio on. It will be cheaper that way.

There’s some token concessions about a slight savings in mortgage repayments from day one with better energy efficiency, but what exactly they mean by societal costs without taking into account the massive benefits of avoiding the worst of global warming is gobsmackingly obscure.

Here is the RIS. Take a look, tell us what you think. This is important stuff. Don’t hold back. Send your notes to  Don’t forget, journalists never reveal their sources!

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  1. Does it seem strange to anyone else that all the costs in this report have the full retail energy prices bundled in them, but all the savings in this report are only judged using the much lower wholesale cost? I’m no economist, but shouldn’t the ledger have the same assumptions on both sides for a fair comparison?

  2. I have been building low carbon/zero carbon homes at Positive Footprints for the best part of 2 decades. These days with LEDs, efficient heat pumps, thermal analysis tools and cost effective PV, there is no reason all new homes shouldn’t be carbon zero, or close to. We do it as a matter of course down here in cold(ish) Melbourne, and our clients normally pocket around $2000 every year in energy savings. Go tell them this doesn’t make financial sense!

  3. I am so incredibly disappointed by this do nothing or do as little as to be almost nothing attitude. It is obvious to anyone who seriously looks at this issue that making a home more efficient and with that, more comfortable, will save the occupants financially over the life time of the building. But more importantly should cost very little if anything extra once they become the norm simply due to reduction in cost when it becomes the standard and mass purchases are available. These changes will save the occupants money from the moment they move in. The additional comfort is invaluable and the health benefits of a home that stays cooler in summer and warmer in winter without a lot of intervention will save lives as well as money for the home occupier and society as a whole.

    I despair that gas hot water is even mentioned. These homes should be gas free both for the risks gas has to health and the fact that a heat pump hot water system is so much more efficient. All of the things that make a building more efficient will reduce greenhouse gases and benefit the entire community with health and cost savings in so many ways over time.
    Helping to boost our economy but most importantly save elderly and vulnerable people from suffering from heat exhaustion or cold exposure because their home is unsuitably inefficient and they can not afford to run appliances in order to achieve a satisfactory safe and comfortable temperature.

  4. Younger & Future generations would have every reason to be angry with older ones for not trying harder to make positive healthy changes to go above and beyond the minimum to try and achieve [nearly] net zero buildings. Now. Not tomorrow.

  5. Minimum requirements of the National Construction Code (NCC) only partially address residential buildings’ high energy consumption, embodied and ongoing greenhouse emissions and societal energy costs, while other invisible impacts, such as health conditions caused by extreme temperatures and mould growth, endemic in Australian houses, remain largely unresolved.

  6. Everyone needs to stand up and demand the changes are for net zero emissions housing from now on. It can be done, it is being done – our future depends on supporting the whole industry through regulation so that everyone can enjoy the benefits of more comfortable, resilient and affordable housing. Oh – and a planet we might be able to continue living on.

    1. Love this fiery rhetoric Tina – entirely appropriate.
      I agree, what is the point of a mediocre 6* to 7* transition that equates to reducing emissions from ~7tonnes CO2/yr for the average home to ~5tonnes CO2/yr in buildings that will last 50-100years in the last decade we’ve got to decarbonise. Thats’ gonna let my kids or grandkids to live what, another 10 or 20 years? Whereas go for net zero NOW (7.5* plus PV’s) and that means no emissions threatening their futures – a survivable future. We’ve procrastinated for decades not doing the right things for an orderly transition right to the brink – now we’ve run out of time. We HAVE to completely change our notions of what’s politically acceptable and get it done – in every aspect of our lives. Lets start with NCCV2 for housing, then V1, then retrofits, transition to BEV’s, eat less meat, carbon drawdown farming, reafforestation we need it all…..IF NOT NOW WHEN?