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The
Natural Advantage of Nations (Vol. I): Business Opportunities,
Innovation and Governance in the 21st Century
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 This
book is about innovation, solutions, competitiveness
and profitability. It is also about building environmental
integrity and sustainability now and for future generations.
It draws a bold vision for the future and tells us
how to get there by building on the lessons of competitive
advantage theory and the latest in sustainability,
economics, innovation, business and governance theory
and practice. The authors incorporate innovative technical,
structural and social advances, and explore the role
that governance can play in both leading and underpinning
business and communities in the shift towards a sustainable
future. The result is nothing less than the most authoritative
and comprehensive guide to building the new ecologically
sustainable economy. (more...)
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Chapter
17 (Part 1) - Energy Systems: drivers for change
Issue
identification[88]
The key energy issues for ensuring nations seize
these opportunities include:
• Development of a culture that makes energy
waste an unacceptable activity (as is being done
with water), and focuses attention on improving
the productivity of energy use.
• Dramatic improvements in the efficiency
with which energy and non-renewable materials are
used, for both new and existing infrastructure and
buildings.
• A shift from traditional, centralized, fossil
fuel-based energy systems to diversified systems
including renewable energy, cogeneration and energy
efficiency improvement.
• Restructuring of energy markets so they
make it more profitable for electricity retailers
to save energy or sell renewables than to sell conventional
fossil fuelsourced energy, and to provide clearer
signals to energy consumers of the costs and impacts
of using fossil fuel-sourced energy wastefully,
while ensuring equitable outcomes.
• Ensuring all new urban infrastructure, buildings
and business expansion are compatible with a low
greenhouse impact future, either through low emissions
when built, or through flexible design so that low
emissions solutions can be easily added as they
become more cost-effective. This might include,
for example, installation of hydrogen gas pipes
to all houses in new developments.
• Utilization of local renewable energy resources
(including wastes) and waste materials to replace
non-renewables.
• Development of targeted energy strategies,
such as management of peak energy loads, identification
of high-energy users, etc.
• Assisting low-income households (many of
whom rent or live in caravans or portable housing)
to reduce energy costs while improving comfort.
• Development of tools needed to help identify
energy waste in buildings and infrastructure, and
to help set priorities for improvement. For example,
rating schemes such as the Australian Building Greenhouse
Rating facilitate benchmarking and targeting of
high energy users, while the Australian Government’s
annual reporting of energy use by agencies[89]
facilitates strategic energy management within the
public sector, and could be applied more broadly.
Policy options
The nature of many decisions related to energy and
sustainable cities is such that their implications
are long term and their impacts are widespread.
But there are numerous positive market based mechanisms
that governments have to assist them. As discussed
in the tragedy of the commons, arguably the most
prominent reasons why markets for ecosystem services
rarely exist are uncertainty about ecosystem processes
and an inability to define and enforce ownership.
But in the case of CO2 and SOx pollution, where
it is relatively easy to identify and measure both
the source and amount of pollution, markets can
be easily created. Point source pollution issues
like NOx, SOx, CFC and greenhouse gas emissions
are the environmental problems that are most suitable
for market creation. Take the experience to date
with trading emissions in sulphur. Just before Congress
approved in 1990 the cap-and-trade system for reducing
sulphur dioxide emissions, industry predicted that
the permit price would settle at US$1650 per ton.
Environmentalists predicted that reductions would
cost about US$330 a ton, or ultimately (said the
optimists) perhaps US$250. The sulphur-allowance
market opened in 1992 at about US$250 a ton; in
1995, it cleared at US$130 a ton. Therefore the
cost of addressing sulphur dioxide emissions has
ended up being over an order of magnitude cheaper
than industry groups predicted.
The success of and experience in SOx market trading
schemes is spurring on many nations to set up their
own national CO2 emission trading schemes modelled
on the successful SOx emission trading schemes.
The UK emissions trading scheme is off to a flying
start.[90]
Nearly 1000 companies transferred over 7 million
tonnes of carbon dioxide during the first year.
The EU will launch a European emissions trading
scheme on 1 January 2005 that will allow regional
governments with trading schemes to join the EU’s
trading scheme. In the US the Chicago Climate Exchange
has been created for any businesses to join to either
sell carbon credits (if they are below agreed targets)
or buy carbon credits (if they are behind set goals).
