CSR

1. Introduction

CSR Limited is an ASX 200 publicly listed company with operations in Australia and New Zealand. The company employs over 3,500 people. As a leading manufacturer of building products the Company is committed to ongoing innovation in the built environment and received 18 patents in the last twelve months and has 50 patents pending. Many of these relate to improvements in energy efficiency in the construction and use of buildings. More details can be found in the most recent CSR Sustainability Report for 2012. CSR 2012 Sustainability Report.

Highlights include:

CSR has constructed an 8 star house in Sydney to demonstrate new energy efficiency technologies and examine revised construction techniques, for reduced energy consumption.

The launch of the Odyssey™ Ventilator which in certain climate zones can almost substitute for mechanical air conditioning. When fully proven we anticipate that this device will receive prescribed activity status.

Implementation of many factory energy efficiency improvements with several grants obtained under the Clean Energy Technology Program from the Federal Government and certificates from the New South Wales Energy Savings Scheme.

The establishment of CSR Energy Solutions to provide assessments and energy saving devices to the residential sector and the extension of this program to business. Re- named Bradford™ Energy Solutions, it provides homeowners, commercial and industrial businesses with a range of energy assessment and consulting services, including fulfilment. This business offers us direct insights into attitudes to energy efficiency in various sectors.

The company has extended its offering in solar PV to large scale users and has recently entered the solar hot water market.

Management has established an internal target to reduce company unit energy consumption by 20% by 2020. Energy saved also translates into Greenhouse Gas Savings.

Opportunities remain to re-introduce the discount factor for ceiling insulation. The industry has addressed the training and accreditation issues and believes there are no further barriers to having this re-instated.

CSR's policy in relation to energy efficiency and the built environment remains unchanged and was described in the submission of 15 April 2011 on the ESI scheme expansion RIS.

CSR has been advocating the following policies in relation to energy efficiency in the built environment:

  • An ongoing progress to raise the thermal efficiency of the building fabric progressively from 6 star to 7 star, to 8 star ratings under a prescribed timetable.
  • Introduce a national energy savings incentive scheme – a national form of VEET for instance
  • Meaningful mandatory disclosure of the energy efficiency of a residence/office on sale or lease.
  • A National Energy Efficiency Authority to coordinate policy and standards.

2. Barriers to the uptake of energy efficiency measures including complementarity with national emission reductions schemes

The summaries of uptake barriers as described in the 2011 RIS are classic economic market barriers to achieve certain objectives and are valid in the case of the ESI.

Business is learning how to establish models to try to overcome these barriers and ESI can be an integral part of that process.
Specifically:

The commercial/manufacturing sector is in large part attuned to the cost of energy and the challenge of remaining competitive. CSR's experience with the NSW ESS and the Federal Government grant program under the Clean Technology Investment Program (CTIP), have clearly enabled the development of the Bradford™ Clean Energy Solutions business model. However the sector is driven to quick returns ie short payback projects and a simple route to project closure. Energy Efficiency Opportunities is now an out-dated model. Those companies with high energy costs are motivated to complete their own assessments. For instance CSR identified 203 EE improvement opportunities across 95% of the company's energy usage. Of these, 17 were identified for potential investment. This assessment was not driven by EEO, but by a drive for cost reduction and international competitiveness.
EEO is a dysfunctional policy in today's world:

  • Bureaucratic and prescriptive overlays and assumes central government knows best.
  • Energy prices have increased 200% since the scheme was introduced.
  • Carbon pricing was introduced, although this is not a significant factor in EE projects as the forward curve of carbon pricing remains uncertain.
  • Doesn't lead to project closure.
  • Not supported by participants in that 85% of respondents to the ACIL Tasman report into the EEO want the program halted, 61% want it stopped immediately.
  • Burdensome and has low economic value creation for business.

Clearly the program has outlived its usefulness and participation should be voluntary.

CSR no longer sees that EEO is complimentary to the ESI. The ESI is potentially a far more powerful tool than EEO.

The Bradford model in combination with the right ESI model overcomes these EEO shortcomings. It involves assessment, project development and an incentive to sign up for implementation as a seamless process. Bradford is certified to raise certificates in NSW for instance and can offer a complete package. This obviates the interfaces between client, consultant, project manager, senior management and so on. It is the failure at any point in those interfaces which contributes to market failure. Furthermore CSR has a financing model which seeks to reduce the barrier of access to capital.

Providing clients with a bonus offering such as discounted energy contracts if the EE package is approved within a limited time frame can also improve the strike rate for acceptance and help to overcome issues such as bounded rationality.

