VEET Submission – RIS Issues Paper July 2013
Emerald Planet (EP) has been a participant and/or stakeholder in various energy efficiency, emissions reduction and renewable energy schemes in Australia since 2006, including the VEET scheme. Emerald Planet has been involved in various roles across the schemes including; conducting energy savings activities, installing energy efficient products, conducting home energy use assessments etc. Often EP was fulfilling these roles as a subcontractor to registered participants and/or energy retailers so sometimes the scale of EP's contribution may not be completely visible.
Over time, Emerald Planet become more focussed on sourcing energy efficient products that are compliant with the schemes and supplying them to energy retailers and/or installers within the schemes. There has been a corresponding decline in our involvement as an installer and EP is now entirely focussed on its role as a dedicated supplier of energy efficient products to participants in the schemes. It is in this capacity that we have been involved in VEET by sourcing CFLs from China and supplying them to Accredited Providers.
Due to EP's history of varied involvement in the schemes, we have a broad understanding of the challenges and opportunities of the schemes and its stakeholders. Now, as a dedicated developer of product, and as an importer and supplier to many participants we continue to be exposed to a wide array of factors at work in the operation of the schemes. This exposure comes by virtue of our ongoing conversations with our customers in the schemes. As an illustration of our influence on the success of the schemes, Emerald Planet has delivered 4.5 million spiral CFLs to scheme participants. We estimate that as a result of this supply there are now over 1 million Australian householders who rely on Emerald Planet branded CFLs. Similarly Emerald Planet has been a leading contributor in the supply of Powerboards and Weather Sealing products.
Emerald Planet is an Australian owned SME. We do not have an incumbent position of strength in any of the industries influenced by the schemes so we can be uncompromised in our pursuit of the best technology and products for the schemes. In the last 7 years, Emerald Planet has developed a capability to reach into offshore manufacturing centres, China in particular, and source the best-in-breed products that are being developed not only for the Australian, but also the global market.
EP's relationships with these manufacturers is now enabling us to partner them and pro-actively influence their Research and Development activities to deliver product that is compliant with VEET and the other schemes. At the same time, we have no binding ties, cross ownership or exclusive arrangements with any of our manufacturing partners so we can choose to supply the best of what is available.
Emerald Planet welcomes the opportunity to respond to the following consultation questions.
BARRIERS? Evidence of existence of barriers and of the efficacy of VEET in addressing these barriers
- EP suggests that a comparative appraisal as part of the RIS, of the differences of market penetration of energy efficient products (e.g. CFLs, SPCs, weather sealing) in different States would reveal a strong quantitative base of evidence to show the existence of barriers to the uptake of energy efficiency opportunities. For example, the Victorian Essential Services Commission (ESC) holds data on the number of houses with SPCs and the number of SPCs delivered into Victoria. This could be compared to data in other States to assess the additional uptake that results by virtue of mechanisms that overcome barriers to entry (VEET) and therefore as evidence of the barriers themselves.
If there is difficulty in obtaining penetration data in States other than Victoria, EP would be willing to submit powerboard sales data broken down on a State-by-State basis. EP believes that there is a high likelihood that other product manufacturers would do likewise if they understood the rationale for the request and the DPI could use these as a proxy for state-by-state penetration.
- For our part, EP can attest that it has been attempting to distribute and maximise the sales of all our products in markets other than those that have White Paper schemes with little or no success. Even when products are successfully placed with significant retail or wholesale entities, they do not sell-through in significant quantities from the shelves of conventional shops or in on-line offerings.
EP is alive to the argument that this could be because EP's heritage is not in selling to these conventional channels as it is into the White Paper based channels. However, a second successful supplier of powerboards into the With Paper scheme channels had the backing of Kambrook, a leading Australian consumer goods brand on their product. However, EP suggests that sales through conventional channels remain immaterial on an absolute level and when compared relatively to penetration in markets serviced by a White Paper schemes that recognises the product.
EP suggests the difference in penetration and uptake results from several factors both individually and when taking effect in combination with each other. These factors only arise by virtue of the VEET scheme and two examples include
- The zero cost to the consumer of most of the activity to date. This has come about in no small part due to the ingenuity of the AP and supplier industry that has developed in response to the NSW and Victorian White Paper schemes.
It should be noted that the original conceivers and architects of the GGAS scheme in NSW, which was the forerunner to the NSW ESS and the Victorian ESI (VEET), had no notion that a community of entrepreneurial organisations would evolve that would meet and exceed the early targets of the scheme by running broad based consumer programs utilising CFLs almost exclusively and delivering those products to customers at no charge.
Similarly, it was some time after the VEEC scheme was conceived, that the ESC was approached by parties developing energy saving powerboards. No architect of the VEET scheme had conceived of this opportunity at the time they created the scheme or set the original targets.
It is the ingenuity of the market place that was a significant factor in raising and bringing to life these ideas. EP contends that little or none of this ingenuity would have surfaced or been translated into meaningful traction in the populace however, if not for the framework of the VEET scheme. The regulatory framework which enabled the true value of these activities to be monetized, and distributed, in such a fashion that some of the barriers to uptake were removed.
- The in-home, face-to-face sales and installation paradigm. In insisting on an installation rather than sales paradigm the VEEC scheme has provided a platform for the AP community to send people out to physically visit householders and install product. EP proposes that this in home, face-to-face direct distribution channel has enabled some energy efficient products to be explained to householders in a fashion that made their adoption frictionless, user-friendly and widespread. This was particularly evident amongst demographic groups often not associated with adoption of new technologies, like the elderly. We have received plenty of phone calls from elderly citizens who are eternally grateful to have efficient lamps, or products that turn off their TV and protect them from fires and so on.
