The ERAA commissioned a PricewaterhouseCoopers report regarding public policy approaches to energy efficiency at a household level. The report addresses issues associated with the formation of public policy, while also identifying specific public policy options that appear promising based on international experience.

ERAA Executive Director Cameron O’Reilly said the ERAA commissioned the study to inform government thinking on energy efficiency policy and to bring a retailer’s view to the table.

The range of policy options addressed include: provision of information regarding energy efficiency alternatives; mandatory or minimum building and appliance standards; financial incentives; and, market-based initiatives or certificate schemes.

Improvements for market

The report, entitled Review of energy efficiency policy options for the residential and commercial building sectors, cites two market failures as having the greatest potential to undermine the efficacy of climate change policy – information asymmetry and split incentives.

Information asymmetry refers to consumers’ lack of convenient access to information regarding the range and effectiveness of energy efficiency options. Unavailable information results in opportunities foregone.

The report says that there may be a role for nationally co-ordinated government organisation dedicated to advising consumers on energy efficiency. Such an organisation could provide a powerful focal point for co-ordinating a consistent message to the public and in attracting knowledge and funds from the private sector.

The issue of split or misaligned incentives occurs when those responsible – such as landlords or agents – for selecting or purchasing equipment cannot access the benefits of improved energy efficiency and therefore have little incentive to switch to more energy efficient standards.

Building and appliance standards are seen as an effective method in addressing misaligned incentives and regulating the energy efficiency of newly constructed buildings. The report also states that there is a need to drive energy efficiency improvements within existing building stock.

In addition, the report says that there is a strong case for rolling out mandatory building certification nationally. As well as helping to overcome information barriers, such mandatory certification could be used as a means of incentivising developers to increase the energy performance of buildings.

In some Australian states, standards for energy efficient buildings are already being developed. For example, newly constructed and renovated Victorian houses are to be fitted to a ‘5 star standard’, which refers to a homes that use 50 per cent less energy for heating and cooling compared to houses built before 2005.

A co-ordinated response

The report says that the recent focus on climate change, as well as the expectation of rising energy costs as a result of introducing an emissions trading scheme in 2010, has led to an increased focus on energy efficiency policy at both the state and federal level, with policy makers focusing on the residential and commercial building sectors.

“With the stationary energy sector producing about 40 per cent of Australia’s total greenhouse gas emissions, energy efficiency is considered a cost effective way of both reducing emissions and assisting consumers in adapting to price increases associated with the introduction of emissions trading,” the report says.

However, the report states that this has resulted in a range of unco-ordinated policy responses across jurisdictions, with overlap sometimes occurring. Energy efficiency target schemes for different states are likely to result in higher transaction and compliance costs than a national response. Two new state policies implemented at the start of 2009 include the Victorian energy efficiency target (VEET) and South Australia’s residential energy efficiency scheme (REES).

Mr O’Reilly says “These schemes, in which retailers pay for energy efficient products and services for households in return for tradable certificates, are not unique to Australia…they have been trialled in Europe and, while delivering some results, the European Commission found they had done so with up to 40 per cent of expenses being attributable to transaction costs.”

The report states that policies aimed at improving energy efficiency should generally be based on nationally consistent framework whilst at the same time accommodating the needs of each state and allowing local innovation.

The report also stresses the development of more effective policy through Government and industry co-operation. It says that retailers can play an important role in helping government deliver energy efficiency outcomes, noting that collaboration between government and private stakeholders, such as energy retailers and appliance manufacturers, appears to have been effective in overseas jurisdictions.

Energy efficiency for the future

Outlining the importance of energy efficiency policy as a complementary to the CPRS, the report concludes that a range of responses will be required to address barriers to the uptake of cost-effective levels of energy efficiency, as no single policy option comprehensively addresses all barriers.

Mr O’Reilly says “We see that energy efficiency has a role to play in managing community acceptance of the higher energy prices arising from climate change policy, but we are also keen for outside stakeholders to understand that retailers alone cannot address consumer behaviour nor be held accountable for it.

“Now that we have some detail of the emissions trading scheme and renewable energy target, the third arm of climate change policy – energy efficiency policy – will come into greater focus in 2009. In doing so, it is important that government looks at energy efficiency policy as complementary to the emissions trading scheme and confine themselves to addressing market failures.”

This report can be found at www.eraa.com.au