amcor

8 July 2013


Dear David,

Subject: Review of the Energy Saver Incent ive: Issues Paper

Amcor is a global packaging company with over 100 years of manufacturing presence in Australia.

It has over 50 manufacturing sites across Australia with its global headquarters in Melbourne.

Amcor is a large energy user with energy comprising 5-10% of manufacturing cost; and directly employs 1700 people at 19 sites located around Victoria.
Amcor appreciates this opportunity to contribute to the discussion regarding the future development of the Victorian Government's Energy Saver Incentive (ESI).

While Amcor supports, and has been involved in energy efficiency and greenhouse gas (GHG) reduction initiatives for many years, Amcor believes that with the introduction of the National Carbon Price, all state based energy efficiency and GHG reduction schemes should be wound up as soon as practicable, to reduce both the regulatory burden and the financial burden on
energy consumers.

Please find attached Amcor's comments on the issues raised in the 'Review of the Energy Saver Incentive: Issues Paper" as well the responses to the key issues for consultation highlighted in the Issues Paper.


Yours Sincerely,

Peter Dobney
GM Resources & Energy
Amcor Australasia

Amcor Views and Comments on the ES1

1. With the introduction of the Clean Energy Future Package, including the carbon price and the Clean Technology Investment Fund (CTIF), Amcor believes that state based energy efficiency and carbon mitigation programs, such as the Victorian Energy Efficiency Target (VEET), are no longer necessary to drive energy efficiency in industry.

The Federal Clean Energy Future Package addresses the main objective to the Victorian Energy Efficiency Target Act 2007, reduction of greenhouse gases. Having both schemes operating simultaneously, increases the regulatory compliance burden of affected business/industry, as well as increasing energy bills, for both business and community, by having to pay the Victorian Energy Efficiency Certificate (VEEC) charge on top of the Carbon charge.

In addition, the Mandatory Renewable Energy Targets (MRET), through its support for the renewable energy industry also supports the reduction of greenhouse gas emissions. Furthermore, MRET is another national environmental scheme, and its costs are also
passed through to energy consumers. Therefore consumers are in fact paying three separate environmental charges that all aim to encourage GHG reduction.

Amcor considers this to be excessive regulation and therefore our view is that statebased energy and GHG reduction initiatives should be abolished.

2. If the ESI to continue into the future, large business should be exempt from it as its objectives are being met through other schemes at a national level.

a. Large businesses that are participat ing in the Federal Energy Efficiency Opportunities (EEO) program should be exempt from state based energy efficiency programs such as the ESI.

Participating in the EEO already poses a significant compliance burden for large businesses, both in terms of identifying opportunities, and program administration. Yet since the beginning of the EEO Program, Amcor and many other businesses have implemented many energy efficiency projects identified through the EEO process.

Over the first 5 years of the EEO Program (2006-7 to 2010-11), Amcor identified and implemented 42 energy efficiency projects in Victoria, saving 63,000 Gj and 8,100 tonnes of C02 (this includes two sites that participated in EREP).

The Clean Technology Investment Fund has provided furtherer opportunities for Amcor to invest in energy efficiency projects; applying and receiving funding for a further 5 projects that will save another 5,200 tonnes of C02.

Furthermore, with the introduction of the Clean Technology Investment Fund as part of the Clean Energy Future Package, Amcor and other manufacturers have invested more heavily in projects indentified through the EEO.

However, due to the very prescriptive nature of the E51, many of the projects that Amcor is implementing are not eligible to create VEECs.

As most of the energy efficiency opportunities have now been implemented by Amcor, we see no reason for the E51 to apply to our manufacturing plants in Victoria.

b. Large businesses participating in the EEO Program, who like Amcor will have implemented energy efficiency opportunities, should be exempt from the VEET Scheme based on the thresholds of 160 MWH & 1 TJ per site per annum - a threshold used by many energy retailers to distinguish between Large and Small to Medium Businesses (5MEs).

While the Environment Resource Efficiency Plans (EREP)' had a reporting threshold of >100TJ total energy consumed on site, Amcor believes that this threshold is too high, as many multi-site businesses, including Amcor have a number of sites below this threshold, that are classified as large sites (businesses) by energy retailers.

Energy Retailers classify small to medium business sites as consuming up to 160 MWh of electricity and 1 TJ of natural gas per site, per annum, that is approximately 7 TJ of energy per annum.

Sites at this threshold are liable to pay almost $1000 per year in VEEC charges on top of Carbon charge and the Renewable Energy Target (RET) charges (5RE5/LRET), and this cost increases as energy consumption increases.