EP has a relatively small number of inbound phone calls given the number of our products installed during the VEET program. When EP was launching its powerboard in the scheme, we felt that the incredible variety of TV and TV peripherals and the endless variety of configurations that people may have adopted in their homes in respect of these appliances would mean we would need to employ a team of inbound call operators to field customer enquiries and requests for help in regard to the use of the product.
At the time EP was developing the product there were over 3,300 different TV models listed on the MEPS register as being sold in Australia at that time. Imagine how the number and variety of different TV's would have expanded if we could have seen the variety of TVs in the 2 million plus households in Victoria that had been sold over the prior 5-15 years as well. This of course does not consider the array of DVD's, set-top boxes, games consoles, pay TV units etc.
In fact, and we believe primarily because of the quality of the vast majority of installs and the face-to-face customer education process that surrounds the install, the number of inbound calls has been far lower than we anticipated. The in home face-to-face install process provided the perfect platform for the end-users concerns about installing the product, setting it up, moving the TV cabinet, getting to the hard-to-reach power points, using the product, getting familiar with it, explaining it to their families or housemates etc. to be resolved.
Contrast the in-home and face-to-face platform for selling the benefits of the product and removing the concerns preventing up-take, to the proposition of an energy saving powerboard on the supermarket or hardware shelf. Would a busy consumer; stop to read the benefits of the product on its package on a supermarket shelf? Amongst the cacophony of other product claims? For a product they have never heard of or conceived of? Saving a form of energy waste they may not even know existed? The chances of significant uptake of a paradigm breaking product of this kind using a conventional retail high street shop distribution channel are insignificant.
An established brand of energy saving powerboards have been on sale in one of the two leading supermarkets chains in this country for a significant period prior to the DPI and ESC introducing this product into the VEEC scheme. A cursory examination of the barcode stickers on the shelves reveals a sell through rate, which when extrapolated across the Coles chain depicts a penetration rate of close to zero % when compared with the penetration rates that have been achieved in VEET. The regular discounting of the product is another tell-tale sign that it is not selling-though at rates that support its full recommended retail price and turnover is slow.
EP suggests that the promotion of LED downlights into the residential sector will benefit similarly from the in-home, face-to-face sales paradigm.
In short, EP believes the VEET program enables the activation of sales channels and price points that are otherwise not available. Also that these alternative channels and price points are instrumental in the resolution of barriers to uptake and the achievement of otherwise impossible uptake rates of energy efficient activities.
- The interplay and impact of these factors is evident in the activity profile over time of schedule 21 CLF lighting under VEET. Whilst the certificate prices and abatement values of this product combined to support zero cost to customer, in-home and face-to-face sales and installation of CFLs in the first and second years of the scheme the levels of energy efficiency activity rose to impressive heights.
After a time the prevailing industry narrative was that the CFL market was saturated. That every Victorian house who would take a CFL already had one. Certificate surpluses had bought about a lower certificate price. A zero cost to customer, in-home and face-to-face sales and installation program was no longer viable. CFL install activity dropped dramatically.
However, when powerboards were approved in the scheme and their economics justified the recommencement of a zero cost to customer, in-home and face-to-face sales and installation roll-out, a curious development evolved. Installers began carrying CFLs as a way to maximise their return in each house they visited. The up-lift in CFL activity was notable and marked by rapid rises in the number of certificates created by CFLs in Schedule 21.
So, as the zero cost-to-customer opportunities of the CFL activity declined in their own right, the barriers to uptake that this model removed re-asserted themselves and uptake decreased. Only when these conditions for a zero cost to customer, in-home and face-to-face sales and installation model returned, by virtue of a recovery in the VEEC price and the introduction of a new product, did the barriers to entry again begin to be overcome.
- The zero cost to the consumer of most of the activity to date. This has come about in no small part due to the ingenuity of the AP and supplier industry that has developed in response to the NSW and Victorian White Paper schemes.
BARRIERS? Evidence that the scheme is complementary to all current Federal initiatives;
- Many of the Federal initiatives that need to be assessed in terms of the issue of complementarity were in place or being considered when the last VEET RIS was drafted in March 2011. In regard to those longstanding Federal initiatives EP notes and agrees with the assessments and conclusions of the former RIS and promotes the view that these conclusions are equally true today. That is, that the Federal initiatives 'will not be sufficient to address the obstacles' to uptake of energy efficiency opportunities that the VEET scheme is successfully addressing now.
These already considered longstanding initiatives are;
- Minimum energy Performance Standards (MEPS)
- Education and information campaigns
- Mandatory reductions in energy use for specific businesses
- Carbon pricing
- Smart meters
- Bill benchmarking
- There is also no plausible reasons EP can conceive of that are likely to change the status of the VEET scheme being assessed as complementary to the longstanding Federal initiatives going forward. So EP is of the view that the longstanding federal initiatives detailed in the prior RIS do not present a good reason to curtail the VEEC scheme in the future.
- The language of the DPI's issues paper states that since both major Federal parties have committed to achieving the same emissions reductions targets, apparently since the drafting of the last RIS, the issue of complementarity warrants a re-investigation in this specific respect as well as in the broader sense. This requires an assessment of the proposed policy levers of the two Federal parties. In regard to the current Government that lever is the Clean Energy Bill 2011 (Carbon Price/Tax) and in the case of the Opposition, Direct Action. So EP has compiled a number of observations and submissions in this regard.
