Chapter 1
Referral to the committee
1.1
On 18 March 2010 the Senate Selection of Bills Committee referred the
provisions of the Building Energy Efficiency Disclosure Bill 2010 (the Bill) to
the Senate Environment, Communications and the Arts Legislation Committee (the committee)
for inquiry and report by 11 May 2010.[1]
1.2
On 24 March 2010, in accordance with usual practice, the committee
advertised the inquiry in The Australian, calling for submissions by 6
April 2010. The committee also directly contacted a range of organisations
inviting them to submit to the inquiry. The committee received five
submissions, listed at Appendix 1.
1.3
The committee held a public hearing in Canberra on 12 April 2010. The
participants are listed at Appendix 2.
1.4
The committee thanks those organisations and individuals that made
contributions to the committee's inquiry.
Purpose of the Bill
1.5
The Bill proposes to require owners of large commercial office buildings
to supply energy efficiency information about their buildings to potential
lessees or purchasers. The driver behind the Bill is to provide commercial
office market participants with credible energy efficiency information in order
to:
...help these parties to make better informed decisions and
take full account of the economic costs and environmental impacts associated with
operating the buildings they are intending to purchase or lease.[2]
1.6
The policy was originally proposed in December 2004 under stage one of
the National Framework for Energy Efficiency—a joint initiative of the
Commonwealth, State and Territory governments under the Ministerial Council on
Energy (MCE).[3]
Specifically, the MCE agreed that there should be:
...a nationally consistent legislated regime for mandatory
disclosure of energy performance of...commercial buildings...[4]
1.7
In July 2009, as part of the National
Partnership Agreement on Energy Efficiency, the Council of Australian Governments
(COAG) agreed to the implementation of national mandatory disclosure
requirements for commercial buildings.[5]
COAG decided that phase one of the agreement should apply to commercial office buildings
over 2000 square metres in area and also cover commercial office buildings
owned or leased by the Commonwealth, state and territory governments.[6]
1.8
In its submission the Energy Efficiency Council (EEC) highlighted the
fact that the mandatory disclosure of commercial building energy efficiency
also has support across the political spectrum:
There is a strong justification for the Bill, and the
Australian Labor Party, the Liberal Party and the Australian Greens have all
committed to support the introduction of this type of scheme.[7]
1.9
Most of the witnesses that appeared before the committee commented on
the significant economic and environmental benefits of improving the energy
efficiency of commercial buildings. These benefits are discussed in detail
below.
1.10
Ms Clare Walsh, Acting First Assistant Secretary, Renewables and Energy
Efficiency Division, Department of Climate Change and Energy Efficiency,
explained that government involvement is needed to encourage energy efficiency
improvements in commercial office space because:
...it is well recognised that there are market failures that
prevent a carbon price flowing through to real action in some instances. In the
building sector, the market failure is information asymmetry. There is a
failure in the provision of information and in the split incentives between
those who make decisions about energy efficiency of a building or its
appliances and those who may or may not benefit as a result of those decisions.
This measure complements the [Carbon Pollution Reduction Scheme] as it better
ensures that price signals flow through clearly and directly to the market.[8]
1.11
The EEC corroborated Ms Walsh's comments regarding market distortions
and failures which 'impede energy efficiency' making government intervention
necessary.[9]
According to the EEC these market distortions and failures include:
- the fact that the incentives facing landlords, tenants and
building managers with respect to energy efficiency 'are frequently not
aligned, resulting in sub‑optimal outcomes';
- the lack of information available to homeowners, companies and
specialists which can 'entirely impede otherwise cost-effective energy
efficiency';
- existing national electricity market rules and regulations which
favour supply‑side options (expansion of energy generation and
infrastructure) over demand-side options (energy efficiency and distributed
generation), and fail to reward energy efficiency;
- the cost of research and development minimising the financial
benefits for early movers; and
- the failure to internalise the cost of carbon in the cost of
energy.[10]
1.12
With respect to market failures, the Regulation Impact Statement (RIS)
on the policy underpinning the Bill states that:
Existing measures do not currently address these problems.