Amcor's VEET charges added up to $945,000 in 2012. Amcor believes that it would have been much more productive for our business if this money was directly invested in energy efficiency initiatives at Amcor's own sites.

As mentioned in the point above, large businesses (many of which are also multisited) are already investing considerably to improve their energy efficiency and reduce their greenhouse gas emissions, therefore should not be penalised for their efforts by paying another environmental charge, on top of the Carbon Price, RET and increasing energy commodity costs, especially if they are unable to create VEECs for these energy efficiency projects.

3. If the E51 is to continue into the future, without exempting large sites from the E51, Amcor believes that all businesses should be exempt from the VEEC Charge on Natural Gas.

In fact, the Victorian Government should be encouraging the use of natural gas. instead of electricity. where possible due to its lower greenhouse gas intensity. yet the VEET only penalises it.

When the ESI expanded to include business in January 2012. only three prescribed activities were specifically available for business to implement and create VEECs. This remains the case 18 months later. Furthermore. two of the three activities are not applicable manufacturing sector.

NONE of the three activates cover the use of Natural Gas. Therefore there are no opportunities to benefit from the ESI by improving Natural Gas efficiency. To this end the natural gas should be removed from the ESI. as there is no incentive and no benefit to business what so ever.

4. If the ESI is to continue into the future. with its current scope; improvements to the operation of the scheme should be introduced.
The ESI should be less prescriptive and allow for more business/industry prescribed activities to be developed. This would incentivise business (both large and small) to invest in clean technologies that would allow them (and/or Accredited Persons) to create VEECs. One way this could be done is to introduce general prescribed activities or projects for commercial and/or industrial entities. such as upgrading inefficient equipment, replacing old inefficient equipment with new more efficient equipment. shutting down plant without compromising a sites production capability.

Businesses that would undertake many small improvement activities (that would not necessarily have a great impact on energy use/savings. but together would have a good impact collectively) should be able to establish and report on a baseline basis. similar to
the NSW Energy Efficiency Shame (NSW ESS) and the Federal Governments Clean Technology Investment Fund.

Finally. businesses that have implemented projects under EREP. EEO or the Clean Technology Investment Fund. should be able to get projects which were completed from January 2012 onwards. verified and eligible for the creation of VEECs.

Amcor's Responses to the key issues for consultation within the "Review of the Energy Saver Incentive:
Issues Paper".

1.Barriers to the uptake of energy efficiency measures

  • What evidence can you provide that supports the existence of the barriers outlined above and whether the extent of these barriers has remained constant, increased or diminished over time?

In terms of split incentives, while business may see an opportunity of earning revenue through the creation and sale of VEECs whi le reducing energy use and costs (a double positive), it is very difficult to justify the administrative burden around scheme participation, especially with such limited opportunity for business to participate. (There are currently only three business specific prescribed activities, with two hardly applicable to the manufacturing sector.)

  • Under the first and current phases of the scheme, is there evidence from household and business participants on the existence of these barriers?
  • What evidence is there to show that the ESI effectively addresses these barriers?
  • What evidence can you provide to indicate the extent to which the ESI is complementary to national emissions reduction schemes?

Amcor believes that with the introduction of a National Carbon Price, any state-based energyefficiency and GHG reduction initiatives should be wound up as soon as practicable.


At present all businesses are paying both the carbon price on their electricity and gas use, as well as the cost of the MRET, to the energy industry through the LRET & SRES charges. Both these schemes support the reduction of GHG on a national level. Therefore there is no need for state based energy-efficiency/GHG reduction schemes, which were introduced at state level due to inaction on Greenhouse abatement at a federal level.


Furthermore, as the MRET supports the development of renewable energy, it is distorting the market to renewable energy investment, and similarly Amcor believes the ESI is distorting the market to preferred technologies, not necessarily the most efficient and cost effective technologies for energy efficiency and GHG reduction.


Amcor believes that an adjustment to the MRET to encourage clean energy would deliver better outcomes and would lessen the existing market distortions. A Clean Energy Targets would include moving to gas and the use of waste to energy and waste heat to reduce overall carbon intensity.


2. The performance of the E51 to dote

  • What evidence can you provide to demonstrate the impact of the E51 on energy consumption and retail prices?

Extra cost on top of carbon price and MRET can be substantial for large energy users and multi-site business

Amcor doesn't believe that the ESI has had significant positive impacts on energy consumption for business and industry. Firstly, at present there are limited opportunities (prescribed activities) available to businesses, in particular for manufacturing business.

Implementing opportunities such as installing more efficient shower-heads, has negligible impact on overall energy use. On the other hand, opportunities such as upgrading commercial lighting, which can have a significant impact on energy/carbon emissions at a site, can be economic to implement, yet the administrative burden of associated with implementing such creating VEECs can be overwhelming, for both large and small business.

