Dissenting Report from
the Australian Greens
Introduction
The Safe Climate-Energy
Efficient Non-Residential Buildings Scheme Bill 2009 is an exciting and
innovative piece of legislation. It was drafted in consultation with leaders in
the field of energy efficiency in non residential buildings and has the support
of international organisations and experts such as William Sisson, Co-Chair of
the World Business Council for Sustainable Development's Energy Efficiency in
Buildings Project; RAND Corporation, one of America's oldest research
institutes; and Dr David Vincent, Projects Director, Carbon Trust - an
independent company set up by the UK Government to accelerate the move to a low
carbon economy.
Given the level of
support for this legislation outside the Parliament and the lack of any
legislative measures that drive energy efficiency in non residential buildings
in Australia, it is surprising that the Economics Committee’s report fails to
analyse the legislation in any serious way and delivers such a confused and
superficial analysis of the issues or their relationship to a possible
emissions trading scheme. It reflects the lack of internal consistency or whole
of government approach to climate change and emission reduction under the Rudd
government in Australia.
In several areas the
report fails to represent the evidence received. Policy makers domestically and
internationally are strongly encouraged to read the written and oral evidence
provided by the original proponents of the scheme (Lend Lease, WSP Lincolne
Scott and Advanced Environmental) rather than rely on the Committee's report.
The following comments
outline the Green's response to the Committee's report and recommendations.
These comments are intended to be read in conjunction with the submissions to
the inquiry and the Hansard of the hearings.
Comments on the
Recommendations
Recommendation 1
This recommendation
misunderstands the scope of the Government’s proposed mandatory disclosure of
commercial office building energy efficiency program, which is limited to
commercial office buildings only and is based on a measurement tool which is
designed for market comparison, not reporting, with no unified reporting
period.
The essence of
Recommendation 1 is that Government should collect and analyse data collected
from the mandatory disclosure initiative to "identify factors that
correlate with the emissions intensity of the non-residential buildings."
One assumes that this means the government intends to investigate the
relationship between building age or size and emissions intensity. This begs
the question, what then? It is not at all clear to us how this information
would be used in the future. Does it foreshadow a move for the government to
pick winners in this sector with selective subsidies and exemptions? It does
not seem to be a step towards introducing the Efficient Building Scheme (EBS)
which would establish a level playing field on which all non residential
buildings of a type, size, and climate zone would be treated equally, with the
only exception being heritage buildings.
The data collected from
the mandatory disclosure of building energy performance at the time of sale or
lease will be too sparse to allow a future Government to establish energy
performance caps for a range of building types in a range of climate zones as
is envisaged in this Bill.
To reiterate, the
mandatory disclosure program only applies to office buildings and not the
schools, hospitals, shopping centres and other buildings that this legislation
was designed to capture. Data collection is required to underpin the design of
this scheme, but it has to be the right data: a fact that has escaped the Committee.
The EBS would introduce
a cheap and simple method of collecting building energy and emission intensity
data based on the annual reporting of electricity and gas bills together with
building size. The Greens believe this methodology should be used for purpose
of mandatory disclosure on an ongoing basis (not just at the time of sale or
lease) and that in the future this information should inform the determination
of other scheme design aspects such as which building types to include and the
level of their emission intensity cap. Evidence given at the Committee hearing
supported this information being made publicly available.
Recommendation 2
It is very difficult to
understand what Recommendation 2 actually means. It seems to be saying that the
Committee recommends that a scheme to enforce energy efficiency in commercial
buildings, based on data from mandatory disclosure initiative, should be
developed. However, there is no detail at all about what such a scheme may look
like, and this idea was not proposed in any submission to the Committee. We can
only presume that it won't resemble the proposed EBS because the previous
paragraph (6.20) says that "the committee considers that the
decision-making process for setting baselines [ie the cap] in the scheme would
be highly complex and contentious." In any case, as stated above the data
collected by the mandatory disclosure initiative will not be useful for
implementing proposed scheme.
As discussed further
below, an “appropriate scheme to enforce energy efficiency” must balance
incentives with an obligation to act, be based on mandatory participation, and
include a carbon price set by the market if it is to be effective.
General comment on the
body of the Committee Report
In general the Report
fails to capture the essence of the arguments relating to the EBS Bill. That
argument boils down to:
(a)
Which is the best method of assessing a building’s
energy performance?
and;
(b)
Which is the best complementary energy efficiency
policy for non-residential buildings?
