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Sustainable buildings and energy efficiency

Estimates & Committees
Scott Ludlam 25 Feb 2011

ENVIRONMENT AND COMMUNICATIONS LEGISLATION COMMITTEE 
MONDAY, 21 FEBRUARY 2011

Senator LUDLAM-We can try. I am referring to question No. 68-actually this dates back to May, so this has been around for a while. I was interested in the potential energy savings that we could get from rolling six-star and higher energy efficiency across the building stock of the country. You undertook to come back and provide to us some construction cost estimates that were then balanced against energy savings over the lifetime of the dwelling. Are you aware of that?

Mr Bowles-We would need to take that on notice. I do not have a copy of the May answer; we would need to take that on notice.

Senator LUDLAM-It was provided quite a while later. I might just provide you with the reference and then come back later in the session once you have it in front of you.

Mr Bowles-We will see if we can find it.

Senator LUDLAM-It is right here; I will provide it for you.

CHAIR-Mr Comley, can I ask about some process issues.

Senator LUDLAM-It is right here; I will provide it for you.

CHAIR-Mr Comley, can I ask about some process issues. The National Partnership Agreement on Energy Efficiency is a COAG document. What role does your department have in that agreement?

Mr Comley-The principal role we have-and Mr Bowles may want to comment-is as chair of a Senior Officials Group on Energy Efficiency that tries to bring together the Commonwealth and all the states and essentially monitors progress against the National Strategy on Energy Efficiency. That is the principal input we have. We also are responsible for, if you like, whole-of-government briefing on matters related to that national partnership agreement.

CHAIR-There is a whole range of outcomes that go to this COAG agreement, assisting households and business to transition to a low-carbon future. I asked a question earlier about clean business, and that is under AusIndustry in another department. Then you have the Clean Energy Initiative, which is under Resources, Energy and Tourism. How do they manage all these different energy efficiency programs? I was confused about who was actually handling them, so how can an ordinary punter out there understand where we are going with this?

Mr Comley-We have sympathy. Essentially we have overarching responsibility for energy efficiency policy. There are a number of delivery arms that sit throughout the Commonwealth. The formation of the Department of Climate Change and Energy Efficiency removed one of those separations because it brought the Home Insulation Program and a range of other energy efficiency programs together. But it is still the case that the industry department and Resources, Energy and Tourism, principally, do have their own programs, because in that machinery of government change we did not fully take ownership of industrial energy efficiency and some business energy efficiency. So we try to coordinate at the Commonwealth level and we provide the principal interface between the Commonwealth and the states. But it is true that there is still more than one portal to the energy efficiency space in the Commonwealth.

CHAIR-Senator Ludlam asked earlier about transport efficiencies. What is the balance between what you can achieve in transport efficiencies and what you can achieve in efficient business operations on climate change and energy efficiency?

Mr Comley-That question of where Australia should direct its effort is appropriately within the Department of Climate Change and Energy Efficiency. When we get to the point of asking how you give effect to that, then we would have to work in partnership with the relevant department-for example, in that case, the transport department; or it might be on the delivery arms in the industry department or Resources, Energy and Tourism. There we may have a view about the best place to explore opportunities but we then have to work in partnership with those other departments.

CHAIR-And is it your job then to take that back through the minister to COAG and the Prime Minister?

Mr Comley-It depends on the nature of the agreement-the nature of the policy you are talking about. We have to be a little careful here. In the sense that you set up a department of climate change you can look at things through a climate change lens. Many other things have other co-benefits and other examples. So really it is horses for courses as to what is the most appropriate ministerial council to take that through if it is a Commonwealth-state issue.

CHAIR-And making buildings more energy efficient-where does that land?

Mr Comley-The current arrangements are in some flux. In the previous parliamentary term there were
working groups set up under COAG. In that case that was driven by Minister Wong, who was the chair.
Sometimes that can be done through other ministries. So those COAG arrangements are in flux. There is still consideration of the architecture of COAG happening within government, because there has always been a desire to rationalise the number of COAG bodies. So then that will be resolved in the rationalisation of COAG bodies.