We have previously commented on the issue of split incentives.1

"Research conducted by authorities in France2 , The Wellington School of Medicine3, New Zealand and Harvard University of Public Health4 found many health benefits associated with the installation of insulation. In addition the New Zealand5 study found that tenancies were up to four times longer for houses which had superior levels of insulation. While these houses were likely to have lower energy bills, tenants were more likely to be influenced by comfort. An energy efficient house is a comfortable house. The study also found superior health outcomes for insulated properties. It would be reasonable to assume that other measures which improve the thermal comfort of a building would have similar benefits.

It is clear that more needs to be done to make it easier for upgrades to the rental market in addition to financial incentives, P 16 of the RIS."

Recent research by the University of New South Wales6, Renewal, and Reproduction McMansionisation found:

  • "Minimal, often reluctant, compliance with BASIX
  • Energy reduction through modernisation, passive design of homes (positioning, bright coloured roof, insulation, eaves)
  • Energy increase due to size of dwellings "

Furthermore, comfort rather than sustainability was important to homeowners. This has been backed up by internal market research conducted by CSR Viridian™ glass that comfort and bringing the outside in was more important than environment in the eyes of the consumer. If what the consumer chose was also good for the environment they saw that as a bonus, but not a primary decision driver.

Nevertheless homeowners are also concerned about rising energy bills. Experience in the industry suggests that retrofit measures such as many of the prescribed activities in ESI are only of interest to householders where they can be made available free of charge and are easily installed. This evidence was based on take up of door knocking on private residences for offerings such as SPC's.

However this policy clearly failed for large ticket items such as home insulation where CSR recommends a co-payment to avoid the issues associated with the rorting that occurred under the Federal Government's Energy Efficient Homes, Nation Building package.

In relation to the built environment people don't know what they are buying or leasing. CSR recommends residential assessment on sale and lease – buyers have a right to know what they are buying other than 4 walls – with high energy bills and the expectation of higher charges arising from the East Coast gas shortage, cost is an issue of increasing concern to consumers. Furthermore occupants are expecting higher levels of home comfort today. It is surprising that there is no requirement to disclose the expected energy use of a property, the largest single purchase people will make. The automobile industry would have great difficulty selling a car without disclosing its fuel consumption. Consumers would welcome more knowledge on the comfort levels of a property.

3. Performance of ESI to date

CSR hasn't performed any analysis around the specific performance of the scheme. We are aware that the uptake for double glazed windows has been low, perhaps non-existent. This doesn't mean people aren't upgrading their windows from single glazed to double glazed. As a manufacturer of double glazed units (Integrated Glass Units), we know that this is occurring, although generally as part of a renovation or new build, but in some cases to improve comfort. This simply means people have not taken advantage of the certificates available and no one has become an Accredited Person to create certificates for this activity. The financial incentives are low compared with the overall capital outlay and will not impact on the decision by a homeowner as to whether to proceed or not. Furthermore the regulation only applies to certified WERs rated windows. Thus architectural window replacement or simply replacement of clear glass with low emissivity Smart™ glass is not covered.

Nevertheless that fact that the scheme allows for this Prescribed Activity does provide consumers with confidence that there are benefits from installing these devices, even if they do not take advantage of the financial benefit from the ESI. CSR Bradford saw a similar situation in New South Wales with ceiling insulation retrofit prior to the Federal Government Nation Building Program. Take up of the $250 rebate by households in NSW was modest, but the actual uptake was much greater as evidenced by a boom in installations at the time. Government programs such as ESI have brand value with consumers and builds consumer confidence.

Thus the ESI program provides a subtle Government badge of approval, which might be hard to measure, but is real and experienced in terms of business activity.

Furthermore the scheme provides incentives for the introduction and development of new products. CSR is committed to innovation in the built environment. The company employs a General Manager Innovation, conducts its own R & D and partners with other such as CSIRO and CRC's. Work is also conducted internationally. The R & D spend averages $15m per annum and employs directly six people with building science,

architectural and engineering skills. In addition many others are engaged within the business units proving up product developments, launching and marketing our innovations. Schemes such as the white certificate program do stimulate R & D and innovation. They can assist with a faster market take up by legitimising the product and provide some cost offset to users of the product. CSR invested recently in Smart™ Glass at its Viridian ™ Dandenong float glass factory and developed a range of efficient ventilators including Odyssey™ which are exported globally. If the Victorian scheme can be broadened then greater advantage could be made to encourage development and introduction of new products.

White certificate schemes such as ESI and ESS are forward looking schemes which have provided a basis for CSR's EE business model. It has allowed entry into new segments eg commercial lighting, SHW and PV which became line extensions to draft proofing, power savers and insulation. A broadening of the ESI scheme in line with NSW, but continuing to include gas would strengthen the opportunities for the business and energy users in Victoria.