BARRIERS? Evidence that the scheme is complementary to the Carbon Price/Tax and/or Direct Action – Context
- The Clean Energy Bill 2011 (Carbon Price/Tax) is detailed in legislation and associated Regulatory and Explanatory documentation totalling many hundreds of pages. The Scheme has been in operation for over a year and so there is a great deal of detail to assess its intended workings and manifestations and the degree to which it is duplicative or complementary to VEET.
- However, whilst the intended workings of the Carbon Price/Tax are known it is still relatively early to assess its actual workings and this can complicate the assessment of duplication and/or difference with VEET.
- The assessment of duplication and/or difference between VEET and Direct Action is a considerably more troublesome task than that with the Carbon Price/Tax. The Liberal party's Our Plan document is a 52 page document purporting to make clear the proposed polices of a Liberal/National coalition Government should it be elected in the latter stages of 2013. Two pages of text and pictures give a brief indication of what Direct action might come to mean.
- Perhaps the most concrete and relevant aspect is the promise to establish an Emissions Reduction Fund of $3 billion. The document gives no indication or detail about the scope of reference for such a fund, what projects may or may not be considered, how the initiative will be funded, or over what period the funds might be made available.
The very nature of a body that allocates funds to projects, where those projects have not yet been detailed, indicates that it could be some time after a new government was formed before the details of how this policy will manifest can become clear. Even at this later point of added clarity, the ability to assess the real world impacts of any such policy, as opposed to the intended impacts, would be even further over the horizon. So the assessment of duplication or alignment of the VEET with Driect action should wait until the policy is clearer.
The VEET scheme and the Carbon Price/tax by comparison are not a collection of 'projects'. Rather, each is an ongoing market based mechanism, the former with a suitable period of operation under which to assess actual as opposed to intended outcomes. This ongoing market based mechanism provides a much clearer basis from which to assess the issue of policy overlap that the currently uncertain and infinitely more variable Direct Action projects.
- It is for the above reasons that EP's submissions in regard to the bipartisanship of CO2-e reduction targets and the merit of justifications for continuing or winding down the VEET program are oriented entirely to the Carbon Price/Tax rather than to Direct Action. Any consideration of overlap between Direct Action and VEET should be postponed until, as a minimum, the intention and workings of direct action become clear through the passage of legislation or equivalent governance documentation. Beyond that, an assessment should also probably wait until some perspective of the actual manifestations and workings of Direct Action are clearer.
BARRIERS? Evidence that the scheme is complementary to the Carbon Price/Tax – market penetration
- In regard to further evidence, EP suggests that a comparative appraisal as part of the RIS, of the differences of market penetration of energy efficient products (e.g. CFLs, SPCs, weather sealing) in different States would reveal a strong quantitative base of evidence to show the impact of White Paper schemes in delivering energy efficiencies over and above any delivered by Federal initiatives.
We made a similar suggestion to use this approach to demonstrate bot the existence of the barriers to entry and the VEET's efficacy in overcoming these barriers.
For example, the Victorian Essential Services Commission (ESC) holds data on the number of houses with SPCs and the number of SPCs delivered into Victoria. This could be compared to data in other States in two distinct timeframes to assess the impacts of both longstanding and recent Federal initiatives;
- Pre 1 July 2013 Victorian penetration of SPCs Vs Pre 1 July penetration of SPCs in other Australian states.
This would provide an evidentiary basis to assess the incremental impact of a White Paper Scheme being in place in addition to the longstanding Federal initiatives by comparison to states where only the impact of Federal initiatives was seen, at least in the arena of powerboards. Thereby, the incremental impact of the White Paper scheme can be seen by comparison to longstanding federal initiatives.
- Post 1 July 2013 Victorian penetration of SPCs Vs Pre 1 July penetration of SPCs in other Australian states.
As above except that the incremental impact of the VEET scheme, in addition to the combined effect of the longstanding Federal initiatives and the Carbon Price/Tax becomes evident.
- Pre 1 July 2013 Victorian penetration of SPCs Vs Pre 1 July penetration of SPCs in other Australian states.
- Also, in parallel to our promotion of the following argument in regard to the existence of barriers to uptake and the VEET's efficacy in overcoming these barriers, we also advise of the relative lack of success we have enjoyed distributing our products in markets that do not enjoy the support of a White Paper scheme. EP can again attest that it has been attempting to distribute all our products in markets other than those that have White Paper schemes with little or no success. Even when products are successfully placed with significant retail or wholesale entities, they do not sell-through in significant quantities from the shelves of conventional shops or in on-line offerings.
EP is alive to the argument that this could be because EP's heritage is not in selling to these conventional channels as it is into the White Paper based channels. However, a second successful supplier of powerboards into the With Paper scheme channels had the backing of Kambrook, a leading Australian consumer goods brand on their product but EP suggests that sales through conventional channels are immaterial on an absolute level and when compared relatively to penetration in markets serviced by a White Paper schemes that recognises the product.