On the question of the
method of assessing building energy and emission intensity performance, it was
surprising that no evidence or witness challenged the methodology proposed by
the original proponents of the EBS scheme, (Lend Lease, WSP Lincolne Scott and
Advanced Environmental). This methodology is a simple and inexpensive
measurement based on energy bills and building size.
Instead, many witnesses
simply argued for retention of the National Australian Built Environment Rating
System (NABERS) Energy rating tool. To an extent this is moot point because
NABERS Energy, at least in its current form, is an inaccurate rating tool. Even
if the technical flaws in NABERS Energy were corrected, it would rely on the
use of independent expert assessors – greatly increasing transaction costs. We
also highlight that the Committee received evidence that NABERS has been used
to rate just 230 buildings in eight years.
A rating system like
NABERS Energy may have its uses, but that is not the point. Rather, the point
is that the Committee did not hear any arguments, convincing or weak, against
the proposed simpler and cheaper option.
On the question of what
is the best complementary energy efficiency policy, the two competing proposals
are an energy efficiency credit trading scheme or accelerated depreciation for
energy efficiency products.
Once again, no strong
evidence was presented to the Committee to counter the assertion from the
original proponents of the scheme that energy efficiency credit trading schemes
(also called white certificate schemes) have not proved effective in the
non-residential building sector, either domestically or internationally. On the
contrary, the original proponents demonstrated instances where Governments have
abandoned white certificate approaches in favour of schemes similar to the EBS.
With regards to
accelerated depreciation, whether this would prove effective in the
non-residential building sector was a contested point, but the Greens view is
that either way it is compatible with and could be additional to the emissions
trading scheme and/or white certificate trading or the proposed EBS. It is
notable that the Property Council of Australia rejects a market mechanism to
drive energy efficiency and prefers regulation and government largesse making
it vulnerable to the whims of government in terms of both. Given that no
government has this policy on the table why the PCA would take this approach is
puzzling.
Supporters and
detractors
The Committee Report
fails to list the supporters of the Bill or supporters of the concept of a cap
and trade scheme for buildings generally. A long list of supporters (both
domestic and international), including statements of support, are listed in the
first supplementary submission from Lend Lease, WSP
Lincolne Scott and Advanced Environmental.
The Committee Report
does detail opposition to the scheme, including from some energy efficiency
advocacy organisations. To understand why some of these organisations may be
opposed to the EBS, it is important to appreciate where conflicts of interest
lie. There are essentially two types of building renovations:
- Minor
upgrades using retrofit equipment – e.g. replacing inefficient lighting or fans
with modern energy efficient substitutes.
- Major
upgrades involving refurbishment of the building – eg to introduce more natural
light through structural changes and reduce the need for artificial light or
installing a passive heating and cooling system which does not require fans.
Compared to minor upgrades, building refurbishment can achieve much greater
improvements in energy efficiency.
Energy Service
Companies (ESCOs) are companies that sell the efficient retrofit equipment,
services to install this equipment and services related to guaranteeing savings
on energy bills. They are often linked to product and equipment manufacturers
and the installation of this furthers the financial interests of ESCOs. ESCOs
tend to support white certificate trading schemes because relatively simple
equipment such as efficient lights and fans may earn valuable certificates.
However, ESCOs are generally not in the business of major upgrades. They do not
offer, for example, to upgrade the building’s façade, introduce light wells,
install chilled beam air-conditioning etc. ESCOs may even be hostile to
policies which may supplant white certificate schemes. Equally those capable
of major upgrades see the opportunity in major refurbishments and advocate for
a total overhaul.
The fact is that we
need both and both have their place.
More
specific points
Paragraphs 2.17 and
2.20: It is implied that Mandatory Disclosure of Commercial Office Building
Energy Efficiency is separate and additional to the National Strategy on Energy
Efficiency. In fact the Mandatory Disclosure program is part of the strategy –
indeed it is the only part that will create any incentive to improve the energy
efficiency of existing buildings. Improving the Building Code is important but
applies to major refurbishments that would have happened anyway. Critically,
the mandatory disclosure policy applies only to office buildings whereas this
Bill can apply to all non-residential buildings. Hospitals, shopping centres,
hotels, etc are all major energy users.
Paragraph 3.6: With
regard to the suggestion that the size of penalties is too large for small
businesses, while there can be debate about the size of penalties, this Bill
does not apply to small businesses, it applies to the owners of large
buildings.
Paragraphs 3.16 to3.19:
With regard to whether the scheme should be termed a 'cap and trade' or a
'baseline and credit' system. I think the clearest indicator as to whether a
trading scheme is one or the other is the method of allocating permits. The EBS
allocates like a cap and trade scheme – that is, it allocates tradeable
certificates up to the cap. If it was a baseline and credit it would
allocate “credits” to building owners to the extent that their emission
intensity was lower than a baseline.