CHAIR-Does each state have an equivalent to your department?

Mr Comley-Not every state. Some have environment departments, others have climate change areas, others have energy and climate change-there is a mixture. And that is in fact one of the challenges of putting together an appropriate ministerial council or governance body, because there is not a one-to-one analogue across the various states. And that is why last parliamentary term the COAG working groups had representations from central agencies as well as line departments dealing with climate change matters. That was partly to try to get whole-of-government coordination within the states.

CHAIR-I am just wondering-given the complexity of dealing with COAG, other departments within the Commonwealth and the states-whether there is an approach being looked at to try to pull it together.

Mr Comley-There is. To be honest, though, it is a challenging task because of those complexities to try to have whole-of-government coordination. The government has produced climate change budget statements from time to time and they try to pull all the programs together and give an overall sense of what the activity on climate change is. Every time you look at one of those statements you are struck by the absolute breadth of programs involved. That is just at the Commonwealth level. I think that earlier today reference was made to the Wilkins review of all the programs, which showed a breathtaking range of programs at Commonwealth and state level. So we do try to coordinate that but I am not pretending that it is an easy job or that we have necessarily nailed that completely.

CHAIR-And COAG are continuing to work on that?

Mr Comley-COAG are but, as I said, the arrangements for COAG are somewhat in flux. At the moment we still chair a body called the Senior Officials Group on Energy Efficiency. That, in fact, has a stocktake of all the energy efficiency measures that have been committed to under the National Strategy for Energy Efficiency and tries to monitor progress against those milestones. That is probably the key officials-level group that tries to see how we are tracking with these various energy efficiency initiatives.

CHAIR-I note there was some commentary about the range of programs out there and the cost to the community generally of those programs, and that a carbon price, if it was implemented, would be a much more efficient and effective way than some of these programs. Is there duplication in programs that you have come across between state and federal?

Mr Comley-There is unquestionably some duplication. Again, the Wilkins review did a fairly comprehensive review of this, which is now on the public record. One of the issues, though, in terms of phasing is that whilst a carbon price will make some of those programs redundant, states have expressed the view in the past that they are reluctant to abolish them until such time as they actually see a carbon price. So there is a bit of a chicken and egg here. The idea put forward by some that you would do a significant clean-up of these programs in advance of a carbon price is something that, at least in my discussion with the states and territories and some stakeholders, has very little traction until they sort of see the colour of the policy.

CHAIR-So it is a pretty complex job to pull it all together?

Mr Comley-It is very complex and it is something that, in terms of sequencing of resources, there is some benefit from. Many states are mindful of the need to clean up inefficient programs. But there are a lot out there. It will just take some time.

CHAIR-What programs, in terms of energy efficiency, does your department deal with directly? I have mentioned two programs-clean business and clean energy-and you do not deal with either of those big, important programs. I am just a bit worried that there should be some overarching approach there.

Mr Comley-Mr Bailey might want to comment, but an example of where we have regulatory responsibility is the minimum energy efficiency standards for appliances. So legislation-

CHAIR-Is that the sticker?

Mr Comley-It is a combination of the sticker, which is almost trying to pull it up, and getting rid of the bottom end of appliance distribution so that you effectively get the very inefficient appliances regulated out of the market. Then the stickers are information to try to take people up to the top end of the spectrum, and then
you have to define standards. So effectively the star ratings evolve over time. That is an example of an energy efficiency program that sits within the department.

Mr Bailey-In addition to those comments that Mr Comley made about appliances, the department is also quite active in the area of commercial building energy efficiency and has a range of measures and activities relating to energy efficiency disclosure. That is an activity that comes out of the COAG National Strategy on Energy Efficiency. Late last year a disclosure regime came into force relating to buildings that are being sold or leased and the declaration of energy efficiency of those buildings.