The Carbon Pollution Reduction Scheme will assist in reflecting environmental
costs of energy use, but will not necessarily address information failures and
split incentives in the market.[11]
1.13
The RIS explored three options for addressing these market failures:
(a)
mandatory disclosure of energy efficiency at the point of sale and
lease;
(b)
the development of an voluntary industry code of practice; or
(c)
mandating minimum energy efficiency standards.[12]
1.14
The RIS ultimately recommended the first approach, concluding that it is
the most cost effective option for addressing market failures.[13]
Australia's commercial office
property market
1.15
While '[n]obody knows exactly how much [office] space there is in
Australia'[14]
the Property Council of Australia has estimated that there are over 21 million
square metres of commercial office property[15]
in major Australian business centres, in 3980 buildings.[16]
Of this, around 19 million square metres are accounted for by 2170 buildings
with net lettable areas greater than 2000 square metres.[17]
1.16
In other words, the scheme will achieve over 90 per cent coverage of
commercial office space by area, but only apply to approximately 55 per cent of
the total number of office buildings of greater than 2000 square metres.
1.17
The EEC estimates that commercial buildings (which includes commercial
offices in addition to other commercial property such as retail and warehousing
space) account for around 10 per cent of Australia's total greenhouse gas emissions.[18]
The Department of Climate Change and Energy Efficiency (the department)
informed the committee that:
Research undertaken in 1999 found that offices were
responsible for the largest proportion of greenhouse gas emissions from
Australia's commercial building sector, accounting for approximately 27 per
cent of emissions.[19]
1.18
This suggests that commercial office buildings contribute approximately
2.7 per cent of Australia's greenhouse gas emissions.
1.19
The RIS indicates that the commercial building energy use has
'experienced sustained growth in energy use in the 15 years to 2006', growing
by 87 per cent during that period.[20]
According to the National Australian Built Environment Rating System (NABERS) website,
greenhouse gas emissions from Australia’s commercial building sector are growing
by 3–4 per cent per annum.[21]
Current energy efficiency
information and performance
1.20
The RIS explains that there is scope for a greater number of office
buildings to be rated for their energy efficiency performance:
...in Australia, while the proportion of rated stock is growing
each year, a majority of buildings are currently not rated for energy
efficiency. Those that are rated, are predominantly large and higher grade
quality buildings (that is, Premium, A or B grade buildings)...[22]
1.21
The RIS states that approximately 13 per cent of properties between
2000 square meters and 5000 square metres, and 30 per cent of properties
over 5000 square metres have had a NABERS assessment.[23]
1.22
However, even based on this limited information biased towards high end buildings,
the RIS concluded that there is significant room for improvement in the energy
efficiency of commercial office buildings in Australia:
Assessment of a sample of reported NABERS Energy star ratings
conducted between 2004 and 2008 found an average rating from 2.8 stars (without
adjustments for green power) for a first assessment, and 3 stars for a second
assessment [out of a possible 5 stars]. These figures were derived from
averaging data from buildings which have been voluntarily rated under NABERS
Energy. Industry best practice is currently defined as a rating of 3 stars
under NABERS Energy. This was determined in 1999 when the scheme was
established. However, a more recent survey of ratings indicates that a
performance of 4 to 4.5 NABERS stars is a more accurate indication of ‘best
practice’, with several buildings achieving this performance level. It is
reasonable to estimate that industry (on average) is lagging at least one to
one and a half stars behind current best practice – this equates to a 20 to 30
per cent lag in energy efficiency between the average building and industry
best practice.[24]
Benefits of improved energy
efficiency
1.23
As noted above, submitters and witnesses agreed that there are numerous
benefits to improving the energy of commercial and other buildings. The
committee heard that improving the energy efficiency of commercial buildings
not only delivers environmental benefits, but can also result in significant
financial savings for building owners and tenants.