There are elements of
the scheme that borrow from typical baseline and credit schemes – particularly
that the cap is based on emission intensity rather than absolute emissions. The
word cap is still a valid descriptor however– the intent is to cap building emissions
intensity.
It is worth noting the
legal advice from Freehills submitted by Lend Lease, WSP Lincolne Scott and
Advanced Environmental supporting the view that the correct terminology was cap
and trade.
Paragraph 4.4:
Regarding problems with NABERS Energy. Lend Lease, WSP Lincolne Scott and
Advanced Environmental submitted a significant body of evidence critiquing the
NABERS methodology, essentially giving numerous reasons to question the
accuracy of the star ratings. This evidence is largely ignored by the
Committee Report.
Paragraph 4.6: It is
unbalanced to quote CitiGroup's (a bank not a property expert) arguments that
'split incentives' is not a real problem while ignoring evidence to the
contrary. See for example RAND Corp report (especially page five), cited by
Lend Lease, WSP Lincolne Scott and Advanced Environmental. http://www.rand.org/pubs/technical_reports/2009/RAND_TR728.pdf
Paragraph 4.12: To
clarify, the cautionary comments from Lend Lease and WSP Lincolne Scott about
mandatory disclosure were in the context that it has been proposed to use
NABERS Energy as the energy performance metric.
Paragraph 5.5: With
regard to the comment from the Energy Efficiency Council: We
do not want to give people money every year because 10 years ago they upgraded
their building and it is really efficient or tax people who have a building
that is pretty old and it is very hard to get above a certain performance
level.
An implicit reward for
early action is consistent with all trading schemes, indeed it is one of the
key benefits. Alternative 'carrot only' approaches such as white certificate
schemes effectively provide a reward for early inaction by providing subsidies
to late-movers. Note too that the early mover advantage diminishes over time as
the cap is tightened.
Paragraph 5.3: The
notion from the Property Council that there are 54 relevant policy measures is
absurd. There is one substantive measure proposed for existing non-residential
buildings; mandatory disclosure at the time of sale or lease. The EBS proposal
is potentially compatible with, but would build upon, a mandatory disclosure
policy.
Paragraph 5.4: Similar
to my comment in relation to paragraph 4.4. Lend Lease, WSP Lincolne Scott and
Advanced Environmental submitted a significant body of evidence explaining why voluntary
approaches have repeatedly proved ineffective. The Committee Report does not
refer to this evidence in any detail.
Paragraph 5.5 and 5.7
discuss support for accelerated depreciation, but there is no mention of the
contrary argument as to why this won't be effective in non-residential
buildings. The second supplementary submission from Lend Lease, WSP Lincolne
Scott and Advanced Environmental said:
"...listed property
trusts pass all tax benefits to investors and the superannuation industry gets
no benefit so accelerated depreciation is not a fiscal incentive for property
trusts."
"Listed trusts
cannot use this incentive as refurbishment capital. Unlike the [Efficient
Building] Scheme, which is low-cost to Government, accelerated depreciation is
high cost to Australians."
Paragraph 5.8: It is
one thing to argue that the transaction costs of the proposed scheme could be expensive if a complex energy performance measurement tool (such as NABERS
Energy), was used. But this is not what is proposed. It is clearly biased to
say that the scheme will be necessarily expensive – after all the Bill
defers this issue to the regulations.
Paragraph 6.1: The
economy-wide price created by an emissions trading scheme will not “filter
through” to “set clear market-based incentives” for the owners of existing
non-residential buildings. The owners of non-residential buildings will not get
an “effective price signal” because they don’t pay for the electricity and gas
– the building occupants/tenants do, and energy costs are less than 1% of their
total costs. Further, as large business owners they can negotiate cheaper
energy costs than the rest of the market. This is fundamentally why all
witnesses agree that complementary measures are required.
Paragraph 6.8: In
relation to concerns raised about double counting. There is no suggestion in
the Bill, the Explanatory Memorandum or the second reading speech that there
should be any attempt to shield participants in the EBS from the impact of any
emissions trading scheme. The observations from Mr Sterland, the representative
from the Department of Climate Change, are true but irrelevant. It is disappointingly
apparent that Mr Sterland was not across the detail of the Bill.
Paragraph 6.10 and
6.11: With regards to the assertion that there will be problems defining which
types of office buildings should have different energy intensity thresholds.