BARRIERS? Evidence that the scheme is complementary to the Carbon Price/Tax – different goals
- The VEET scheme has three goals. The first, to reduce greenhouse gas emissions (CO2-e) is shared with the Federal Carbon Price/Tax. The second two objectives of VEET are not features of the Federal Carbon Price/Tax as far as EP can establish from its reading of the legislation and supporting materials. As such, the VEET scheme is designed, and works in practice differently to achieve its second and third objectives. The Victorian government cannot and should not rely on the Federal Carbon Price/Tax to achieve the first goal of CO2-e reduction until more evidence of the scheme's actual working are clear. Additionally, the Victorian Government should never rely on the Federal Carbon Price/Tax in its current format to achieve VEET's second and third goals for the following reasons. The goals are;
VEET Objective #2 - To encourage the efficient use of electricity and gas.
VEET Objective #3 - To encourage investment, employment and technology development in industries that supply goods and services which reduce the use of electricity and gas.
There is every prospect that in many cases the Carbon Price/Tax will reduce CO2-e without necessarily promoting the efficient use of electricity and gas and without encouraging investment, employment or technology development in industries aiming to reduce the use of electricity and gas. Take aluminium smelters as an example. These are heavy polluters and often included in the list of liable entities for the Carbon Price/Tax.
The Carbon Price/Tax will significantly increase the cost base and end-user price of processing aluminium in Australia. It's widely agreed that this creates pressure in the following directions, and many would argue, in the following order of priority;
- The operators of aluminium smelters seek to pass on the additional costs to their customer base.
If there is a captive market, because for example new aluminium smelters can't be bought on-line in a short timeframe, and no readily available alternative products are in existence, this pass-through becomes the least path of resistance for the liable entity under the Carbon Price/Tax.
Given that an easy resolution has been achieved for the liable entity, management attention turns to other challenges. It becomes a considerable and often insurmountable challenge for other parties with alternative solutions that solve the problem of meeting obligations by generating energy efficiencies to have their solutions heard or pursued by the liable entity.
In the absence of a mechanism that allows their energy efficient solutions to be heard or pursued, these parties will not invest, employment will not be forthcoming and technology developments will not eventuate.
Contrast the above state of affairs with the situation in Victoria. As a result of VEET, in Victoria there is an industry of entrepreneurial and dynamic organisations, many of whom are intrinsically motivated as much by the opportunity to tackle climate change as they are by the profit incentive, who vigorously pursue the development of energy efficient product and enthusiastically pursue energy efficiency activities. Under VEET, they do not need to necessarily navigate the complex, opaque and at times obscure politics of the liable entities to have their solutions heard, although many often become adept at this also. All they need do is understand the requirements of VEET and deliver certificates at less than the penalty rate and the current spot price for certificates.
There is no such industry emerging in response the Carbon Price/Tax that EP is aware of or a part of.
EP understands the question that is often provoked by the above argument, 'Couldn't the same criticism of VEET be made in these kinds of captive markets – that costs are just passed on?' The answer is no because there are fundamental differences in the two initiatives.
The Carbon/Price tax is levied on the top 500 polluters rather than energy retailers as VEET is. These top 500 polluters can come from a variety of industries, whose pricing practices may not be subject to the same scrutiny or regulation that the prices of energy retailers are. So, the variety of industries in play makes the regulators role in preventing this pass-through more difficult. More significantly though, the comparative absence of transparency, regulatory scrutiny frameworks and powers in respect of pricing in some of these top 500 CO2-e companies/industries leaves open the door for liable entities to take this least path of resistance solution. Once taken, this least path of resistance solution delivers little or no CO2-e reduction, a stated objective of the Carbon Price/Tax, and even less traction toward efficiency gains in the use of electricity and gas or investment, employment and technology development in the energy efficiency industry.
- The operators of aluminium smelters seek to minimise the impact of the Carbon Price/Tax on their cost base by taking advantage of any opportunities to minimise their liabilities.
VEET is a demand side initiative in which obligations of the liable entities are based upon the amount and type of energy a liable entity purchases in a nationally regulated market. EP contends that these purchases, and therefore the obligation, can be easily measured and assessed by the regulator and is therefore, likely to be the subject of little or no 'gaming'.
The Federal Carbon Price/Tax is a supply side initiative in which obligations of the liable entities are based upon the amount of CO2-e pollution those entities produce. The regulator is much more reliant on the liable entities to report the amount of CO2-e pollution they create. This reporting cannot easily be measured and assessed by the regulator and is therefore more open to be 'gamed' by entities whose interests are likely to be served by the lowest possible obligation.
Any skewing down of obligations also skews down positive outcomes. Which then means, less CO2-e reduction, less efficiency in energy use and less investment, employment and technology development in the arena of energy efficiency.
- The operators of aluminium smelters seek to minimise the impact of the Carbon Price/Tax on their cost base by taking advantage of any opportunities to off-set.
EP understands that the Federal Carbon Price/Tax allows for CO2-e off-sets to be domiciled outside Victoria and outside Australia. In fact, it is a key criticism of the Carbon Price/Tax that this is exactly what will take place. This reduction in CO2-e offshore does nothing to improve energy efficiency in Victoria or Australia, nor does it foster investment, employment or technology development in Victoria or Australia.
The European CO2-e reduction scheme certificate (CER) price has been at significantly lower levels than either the current VEET or NSW ESCy price for many months and possibly years. It's worth noting that this is the case in spite of the fact that the VEET price and the ESCy is now at a low level not seen for years. Nevertheless, the CER has been priced lower than this current watershed for an extended period.