CHAIR-I notice that in the UK, and I would say in Europe generally, there are standards for glass on buildings. Do we have national standards for glass in terms of energy efficiency?

Mr Bailey-I am not sure whether we have standards with respect to glass, but these disclosure standards that are being introduced now relate to the overall efficiency of the building rather than any one building component.

Mr Comley-In terms of the building standards legislation that is coming through, at the moment it focuses just on appliances that use electricity but there is a legislative framework that is intended to be extended to things like glass so that we actually have a national framework for both electricity-using items and other items that have a climate change emissions reduction benefit.

CHAIR-A building friend of mine says it is cheaper to put glass in than it is to build a double-insulated brick wall. So you have houses facing west with masses of glass. This really is a design standards issue. Is that being dealt with anywhere?

Mr Comley-Mr Bailey may correct me but I believe that that goes down to state planning regulations as to what you can do. It also comes, I think, to the issue that Senator Ludlam has raised as to whether you would mandate certain star ratings of buildings. Star ratings include things like the orientation of the house, how much solar access it has et cetera.

Senator LUDLAM-The figures that you provided to us had a bit of editorial around them. They came back with the answer that the RIS noted that the cost estimates are conservative-they are not low or least cost but they are at least what was modelled over that period. To me they look a bit dodgy, if I can put it that way, for reasons similar to those the Chair was just outlining. They do not include things like orientation, design material selection and so on. So when can we expect these fairly basic things to be included in minimum standards?

Mr Bowles-Senator, I am not an expert by any stretch of the imagination on these things. I am happy to go away and try to answer your questions on notice, but these were the figures used in the RIS at the time. I do not think I would quite characterise them as dodgy. They were the best available at a particular point in time to develop those costings.

Senator LUDLAM-Okay. But the department or whoever has returned this answer has still seen it as
necessary-and I appreciate that they did that-to point out that these estimates are conservative: that they are not low cost or least cost by any means, because so much is left out. So it feels like there is still-

Senator Wong-Senator, that is not an unusual caveat, because in the assessment of the impost or the cost of a particular measure obviously there are limitations on what you can factor in in terms of how people's behaviour may change. So when RISs are done-and obviously in Finance a lot of this comes to us-there are assumptions that have to be made and these sorts of caveats are not particularly unusual. I am not trying to obfuscate; I am just explaining to you that someone has to make a judgement about what their base assumptions are for a cost analysis.

Senator LUDLAM-Okay. What I think we specifically asked for was the net impact of going from five star to six star, and they looked at a couple of different-

Senator Wong-Sorry, the net impact?

Senator LUDLAM-Yes, the net impact of the five-star to six-star changes. What those tables are telling us is how much it costs to install and what you get back over the lifetime of the building. What was the lifetime of the dwelling in the case of this study?

Mr Bowles-We would need to take that on notice, Senator. I do not know and it is not evident from

Senator LUDLAM-No, it is not. So, if we are going to go back and take a look at that, I am interested to know what the lifetime of the dwellings were and whether discounting has been used to discount future benefits or not.

Mr Comley-Just looking at the answer, there is a link to the actual RIS. I am not sure what more we can do. We will just be going to that regulatory impact statement, which will have that information in it.

Senator LUDLAM-Sometimes these things are the size of phone books and mostly written in maths. I will go back and have a look.

Mr Comley-So they are clear. They are not obfuscating with those nasty words.

Senator LUDLAM-I guess the reason that I have picked this up and wanted to draw your attention to it is that there was work done for the Commonwealth I think in 2003-04. It was early work that was done for the Ministerial Council on Energy. It said that, by installing energy efficiency techniques and technologies with an eight-year payback, you could actually get 60 or 70 per cent reductions in energy in residential dwellings. It has been a while since that work was done, but that does not really seem to square. In this case you could just take an economically rational point of view and say: ‘Let's just not bother. It's actually not worth going from five to six stars because we'll never recoup our money'.