The Building Code of Australia clearly states how different types of buildings
are identified. Refer, for example to section 2.3 ‘Building classifications’ on
pages 5-6 of the second supplementary submission from Lend Lease, WSP Lincolne
Scott and Advanced Environmental. Note too that the 'neat division’ referred to
in paragraph 6.11 is made frequently. Each type of space needs an occupancy
certificate from the local planning department, granted through a DA applicable
to all fit outs. This is so issues of fire safety can be certified before
people are allowed to occupy. Given the critical consideration of life safety,
the separation of uses for carbon reporting purposes is far less onerous than
already exists.
Paragraph 6.13-6.16:
With regard to the assertion that there might be a single emission intensity
cap for all office buildings. The Bill’s Explanatory Memorandum clearly states
"the Minister would then set an intensity cap for each building type, each
year for 10 years, probably starting with the average intensity for a city or
region. This would vary by city or region due to local climatic conditions
impacting the average." Further, no evidence was presented to support the
assertion that old buildings will emit “well above the baseline” while new buildings
will emit “well below". Data collection may or may not lead to that
conclusion in the future, but note that the scheme does not seek to relieve old
buildings but to impose a price signal of sufficient magnitude to make it more
attractive to upgrade the building. The assumption of the wealth of different
owners being an important consideration suggests a misunderstanding of the
ownership of Australia’s existing building stock. This is not relevant
consideration, whereas Heritage listing clearly is.
Paragraph 6.17: The
meaning of this paragraph is unclear, but to try to clarify, the point that
Property Council was trying to make was that if one estimated the median
performance of buildings (which from the scatter graph they estimated at 128 Kg
of CO2 per square meter) it is apparent that while most buildings
are clustered around the median, there are some outliers that perform badly.
The point of the graph seems to be to demonstrate that EBS would place an
unfair impost on those inefficient buildings.
In giving evidence the
Property Council acknowledged that there are other ways of calculating the
median but asserted that these other methods don't make much difference.
However, the Property Council took a CO2e/m2/building
number and then averaged, rather than a total CO2e/total m2
for the sector in question average, that is intended by the Bill. This makes a
significant difference.
More importantly,
however, the Property Council's thesis is based on outputs from NABERS Energy.
These are not the emissions intensity figures proposed by the Bill. NABERS
Energy distorts its reporting of CO2 intensity per m2 to
'correct' to externalities such as hours of use and numbers of computers in a
workplace. They therefore bear no resemblance to the 'raw' CO2e
emissions that are considered in the Bill and in the calculation on the cap.
The Property Council
displayed both a poor understanding of the intent of Bill and a determined
effort to undermine a reasonable consideration of the pros and cons. This came
as some surprise given that many members of the Property Council would
presumably benefit from the EBS.
Errors that appear
throughout the Committee Report
The words "commercial building" is
understood by the sector to mean office buildings – nothing more. The scheme is
intended to apply to ‘non-residential’ not just 'commercial' buildings.
The word ‘baseline’ should have been changed to
‘cap’. Note that the word baseline does not appear in the Bill, the Explanatory
Memorandum or my second reading speech.
In conclusion, it is clear that the argument against
this Bill is in large part from individuals and organisations who wish to
support the NABERS Energy rating tool and/or white certificate trading schemes.
That is their prerogative. But it is the job of Governments, including Senate
Legislation Committee's to navigate through all claims and counter claims and
legislate in the long-term national interest. By producing a Committee report
which fails to reflect the evidence submitted and by making recommendations
which demonstrate a fundamental misunderstanding of the way the proposed scheme
is intended to operate, the Committee has failed to meet this responsibility.
As a general comment
the complete lack of engagement in the Bill's inquiry by both Government and
Coalition senators is lamentable. The Inquiry analysis process and the drafting
of the Committee Report has been a travesty that reflects very poorly on all
members of the Committee and the Committee Chair, Senator Annette Hurley. The
Australian public expects the Senate to exercise due diligence in considering
such proposals and on this occasion the public has been let down. The failure
to circulate my responses to the Committee Chair’s Draft report meant that the
other members of the Committee signed off on a report in ignorance of my
responses to criticisms of a Bill which I have outlined above.
There was no considered
response from either the Government or the Opposition, although the Chair has
undertaken to provide her notes refuting my criticisms noted in this report.
All in all there is no evidence that either Government or the Opposition have
any significant interest in energy efficiency policy development in the area of
non residential buildings. The Greens will continue to pursue this legislation
until such measures are in place.
Senator Christine Milne
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