Because the European CO2-e reduction scheme also enables CO2-e abatement to take place outside the EU in developing countries around the globe, it seems likely that abatement can be achieved outside Australia at a lower price than it can be achieved inside Australia. If reducing CO2-e at the lowest possible per unit cost is the only objective of the scheme this may be seen as an acceptable outcome. However, if a scheme has alternative objectives, as the VEET scheme does, it is incumbent on any reviewers of the scheme to recognise that a scheme such as the Federal Carbon Tax/Price scheme which opens windows to access abatement offshore looks unlikely indeed to generate efficiencies, or even reductions in the use of electricity and gas, or to encourage investment, employment and technology development in Victoria or in Australia.
The opportunity to off-set offshore is also open to criticism because of the loss of control. The integrity of all of these types of schemes, be it VEET, the Carbon Price/Tax or Direct Action, are reliant for their efficacy in achieving their objectives on their Governance structures and the perceived and real integrity of the energy efficiency or CO2-e reduction activity that takes place under their umbrella.
Australia has been at the forefront of the development of these types schemes. It is EP's contention that the Australian State Governments have demonstrated they are better managers of these types of initiatives than the Australian Federal Government. Sadly, it is the death of installers in the federally supported insulation activities that have done more to damage the reputation of these initiatives in Australia than any other incidents. However, also importantly, the States have demonstrated a capacity to run these programs when the abatement activities are domiciled domestically and it takes no great leap of faith to understand than when the energy efficiency activities have been regulated or validated by overseas bodies and the activities have been domiciled in offshore jurisdictions the ability to assess and control legitimacy is sorely stretched. The European Scheme is a case in point. It has been beset by problems and difficulties; the scheme was undermined as the supply of free-offsets sapped the traction for meaningful abatement or efficiency to take place,credible western organisations have found the often corrupt and chaotic nature of developing nation economies have undermined their investments and they have walked away from the scheme, there was a theft of certificates from under the regulators nose, and the price has been so low for so long that all but the blindest supporters of the scheme in its current format have argued that no legitimate abatement or efficiency activity can take place under such a low price threshold.
- Aluminium smelting is moved offshore to where no Carbon Price/Tax is levied.
Whilst this may reduce CO2-e in Australia there is no guarantee it reduces CO2-e globally. Similarly, whilst this may reduce energy use in Australia, there is no guarantee it reduces energy use globally.
Only if by happy coincidence, the offshore smelting process was more efficient than its Australian counterpart, in the sense of tonnes of CO2-e per tonne of aluminium output , or in the sense of Mwh of electricity used, per tonne of aluminium output would the VEET's goal of a 'more efficient' use of electricity or gas' have been achieved.
Similarly, no investment, employment or technology development in the arena of energy efficiency takes place in Victoria, or in Australia, under this scenario.
Clearly, because the VEET obligations are levied on Energy Retailers, regardless of where they are domiciled, an obligation under VEEC cannot be avoided by offshoring the liable entity as it can be avoided under the Carbon Price/Tax.
- Aluminium becomes cost prohibitive by comparison to alternative materials. End-users vote with their feet, they stop buying aluminium and buy alternatives.
Many would argue this is exactly the kind of outcome that is sought by the establishment of these initiatives and in some cases it may indeed bring about a reduction in CO2-e .
There are however differences generally between a White Paper scheme like VEET and the Carbon Price/Tax. The former's objectives explicitly include the attainment of energy efficiencies and it is established to encourage energy efficiency activities. The latter penalises CO2 emitters and merely allows off-sets for CO2-e abatement without explicitly targeting energy efficiency.
Specific differences also play a role here. In that VEET makes Energy Retailers in the Victorian market liable wherever they are domiciled whereas the Carbon Price/Tax allows liable entities to escape their obligations by changing their physical location.
VEET makes all materially scaled energy retailers in the Victorian market liable. The only way to retail energy or gas into the Victorian market and escape obligations is to be small to such an extent that profit is also small – a cure which would be considered worse than the disease in the psyche of a commercially oriented energy retailer. Since only one kind of industry is being made liable in VEET, its peculiar industry dynamics can be understood and considered in the design of the scheme so that obligations cannot be 'ducked'.
Whereas, under the Carbon Price/Tax, a liable entity must merely ensure it is the 501st largest C02 emitter and all obligations are avoided. There is every possibility that commercial enterprises change their structures and/or operations in a way that moves them to the commercially favourable side of the top 500 watershed. And do so in ways that have nothing to do with reducing the overall CO2-e, or improving energy efficiency, or in fostering investment, or employment or technology development in energy efficiency.
So, returning to the question; does the transition from aluminium to an alternative product necessarily achieve a reduction in CO2-e or an energy efficiency gain? Imagine the entirely plausible possibility that the new preferred alternative to aluminium, the one that would not be considered but for the Carbon Price/Tax, is best made in small and widely dispersed facilities closest to the customer base. Perhaps because it is heavy or costly to transport and these costs outweigh the benefits of economies of scale. Each of these smaller facilities falls under the threshold of Australia's 500 top polluters and are therefore not liable under the Carbon Tax/Price. So rather than a reduction of CO2-e, we see a transfer of C02-e reduction liability from one entity to another and an overall reduction in the level of liabilities that can be demanded from liable entities. A skill in which commercial entities are well practiced indeed.
- The operators of aluminium smelters seek to pass on the additional costs to their customer base.