The ESI, through the VEEC Charge has significantly contributed the total cost of electricity and gas to business, While electricity commodity prices seem to have actually decreased over the last six years (2008-2013), it is the environmental charges (including REC & VEEC) that have significantly increased, contributing to the increasing cost of electricity.

Similarly, while gas commodity prices have increased about 6% over six years (2008-2013), VEEC Charges have contributed significantly to the cost of gas. Amcor conducted a simple analysis of the electricity and gas prices over the last 6 years (2008-13; excluding carbon)

Since 2008 elect ricity commodity prices have actually decreased, however the total cost of elect ricity (delivered) increased by 280% in the same period. (See Figure 1). While most of this increase can be attributed to increasing network charges and the spilt of the RET into LRET and SRES; the introduction of the ESI and the associated VEECs have directly contributed up to 5% to the electricity price (See Figure 2). The fall of in electricity commodity price is due to the fa ll in demand, post the GFC, not due to the ESI.

figure1

Figure 1 industrial Electricity Price Movement over a 6-year period (2008-2013) - Victoria

figure2

Figure 2: Environmental Charges as a % price component of the electricity price


Over the same period - 2008 to 2013 - gas commodity prices increased by about 7%.however the total cost of Gas (delivered) increased 53% over the 6 years (See Figure 3), with VEECs contributing 22% of the price increase from 2011 to 2012. Overall, VEECs contribute approximately 6% to the gas price (see figure 4)

figure3

Figure 3: Industrial Gas Price % price increase over a 6-year period (2008-2013) - Victoria

figure4

Figure 4: Environmental Charges as a % price component of the electricity price


If a business is a large energy user or has multiple sites, the cost of VEECs can quickly accumulate into a large expense; therefore ESI has contributed negatively to the price of energy making Victoria a less competitive place for manufacturing.

  • Has the mix of activities included in the scheme been appropriate to maximise energy efficiency uptake?*

Whi le the mix of activ ities has been appropriate for household and smal l retail business (local high street), especially by providing either free equipment and insta li ation, or equipment and installation at a reduced cost; the mix of activit ies has not been appropriate for larger business, and in particular manufacturing.


As mentioned above, the activities currently avai lable to business are very limited, but more importantly are only focused on electricity consumption. Many businesses in the manufacturing sector use natural gas in large quantities, whether it's for heating, boi lers, ovens

or dyers. When the ESI was expanded to included business, there were no provisions for natural gas related projects, yet business (and everyone else) is charged for VEEC on gas use.

  • Is there evidence you can provide that suggests that there are barriers to the participation of specific groups in the [SI? For example, low-income households, rural consumers and business and non-residential customers?
  • How are the costs and benefits of the scheme distributed between different
    customers7

When the ESI was launched in 2009, the creation of VEECs was only applicable to residential energy customers. While energy retailers are liable to surrender VEECs for their 'Scheme Acquisitio ns', businesses who create VEECs by replac ing/installing /se lling energy efficient equipment and residents who's purchased, rep laced and installed more energy efficient equipment (at no or reduced cost) benefitted for the ESI.


However, with the expansion of the VEET Scheme, to include everyone, to cost burden of the scheme has passed on to business with little opportunity to alleviate it. Energy retailers are passing on the cost of their VEET liabilities to business customers, at

considerable cost to these customers.


Yet the scheme offers little opportunity for business to create the ir own VEETs, with three business' only prescribed activit ies, and no gas related prescribed activities. This puts an unfair burden on businesses, which are already facing other cost pressures including a strong dollar and t he carbon price.

  • Can you provide evidence of the impact the scheme has had on investment, employment and technology development in industries that supply goods and services which reduce the use of electricity and gas by consumers?
  • Has the scheme created any unintended consequences and what evidence can you provide to support this? As with the Federal RET, which prioritises particular types of renewable energy, the ESI has the potential to do the same with energy efficient technologies and alternative energy sources.

As the prescribed activities are limited, and prescriptive, they may not in fact be the most energy and cost effective solutions for business.


For example, if a business wanted to install a co-generation plant, which has the benefit of also substantially reducing GHG (as it uses gas compared to electricity made from brown coal), the VEEC charge on top of the cost of gas commodity would make this technology a highly unattractive investment.


Another example where unintended consequences might arise is that the ESI might incentivise residential customers to replace their fridge/freezers, which may still be in good working order, with more efficient ones due to their 'lowered' cost, potentia lly creating a serious waste issue.

  • Is there any further information in relation to the performance of the scheme to dote that we should consider?