Environmental benefits
1.24
Numerous witnesses expressed the view that improving energy efficiency
is 'one of the fastest, most efficient and cost-effective ways of abating
greenhouse gas emissions'.[25]
1.25
Mr Robert Murray-Leach, CEO of the EEC described the huge potential for
energy efficiency to contribute to greenhouse gas reductions:
Energy efficiency is the single biggest source of greenhouse
gas abatement to 2020. That is often overlooked by a range of sources because,
I suppose, it is not really the world's sexiest form of abatement; it does not
involve cutting ribbons on major projects. But what it does deliver is major
cost‑effective greenhouse gas emission reductions.[26]
1.26
Mr Murray-Leach continued:
[The Australia Bureau of Agriculture and Resource Economics]
and the International Energy Agency believe that energy efficiency is the
biggest opportunity to cut emissions in the energy sector to 2020, with the
International Energy Agency estimating that 65 per cent of global cuts in
emissions to 2020 will come from energy efficiency.[27]
1.27
Mr Ché Wall, Managing Director, WSP Lincolne Scott, co-founder of the
Green Building Council of Australia, argued that:
Australia should be at the forefront of global action to
mitigate greenhouse gas emissions from the built environment through smart
legislation as we already are through new green building design. Australia
should have robust disclosure legislation which establishes a set of credible
and meaningful year-on-year energy performance data by building type and open
centre.[28]
Financial benefits
1.28
In addition to being a cost-effective means of reducing Australia's
emissions, the committee also received evidence that improving the energy
efficiency of commercial buildings can have financial benefits for building
owners and tenants.
1.29
In terms of the size of possible savings, Mr Murray-Leach of the EEC told
the committee that:
We know that building owners can easily find savings of 20 to
40 per cent through energy efficiency investments and, in some cases, we have
examples of buildings saving between 50 and 60 per cent through energy
efficiency retrofit...The estimate from the Centre for International Economics is
that energy efficiency in the building space would save the economy $38 billion
per year by 2050. That is a combination of both direct savings from reduced
energy use and displacing more expensive ways of cutting emissions.[29]
1.30
Mr Murray-Leach also summarised that 'in the commercial building space,
for every tonne of emissions that we cut in the building sector we save $90.'[30]
1.31
Furthermore, the EEC provided evidence that '[i]n addition to being the
largest source of emission abatement, energy efficiency is widely acknowledged
as the most cost-effective form of abatement'.[31]
This is demonstrated by the 'McKinsey curve', reproduced in the EEC's
submission.[32] The curve shows the relative cost‑effectiveness of carbon abatement
measures, measuring the cost of each measure against potential reductions in
emissions. Various methods of retrofitting existing commercial buildings to
improve energy efficiency are found to have a negative financial cost (in other
words a positive financial benefit) of between approximately $50 to $140 per
tonne of CO2 equivalent emission saved.[33]
Therefore improving energy efficiency is shown to be either a low or negative
cost option for carbon abatement.
1.32
Chapter 4 of the RIS contains an 'impact analysis', or cost-benefit
analysis, of the proposed scheme, which compares the scheme's various costs to
building owners and tenants to the direct and indirect benefits that may be
achieved. The impact analysis found that the scheme would cost $18.7 million
over 10 years,[34]
and provide the following benefits:
...direct benefits of the scheme are to those tenants and/or
prospective buyers who are able to use the disclosed ratings to choose a
premise with a higher energy efficiency rating — the benefits achieved are
through savings for these parties of occupying higher rated premises.
...indirect benefits of the scheme can be achieved through
voluntary energy efficiency improvements, and associated greenhouse gas
abatement, that may occur with a better informed marketplace.[35]
1.33
The impact analysis used a 'break-even analysis' and identified that the
minimum amount of benefit required of the scheme to at least cover its total
costs would be achieved if 3.9 per cent of transactions per year were influenced
by mandatory disclosure.[36]
Outline of the Bill
1.34
The Bill proposes to create a legal requirement for owners of commercial
office buildings with net lettable areas of over 2000 square metres to obtain
certain energy performance information about the building, and disclose that
information to prospective purchasers and tenants.