- EP does not seek to besmirch the ethics of operators of aluminium smelters or suggest that it has evidence of any party acting to unfairly or illegitimately avoid obligations under the Carbon Price/Tax. EP does not suggest that operators of aluminium smelters are more or less likely to test the boundaries of the Carbon Price/Tax or any other regulatory framework, guideline or law. EP merely uses the example of an aluminium smelter to illustrate common behaviours and responses of commercial organisations to the impacts of regulatory regimes.
In summary, EP suggests that it is unwise to curtail or constrain the VEET program because of the spectre of complementarity with the Carbon Price/Tax or with Direct Action. EP makes this suggestion in light of a number of reasons detailed above and summarised below.
EP also poses two further questions; if the Carbon Price/Tax is duplicative to a White Paper Energy Efficiency scheme, why is the current federal Government who developed the Carbon Price Tax also seeking to create a National Energy Savings Incentive (NESI).
If the actual working of the Carbon Price/Tax were stable and known, and so enabled the examination of the questions of overlap with other initiatives, why has the scheme delivered such an unexpected shortfall in Federal Government revenues and contributed to an unexpected federal budget defecit
- The fact that the Carbon Price/Tax has already been assessed against VEET in terms of complementarity as part of the prior RIS and it has been determined that the two initiatives are not duplicative.
- Nothing material of note has changed since that time, or looking forward that gives rise to think that the complementary nature of two schemes would change in such a way as to increase any overlap between the two programs.
- The fact that whilst the intended workings of the Carbon Price/Tax are relatively clear, the actual impacts and manifestations are yet to be determined.
- An analysis of market penetration of energy efficient products in jurisdictions and timeframes that do and do not have the impacts of the current longstanding climate change interventions of the current Federal Government Carbon Price/Tax as opposed to jurisdictions and timeframes that have not been subject to these programs would provide a powerful quantitative case for the non-duplicative nature of these programs.
- The differing objectives of the VEET and Carbon Price/Tax programs. In particular, the wider scope of goals as articulated in the VEEC scheme in terms of encouraging the implementation of energy efficiency activities and fostering investment, employment and technology development in the arena of energy efficiency.
- Instead, EP suggests that the VEET program is maintained or if sensible expanded to take advantage of its proven efficacy in not only reducing CO2-e but also in creating energy reductions and efficiencies in the use of electricity and gas and in creating investment, employment and technological development in the arena of energy efficiency.
PERFORMANCE? Evidence to demonstrate the impact of the ESI on energy consumption and retail prices.
At this point and without further guidance, EP cannot provide evidence beyond that which it imagines would be available to the DPI and ESC by virtue of VEEC creation registers and other scheme level data.
EP notes the DPI's comments in the Issues Paper about pass through of costs. EP does not have visibility of pricing practices of Energy Retailers so cannot comment.
EP does seek to highlight that many commentators with apparently deep expertise have recently written broadly on the drop in energy demand over recent months. A drop that is unprecedented in recent times and was not anticipated by the forecasters at the energy retailers, at the energy generators or at the regulators. Whilst there are many factors at play that EP imagines have contributed to this reduction, it appears that there is a degree of consensus that the White Paper schemes have been a material contributing factor to the reduction in energy demand. This is a significant achievement on behalf of the schemes and stands as a track record to their success.
A literature search or desk based research of articles in the major newspapers and relevant on-line news sites (such as Climate Business Spectator), as well as a review of the relevant peer reviewed literature by the DPI and its partners as part of the RIS process, would reveal insights and expert opinion on the causes of these decreases and the role White Paper programs such as VEET played in their emergence.
Similarly, we imagine the DPI and the ESC and their partners can access estimates on the impact on other elements of the end-user energy price that such reductions in the overall demand for electricity will bring. Front of mind for example is the impact these reductions will have on the peak demand, and the concomitant reduction in peak demand generation and peak demand distribution infrastructure costs.
PERFORMANCE? Has the mix of activities included in the scheme been appropriate to maximise the energy efficiency uptake?
EP is not aware of any other activities that it believes would improve the mix. EP notes that the targets have been met in each year. So EP would suggest that the mix of activities has been sufficient and optimal to the extent that we can judge it.
EP does suggest that the addition of the IHD activity was not one that we supported with any enthusiasm. Our concerns in relation to IHDs are because the activity requires a significant behavioural shift on the part of the householder to actually achieve any energy savings. It is EP's view that activities that require little of the consumer in terms of day-by-day and moment-by-moment behavioural change are the ones that we can all have a degree of confidence will deliver the abatement deemed to them.
PERFORMANCE? Evidence of barriers to participation of specific groups in VEET.
EP would not express it as a barrier to participation, but does note that the vast majority of activity to date has been undertaken in the residential sector by virtue of CFLs and Powerboards. As such, businesses have yet to enjoy the benefits of the scheme directly and to a significant degree. We also add comment at this point that we foresee this trend being reversed in the coming months and years with what we expect to be an uplift in commercial lighting activity.
We also remark that to our knowledge, most of the activity in the residential sector in the past has been directed to lower socio-economic demographic areas. This is explained to us by our client base as a function of the fact that people in more affluent suburbs do not respond as well to an unsolicited in-home and face-to-face direct distribution approaches.
We imagine that there is a degree of symmetry to this latter skew as it is likely that the lower socio-economic groups more highly prize reductions in their utility bills. Why? Simply because each dollar of saving in utility bills to a low income household translates to a greater proportionate reduction in their overall living expenses and creates a greater proportionate increase in their disposable income by comparison to wealthier people.
PERFORMANCE? Evidence of investment, employment and technology development in the energy efficiency arena.