Mr Comley-That 60 or 70 per cent seems really very high. My recollection of the cost, which is what is here, is the cost-benefit analysis from five- to six-star was location-specific. It was not a clear- least in straight economics, before you go to the shadow carbon price or some other valuation of the environment. That 60 or 70 per cent seems like a very high estimate to me.

Senator LUDLAM-What you could maybe help us pull out, then, is what the estimated lifetime dwelling was for that study and whether discounting was used to basically eliminate or discount future benefit, because that is not clear to me on my reading.

Mr Comley-We can check on that, but I would be very surprised and it would be highly unusual not to discount the benefits, because they occur at a different time to the capital costs.

Senator LUDLAM-And that is how we are managing to not pick up the benefits of energy efficiency, because we assume a power bill avoided in 10 years' time is worth nothing.

Senator Wong-It is not worth nothing.

Senator LUDLAM-No, and that is why we have not bothered to retrofit our housing stock and we are still paying high energy bills, because economists tell us: ‘Don't bother doing it now. It's not rational; it's notworth it'.

Mr Comley-But, at the risk of being slightly flippant: would you like to give me $100 and I will give it back to you in 10 years' time? You are not indifferent about when you get the $100.

Senator LUDLAM-I am not indifferent, but what if we found some way of capturing that. This is a very old issue and we are not going to solve it in an estimates committee hearing. But it means we are continually turning our backs on energy efficiency. I believe that study done for the Commonwealth predicted that, on eight-year paybacks, by which time you have discounted the future benefits substantially, we could eliminate energy bills, or 70 per cent of our energy bills. And we have economists telling us not to bother, because of six-star?'. There are really sound reasons for doing that. But, if you discount the future benefits, they do not show up in the table.

Senator Wong-So the judgement is obviously whether the benefit outweighs the cost.

Senator LUDLAM-Yes, and that is why we undergo schemes like the home insulation one, where we say, otherwise no-one is ever going to afford to capture those future benefits'. Anyway, I will leave it there. Obviously, we are not going to solve this one tonight. But, if it is possible for you to pull out for us how much the future benefits were discounted at least, that would be helpful.

Mr Comley-Sure.

Senator BIRMINGHAM-Speaking of schemes of questionable benefit, can I go quickly to Green Loans and, of course, Green Start, which never quite started. Mr Hyland, your General Counsel wrote to a person or persons on 25 January in relation to claims that had been made under the Scheme for Compensation for measures that it announced when closing off Green Start and Green Loans, the CDDA scheme claims would be discontinued. Can you tell me who made that decision?

Mr Bowles-With the introduction of a scheme like the Financial Assistance Scheme under the Green Loans program, as soon as you establish the scheme, there is something that is available to be used under that particular program, therefore you basically do not have a CDDA claim. CDDA claims are a last-resort option that people can use. What the government has decided to do in this case is establish a financial assistance scheme. Anybody who fits the conditions or guidelines of the Financial Assistance Scheme can apply and be assisted under the scheme.

Senator BIRMINGHAM-So, if you think the compensation available to you under the Financial Assistance Scheme is inadequate, there is no capacity to make a CDDA application above and beyond that?

Mr Bowles-That is correct. To even get to a CDDA claim it means that there is no legal claim on the department. So there is no legal right to anything. A CDDA claim is one where you have no legal ability or no other mechanism for getting redress; you can apply for a CDDA claim. As I said, the government decided in this case to provide a scheme, called the Financial Assistance Scheme under the Green Loans arrangement, for uncontracted assessors. Therefore, they have a clear way in and a clear understanding of what they get for that.

Senator BIRMINGHAM-And the government has clear advice that the establishment of the Financial Assistance Scheme negates the prospect of any successful claim under CDDA?

Mr Bowles-Yes, Senator. As I said, CDDA is a scheme that is a last resort. If you want to boil it down, it s a moral issue.

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