1.35
The key provisions of the Bill set out:
- its scope and application;
- details of the 'building energy efficiency certificates', which
are the manner in which information is to be given to prospective purchasers
and lessees; and
- assessment standards and the accreditation and audit of
assessors.
Scope and application
1.36
Subclause 10(1) provides that:
The Minister may, by legislative instrument, determine that a
specified kind of building is disclosure affected.[37]
1.37
'Disclosure affected building' is defined in clause 3 to be restricted
to buildings that are 'used or capable of being used as an office'.[38]
1.38
The Explanatory Memorandum states that it is expected that the
Minister's legislative instrument will determine that 'buildings and areas of
buildings will be disclosure affected if they exceed the minimum size threshold
of 2000 square metres in net lettable area.'[39]
1.39
The department also informed the committee that the scheme will apply to
government buildings whenever government is transacting with a constitutional
corporation, which is the majority of government transactions.[40]
1.40
The Explanatory Memorandum also notes that the Minister's instrument
will detail the type of buildings affected by the legislation. Officers from
the department explained that the Minister needs the power to exclude certain
offices that cannot be rated by the methodology set out in the scheme—such as strata
titled offices.[41]
1.41
Mr Verwer, CEO of the Property Council of Australia pointed out that 'the
Bill leaves a lot to subordinate legislation', and also expressed concern about
the lack of definition of 'office building' in the Bill.[42]
Mr Verwer argued that 'there is a definition of "office" under the
building code and that is the one that should be used'.[43]
1.42
The Explanatory Memorandum explains that:
...there are several definitions for office buildings used by
government and industry. One of the most common is the definition in the
Building Code of Australia, which is used to identify the design and
construction standards applying to that particular building type. However, none
of the existing definitions are universally applied and directly correlate to
the requirements of the scheme.[44]
1.43
Accordingly:
...further details are required within a legislative instrument
to ensure that the scheme is applied to specific building types for which a
building energy efficiency rating can be assessed.[45]
1.44
The Explanatory Memorandum states that it is necessary to leave much of
the detail of the scheme to subordinate instruments because:
Use of a legislative instrument provides some flexibility
where there is a need to make changes to this definition to account for
technical issues.[46]
1.45
On this issue, Ms Clare Walsh, Acting First Assistant Secretary,
Renewables and Energy Efficiency Division, Department of Climate Change and
Energy Efficiency, informed the committee that:
It provides administrative simplicity for the legislation,
but any changes would not be taken arbitrarily by the secretary or the
department. It would be undertaken as part of an ongoing consultation process.
So there would not be just an arbitrary change without consultation.[47]
Building Energy Efficiency
Certificates
1.46
Part 2 of the Bill establishes the requirement for, and contents of
Building Energy Efficiency Certificates (BEECs).
1.47
Clause 11 provides that it is an offence to sell or lease a 'disclosure
affected building' without a BEEC. Clause 12 provides that a prospective
purchaser, lessee or sublessee has the right to request a BEEC from the
building owner. Under Clause 15, advertisements for the sale or lease of a building
must include the building's energy efficiency rating (which is one component of
the BEEC).
1.48
Subclause 13(1) proposes that BEECs will contain three parts,
respectively detailing:
- the energy efficiency rating for the building;
- an assessment of the energy efficiency of the lighting for the
building that might reasonably be expected to remain if the building is sold,
let or sublet; and
- guidance on how energy efficiency might be improved.[48]
1.49
Clause 21 provides that the secretary of the department has the power to
determine the specific methods and standards that will apply to each part of an
assessment.
Energy efficiency rating
1.50
The base energy efficiency rating of the building is proposed to
indicate the 'core components' of the building.[49]
This includes factors within a landlord's control, such as heating and cooling,
lifts and insulation.[50]
1.51
The Explanatory Memorandum states:
The assessment methods and standards will apply the protocols
of the National Australian Built Environment Rating System for energy
efficiency, also known as NABERS Energy.[51]
1.52
The NABERS Energy rating system, which is one part of the NABERS rating
system, encompasses the former industry standard Australian Building Greenhouse
Rating (ABGR) scheme for energy and greenhouse efficiency. The NABERS tool was
developed by the (then) Commonwealth Department of Environment and Heritage.