EP, as a product supplier to participants in the scheme has spent significant amounts on research and development to bring products to market that are tailored to strike 'sweet spots' in the scheme. In as much as they fit this criteria, and by virtue of the design of the VEET scheme, they also therefore deliver the greatest CO2-e abatement and the greatest savings in Mwh of electricity per $ of product cost and/or per $ of product and install cost.
EP is an employer of staff over the life of the VEET scheme and freely offers up that these roles would not have been available if not for the presence of the VEET program.
EP has developed and bought to market a string of products as a result of the VEET program and without the market that the VEEC framework generates EP would not have had the confidence or capacity to develop these products. EP is pursuing opportunities to promote these products outside the scheme as well as within it. So the benefits of these developments to all stakeholders may not necessarily be bounded by the benefits that are created within the scheme. EP is currently pursuing opportunities to export its product oriented intellectual property to offshore markets and is hopeful of success in this export arena. The export arena being one that Government's are usually eager to see private enterprise pursue we hope this will be useful.
EP would happily provide details of $ spend and headcount numbers along the following lines if it was requested by the ESC and DPI, if it would be useful as part of the RIS process, and if confidentiality and anonymity of the data was assured. Please advise me at your convenience if this data is useful.
EP imagines that if the ESC and DPI can compile this data from a number of APs and product suppliers and they then extrapolate across the broader AP or supplier community the scope, breadth and value of investment, employment and technology development by virtue of the VEET program could be estimated.
|By virtue of the VEET program||$ / Headcount since 2006||In the last 12 months|
|By EP Directly||By EP's Partners||By EP Directly||By EP's Partners|
|Total investment in the area of energy efficiency||$||$||$||$|
|Total employment in the area of energy efficiency||Headcount||Headcount||Headcount||Headcount|
|List New products developed in the area of energy efficiency||List||List||List||List|
|Total # of new products developed in the area of energy efficiency||#||#||#||#|
FUTURE? Data on the demand for low cost activities.
We presume the low cost activities being referred to are CFLs, Powerboards, Door Seals and Chimney Seals.
We believe that the powerboard market is close to saturated if not already saturated.
Anecdotally, there appears to be some significant demand remaining for CFLs, the Door Seal market has room for further uptake as does the Chimney Seal market. The latter is a small opportunity with not many houses having a chimney that fits the VEET's requirements.
Importantly, in EP's opinion, none of the low cost activities that remain have sufficiently low saturation in combination with a sufficiently high VEEC yield to support a zero cost to customer, in-home and face-to-face sales and install program. Certainly not at current VEEC prices of $13.50. Even if the VEEC prices rises markedly it is unlikely it will rise far enough for the foreseeable future, and perhaps ever, to support a single product zero cost to customer, in-home and face-to-face sales and install program like we have seen in the past. First with CFLs, and then with powerboards.
EP believes that the evolution of the market will see sophisticated AP's who can achieve one of the following prove to be successful in the scheme in the medium and longer terms.
- Offer customers a range of different energy saving products and activities rather than a single product or single activity intervention.
- Promote and close sales which involve a heavily subsidised price by virtue of the VEEC program but that also require a modest but material cash contribution from the customer.
- Both of the above.
Provided the VEEC price recovers somewhat, these two types of roll-outs, either in the residential and/or commercial sector and involving LED and other forms of improved commercial lighting technology, provide plenty of scope to deliver low cost abatement to meet the current targets. Potentially, even targets significantly higher than the current level and over the next 3-5 years can be satisfied.
Then of course there are the technological or business model developments that we have not foreseen yet but that are stimulated and come forth in the context of the kinds of stretch targets we have seen in the VEET program to date. Once again, it is worth remembering that when the NSW GGAS program was conceived and birthed, none of its architects foresaw the CFL business model. Similarly, energy saving powerboards were not 'on the radar' when the VEET program first came to life. We should not underestimate the capacity of the market, or of technological development, to crystalize creative solutions if the appropriate environment of scheme and target certainty can be provided.
FUTURE? New activities once current low cost alternatives exhausted
See comments above about EP's perception of how the VEET install market will evolve. Whilst we do not have new activities that the ESC is not already aware of, and of sufficiently developed detail to outline them here, we do have a number of opportunities in the conceptual stage that we hope to be raising with the ESC in coming months.
EP does have a view in regard to the activity projection work that was undertaken as part of the prior RIS that may be relevant here. Some of the projected roll-out volumes in some categories in the prior RIS were significantly lower than we believe can be achieved. If EP's perspectives on what could be achieved are realistic they would make the achievement of targets equivalent to or larger than the current levels likely over the upcoming three year window.
We also bring to the DPI's attention the recent acceleration of ESCy creation in NSW from Commercial Lighting activities. This up-lift does demonstrate that after a significant period of slow growth, the creation potential of Commercial Lighting activities can be seen to carry the burden of a significant portion of certificate creation. EP's understanding is that the ESCy target is currently in the region of 2.5 million certificates in a year. Although this is lower than the Victorian target, they ESCy creation from commercial lighting is exceeding the NSW requirement. When combined with other commercial and residential opportunities, EP foresees ample opportunities to meet the current targets for a 2014-2017 window, and perhaps even support a larger target.
FUTURE? Appropriate 2014-17 targets
FUTURE? ESI/VEET appropriate for large energy users
We do not feel sufficiently well informed to comment in detail. EP is a strong believer in the efficacy of White Paper programs such as the VEET programs. We favour them and believe they are more effective in encouraging energy efficiency uptake than the other scheme models currently in considered in discussions of this type. So on the face of it we would suggest the VEET is a good program to encourage uptake for large energy users.