3. Looking forward: the future of the scheme form 1 January 2015

  • Under the scheme to dote there has been a very strong uptake of low cost activities Can you provide information and data on the remaining demand for these activities?

While this may be true for residential customers and some small business (e.g. replacing of incandescent lamps with CF lamps and efficient shower heads), with limited opportunities it is not so for industry which is faced with increased energy costs and other market pressures.


It is most likely, as it is the case with Amcor, that most if not all low-cost energy saving activities have been identified and implemented prior to the ESI's inclusion of business and industry through other initiatives such as EREP (Amcor had 2 participating sites), the EEO

program, and currently the Clean Technology Investment Fund, which funds up to a third of energy efficient, and carbon reducing projects.

  • Can you provide information and data on current or new types of activities that may be token up once these opportunities are exhausted? What would the energy savings be associated with their uptake?'

Project-based methodologies and Technology-based 'deemed' savings methodologies (similar to what is currently applied in the ES I). that allow a large variety of technologies/projects (such as air compressors, insulation, VSDs etc) to be eligible to create 'white Certificates'.


Also, the adoption of site base line methodologies, similar to those in use in the NSW Energy Saving Scheme, would allow sites to be rewarded for incremental improvements in energy efficiency.


These would incentivise business to participate in the scheme, support emerging technologies, and would del iver energy savings and GHG reduction by the most cost effective and technologically appropriate means.

  • With scheme costs and technology limitations in mind, if the scheme were to continue what would be an appropriate target for its next phase?

Amcor believes t hat the Scheme should be wound up soon as practicable and no new phase should commence after December 2014.


Is the ESI the most appropriate scheme in which to encourage energy efficiency uptake for large energy users?


For large energy users such as Amcor, low cost activit ies were identified and implemented over the last 6-7 years, as a result of the participation in EREP, the EEO Program, as well as with the assistance of the Clean Technology Investment Fund.


Over the first 5 years of the EEO Program (2006-7 to 2010-11), Amcor identified and implemented 42 energy efficiency projects in Victoria, saving 63,000 Gj and 8,100 tonnes of C02 (this includes two sites that participated in EREP).


The Clean Technology Investment Fund has provided furtherer opportunities for Amcor to invest in energy efficiency projects; applying and receiving funding for a further 5 projects that wi ll save another 5,200 tonnes of C02.


Therefore, the VEET Scheme has provided little incentive to large business to implement any energy efficient technologies.

  • If large energy users are to be excluded from the scheme what would be the appropriate definition of 'large energy users' and how could this be effectively implemented to reduce the red tape burden on both energy retailers and APs?

There could be two definitions of 'large energy users':1 Businesses (or corporations) participating in the EEO, businesses liab le under NGERS, and Businesses liable to pay the carbon price.


2. Sites that are above the 'small to medium business' threshold of <160 MWh and <1TJ per site per year. This would exempt businesses that have many sites.


Neither of these should cause excess burden on energy reta ilers, as retailers wil l already have the information of which sites are above/below the th re shold, whi le information on participants in the EEO, NGERS and Carbon Price is publically available on government websites.

  • Do you consider there to be alternatives to the ESI that would achieve the some objectives in a more cost effective or efficient way? What are they and why?

The carbon price, especially when it moves to a t rad ing scheme, is the most efficient and effective way to reduce carbon emissions.Carbon emissions are usually reduced by improving energy use (therefore install/upgrading energy efficient equipment), th is supports the move to a green economy.

  • What issues do you anticipate if the ESI were not to be continued? How should these issues be addressed to ensure the scheme's equitable closure?

While the VEET Scheme had had only very small impact on household energy bil ls, due to their relatively high distribution charges, it has had a much more significant impact on industrial energy bills due to VEEC charges making up a significant proportion of delivered energy costs as shown in the figures above.


Therefore the scheme should be wound up as quickly as practicable. State Government should advise of this as soon as possible so that energy retailers and consumers are not inconvenienced or forced to incur any financial losses due to the scheme closure in much the same way as the Queensland Government is winding down the GEC Scheme.

Conclusion

Amcor has been a strong supporter of energy efficiency and greenhouse gas reduction initiatives for many years, and has a strong track recorded in implementing such initiatives at all its sites in Australia and New Zealand.


Amcor believes that with the introduction of a Cleaned Future Package, state programs aimed at energy efficiency and greenhouse gas reduction such as the VEET Scheme (ESI), do not complement the National Scheme, but rather duplicate the efforts, increase the costs of compliance for business and the cost of living to the community.


Amcor strongly recommends that the VEET scheme be shut down as soon as practicable,. IF the ESI is to continue, Amcor strongly urges the scheme administrators to exempt large business from the scheme.

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