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.”
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.
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 options – the 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 email@example.com Don’t forget, journalists never reveal their sources!