FUTURE? Defining large energy users in the event they are excluded
FUTURE? Alternatives to ESI/VEET
EP is a strong believer in the efficacy of White Paper programs such as the VEET programs. We favour them and believe they are more effective in encouraging energy efficiency uptake than the other scheme models currently considered in discussions of this nature. They are certainly preferable to the Carbon Price/Tax in our view and from what little we can see and understand of Direct Action it comes a very distant third as a policy option.
EP will also add that a great deal has been learned in respect of White Paper Schemes. Both in NSW and Victoria. Significant improvements in the conduct of the schemes have been implemented over time. This kind of learning and embedded capability is almost priceless. As much as we like to convince ourselves that this intelligence can be captured in procedural documents, much of it resides in the hearts and minds of the teams currently engaged regulating and running these activities. Any wholesale change of the nature and structure of the scheme risks much of this learned capability being lost in the inevitable ensuing reorganisation.
Furthermore, the White Paper schemes are known quantities, they provide a good degree of certainty and confidence which are the bedrock of future oriented investment for commercial organisations.
FUTURE? Issues if the ESI/VEET is discontinued
- Much of the learned capability to run energy efficiency and CO2-e programs both within and outside the regulator being lost.
- Loss of a revenue neutral program from the public sector and public sector job losses.
- Loss of employment amongst the AP community, the product supplier community and the broader array of suppliers to the industry.
- Lost opportunities to realise energy efficiency opportunities, higher energy use than if the scheme was maintained, higher peak loads than if the scheme was maintained, higher peak load infrastructure costs than if the scheme was maintained, higher energy prices than if the scheme was maintained.
- Loss of traction in regard to technology development capability. EP for example has developed relationships with globally credible suppliers. By virtue of the orders we have been able to place with them over the years, which come about primarily because of the operation of White Paper schemes including VEEC, they have come to see Emerald Planet and the Australian market as a forerunner of product developments elsewhere in the globe.
As such we are able to punch above our weight in regard to securing the attention of their R&D leaders and they have directed a disproportionate amount of their R&D budgets to developing products that are tailored to the Australian markets. For example;
- We have a team of engineers exploring the question of LED compatibility with Australian Halogen Transformers.
- They are focussed on developing products that are tailored to fit existing Australian fittings and so simplify the retro-fit installation and lower the cost of the energy efficiency activity.
- They are pursuing Patented IP that if it bears fruit, will present a step-change improvement in the efficacy of downlight retro-fits in Australia.
The Australian operations of the incumbent majors in global lighting have no interest in developing this type of relationship, having their own proprietary Chinese manufacturing operations whose focus is on developing product to service the world's great consumer markets, North America and Europe and to an increasing extent Asia. Developing product to suit the Australian market is simply not their priority.
- Stock risk. To supply the variable nature of our White Paper markets we at times have large volumes of stock in the process of production or that is being shipped. Once these production processes are commenced they cannot be unwound. So we often have between 8-16 weeks' worth of stock in process at any point in time. When the White Paper markets are buoyant this can represent large irreversible quantities and $ commitments to stock. Periodically, when an event like Chinese New Year is included in the production lead times we can need to order even further ahead.
If at these times when we are compelled to order up, because the market is buoyant and we cannot afford to let our customers down with stock-outs, and then the market suddenly cools or stops, we can find we have 20 plus weeks of stock that we are committed to. If schemes stop suddenly, or without fair warning, the 20 week stock holdings can turn into commitments that simply cannot be cleared through conventional channels and the results have the capacity to be crippling.
- Debtor risk. Sudden curtailment of schemes can mean our customers do not have time to install their remaining stock and turn their certificates into cash by selling them before a scheme is cut-short. If they do not sell the certificates they are often subsequently calling the supplier of the product to explain that they have no way to pay for stock that has already been delivered to them and often times already installed in a house. Again, depending on the timing and market dynamics preceding the sudden curtailment of a scheme, resulting bad debts have the potential to be crippling.
- Product development can span years. We have been working on LED downlight development for 2 ½ years and only now look likely to begin to generate any kind of revenue. Just as the development cycle of LED lights is about to turn from a development project into a production cycle, so there are a string of products that are in the development stages. The need for products in the scheme to hit a 'sweet spot' within the schemes means that the products are tailored tightly to Australian requirements, tailored to the scheme and so tailored for maximum energy and CO2-e savings.
Without the support of the scheme, which tends to promote a quality product outcome, we will often find the high quality product we develop for the scheme is not the product that is desired by large retailers. So there will be large amounts of product development that could be wasted. Of course, we will make every effort to adapt the development for other markets, but the prospects of success in this regard are slim indeed.
- The other complexity of a closure window is any certificate excess created over and above the final requirement. No matter how hard the Regulator attempts to create transparency, there will be a queue of suppliers trying to attain the lion's share of any remaining unsatisfied certificate obligation. Inevitably there will be some oversupply of certificates. Perhaps a clearing house commitment on behalf of the Government to purchase any overspill of certificates at the end of the program would be an equitable way to manage this issue.
Emerald Planet thanks the DPI for inviting stakeholder feedback and welcomes the opportunity to contribute to a better scheme in this and any other feedback and consultation opportunities.
Page last updated: 24/06/20