The Bradford™ Clean Energy Solutions business, based in Victoria, has recently been hiring business development managers. The back room operations of quotation, order taking and fulfilment has required additional investment and in a slow housing market the sales channel has been maintained avoiding any need for work force reductions. In addition the company is providing work for contractors and distributors, who generally handle our installs.
In summary CSR perceived clear benefits from the scheme. It has enabled an energy efficiency retrofit model to evolve. At its core it creates the opportunity to earn certificates and bring forward EE projects. In Victoria this will require an extension of the program to include project based assessment.

Furthermore, as outlined earlier, CSR believes the industry is now prepared for the re-introduction of the insulation discount factor for retrofitted ceiling insulation. The opportunity is described in work conducted for the Insulation Council of Australia and New Zealand7. The drive for re-instatement in the scheme has also driven higher standards in the industry. This not only includes upgrades to Australia Standards, but higher levels of skills by installers and accreditation which will in time, become national industry standards, regardless of whether a white certificate scheme exists in a jurisdiction or not. This is a direct outcome of Victorian and New South Wales programs.

In summary there are many spin off benefits for schemes such as ESI which are often hidden. The overriding factor is confidence knowing that Governments support a thrust towards energy savings and energy efficiency and this underwrites corporate support.

4. Looking forward: the future of the scheme from 1 Jan 2015

The design principles for schemes such as the ESI have been described and are supported by UNEP. UNEP has studied the impact of various policies and its report can be found at UNEP EE Policies. In dealing with energy efficiency it suggests the most successful outcomes are:

  • regulated building standards
  • grants and financial incentives for retrofit
  • After incentives expire, then a form of regulated upgrades.
  • Pre-approved measures are an efficient way to proceed.

However Government must be open to the prospect of new measures being added to the scheme should technology or product costings change over time. Clear and transparent methodologies are required. The ESI scheme could be more efficient if applications were made at any time, rather than the current bundling up of applications for a once off review. This is especially critical to new product launches. It is simply not possible in Victoria to incorporate prescription of an activity into a market launch as the process takes too long. However a more rapid approval process could assist if it was timelier. To maximise recovery on R & D commercialisation needs to occur rapidly and can't be delayed awaiting the result of an inflexible assessment process.

We strongly support the introduction of PBA's and on that basis the scheme target could be raised. Once the low hanging fruit of retrofit devices are installed, for the scheme to continue, new ways to reduce energy use will need to be found. The New South Wales ESS scheme should provide an indication of what is possible. Given that scheme is limited to electricity and Victoria includes gas, then there should be a much greater opportunity in ESI. This should also reflect the larger manufacturing base in Victoria.

As noted in the discussion of EEO, large energy users can take care of their own requirements and frequently have staff assigned to monitor energy use and reduction. These facilities should remain exempt from the scheme. Existing energy thresholds are considered appropriate. Participation should be based on energy use, not employees or revenue, as this doesn't measure or reflect the opportunity. However the target could be an aggregate corporate target which considers all manufacturing sites within the state.

While this might seem to be an unusual position for CSR to take given its clean energy business, the Bradford model generally targets smaller enterprises than those who would be exempt from the ESI.

Martin Jones
General Manager Government Relations
8 July 2013

Footnotes:

1 CSR Submission Expansion of Energy Saver Incentive – Response to RIS

2 S. Vandentorren et al., Department of Environmental Health, French Institute of Public Health Surveillance, "August 2003 Heat Wave in France: Risk Factors for Death of Elderly People Living at Home". European Journal of Public Health (2006 16(6):583-591). (Abstract available at; http://eurpub.oxfordjournals.org/cgi/content/abstract/16/6/583)

3 Wellington School of Medicine, university of Otago, Healthy Homes Project – Housing and Health Research Program – Effect of insulating existing houses on health inequality: cluster randomised study in the community 2007.

4 Harvard University of School, of Public Health – Annual Benefits from Increased Residential Insulation Levels in U.S. Existing Homes 2002 and 2004.

5 "The Value of Low Energy Technologies for Occupant and Landlord" by Albrecht Stoecklein (BRANZ Lt., Judgeford, New Zealand), Yuan Zhao, Lauren Christie (Victoria University of Wellington, New Zealand)

6 UNSW KNOCKDOWN-REBUILD IN SUBURBAN SYDNEY

7 The Value of Ceiling Insulation Energy Efficient Strategies P/L Sep 2011 prepared for ICANZ

Page last updated: 24/06/20