However it is administered and managed by the New South Wales Department of
Environment, Climate Change and Water.[52]
1.53
The operation and development of the NABERS rating system is overseen by
the NABERS National Steering Committee which is comprised of representatives from
Commonwealth, state and territory governments, with the Australian Sustainable
Built Environment Council as an observer. The NABERS system is available accross
Australia, with accredited assessors in every state and territory.[53]
1.54
The NABERS website describes the benefits of the NABERS rating system:
[NABERS] is specifically tailored for existing buildings,
and...measures relevant impacts during the operational phase of buildings. This
approach has a number of benefits, including:
- NABERS provides a rating of the
things that a building owner/operator can reasonably assume responsibility for,
rather than items that were decided possibly by another party many years ago
and cannot be easily changed; and
- As NABERS is based on actual
measured performance rather than on prescriptive design parameters, it is
complementary to expert design tools and design-based ratings systems. [54]
1.55
One of the key issues raised during the committee’s inquiry was whether
the NABERS rating system is the most appropriate tool for the scheme. This
issue is discussed in chapter 2.
Lighting
1.56
The second part of a BEEC relates to lighting. Officers from the
department explained that after the base energy efficiency of the building,
lighting is the 'next most important element' in terms of energy usage.[55]
Mr Mark Davis, Director, Commercial Building Performance Team, Department of
Climate Change and Energy Efficiency, stated:
In terms of total energy used by a building, you can
basically split it fifty‑fifty between the base building and the tenancy.
We are capturing the base building through the star rating; that is the first
component of the Building Energy Efficiency Certificate. As to the second
component, the tenancy: of the total energy use, the lighting is the
predominant factor.[56]
1.57
At the time of the committee's public hearing, the precise tool for
determining the energy efficiency of a building's lighting had not been
resolved.[57]
The committee understands that the government was, at that stage, in the
process of consulting with industry on the proposed lighting tool. During the
public hearing, Mr Peter Verwer, CEO of the Property Council of Australia,
expressed concerns about the government's proposed system for measuring
lighting.[58]
These concerns are discussed in chapter 2.
Guidance on improvements
1.58
The third aspect of a BEEC is proposed to be guidance on how the energy
efficiency performance of a building might be improved. The Bill specifies that
the kind of guidance included in a BEEC will be 'determined by the secretary by
legislative instrument.'[59]
1.59
The Explanatory Memorandum states:
It is expected that the guidance will be generic and designed
to initiate investigation of specific improvements that may be carried out on a
particular area of a building.[60]
Assessments and assessors
1.60
Only accredited assessors may perform assessments of a building’s energy
efficiency under the scheme. Part 3 of the Bill sets out how assessors may
apply to the department to become accredited for the purposes of the scheme,
and those persons who are not eligible to become assessors.[61]
Clause 27 provides that the regulations may prescribe conditions of
accreditation.
1.61
Assessors may be suspended for failing to carry out proper assessments,[62]
and it is an offence for a person to falsely hold themselves out to be an accredited
assessor.[63]
1.62
The Bill also provides for the auditing of assessors by an 'auditing
authority', which is appointed by the secretary of the department. The auditing
authority will be responsible for ensuring that:
(a)
accredited assessors properly apply the assessment methods and standards
determined by the Secretary; and
(b)
assessments are not influenced by any conflict of interest.[64]
1.63
Auditors are required to have relevant skills and experience, and to
carry identity cards issued by the department.[65]
Auditors have the power to enter premises with consent, or a warrant, observe
activities carried out in the building, monitor accredited assessors and
require assessors to produce documents.[66]
1.64
Auditors also have certain obligations, such as informing building owners
and seeking their consent. These are set out in Division 3 of Part 4 of the
Bill.
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