Experience with market solutions over the past decade
has highlighted that, while they can allocate resources
efficiently, the detailed structure of the markets
and the extent to which they reflect long-term costs
and limit the application of market power by entrenched
interests strongly influences their effectiveness
as policy tools.
It has also been found that regulation can be accepted
in situations where allocation of costs is difficult.
For example, the building industry has worked constructively
with regulators to introduce energy efficiency requirements
into the Building Code of Australia over the past
few years, after resisting such action for decades.
It has also been recognized that market mechanisms
must operate within a regulatory framework anyway,
so the dichotomy between market solutions and regulation
has been found to be a matter of degree. For energy,
the key issue is that most decisions that impact
on energy use are made in a context where the energy
implications are a minor component of the criteria.
The reasons for this include the small cost of energy
as a proportion of total costs, heavy discounting
of future costs, split incentives where the decision-maker
does not pay the energy bills and distortions of
energy prices. Ignorance of the potential for energy
savings is also a barrier, as is the early stage
of development of the sustainable energy industry.
Given these barriers, there are no simple paths
to sustainable energy in urban development. A comprehensive
strategy is required that includes:
• education and promotion in relation to the
benefits of sustainable energy;
• incentives for sustainable energy (which
could include changes to energy markets, taxation,
rebates, etc.);
• funding of pilot projects, for example application
of energy efficiency and distributed generation
to a new mixed use development;
• guidelines (evolving towards mandatory requirements)
for incorporation of sustainable energy into new
developments: for example, a greenhouse budget for
all new buildings;
• development of evaluation and rating tools
and their use to assess eligibility for incentives
and/or application of mandated measures;
• provide information, and address any institutional
information failures;
• enhance industry’s, business’s
and the community’s ability to respond to
market mechanisms and price signals.
A
fundamental problem we face in driving a transition
is that all the regulatory and policy frameworks are
still structured around traditional energy solutions.
To drive a shift we need to:
• carry out modelling projects to help better
understand how distributed systems might work
and what infrastructure they could benefit from
(e.g. local energy storage, advanced meters/voltage
control/load management systems in homes and businesses,
etc.);
• plan several new developments (preferably
mixed used) from the ground up as energy efficient,
distributed generation pilot projects, then build
them and learn from experience;
• in parallel with the above, provide incentives
and assistance to implement alternative models
in targeted existing areas.
How can the uptake of renewable energy for residential
and commercial properties be promoted?
This question is somewhat linked to other questions
in this section. Ideally, packages are needed that
combine energy efficiency improvement and renewable
energy so that overall costs are reduced. However,
capital cost may then be an issue, particularly
where split incentives exist (i.e. the decision-maker
does not benefit from future savings) so schemes
that bring life cycle costs to the point of decision-making
and/or allow the cost to be paid off via energy
bills or mortgage payments are needed. It will be
important to underwrite the risk so that individuals
can feel confident to act.
Along with such schemes there is a need for a strong
innovation/efficiency improvement programme for
products and equipment used throughout the commercial
and household sector, not just a mandatory standards
programme. There are simply too many different kinds
of products and equipment to be able to address
each of them via standards within a reasonable timeframe.
Training of designers and engineers to carry out
quick assessments of energy efficiency potential
of things from coffee makers to pizza ovens to cold
rooms is urgently required, so they can get on with
designing better solutions. It will also be important
to ensure that investments in conventional energy
infrastructure support the future adoption of sustainable
energy options. For example, it is quite feasible
to introduce tougher energy standards for hot water
services to make them compatible with solar boosting.
Solar pre-heaters can then be added to such systems
at any time during their lives at minimum cost.
At present, the solar systems must be installed
up-front when there is often a shortage of capital
or a split incentive situation. Of course, mandating
solar hot water provides another path.
What are the barriers to utilizing renewable
energy sources in residential, commercial and industrial
areas and how might these be addressed?
The aim should be to encourage the adoption of a
mix of sustainable energy options, including renewable
energy, energy efficiency and demand management.
For example, a household that uses less hot water
through water-efficient showerheads, taps and appliances,
needs a smaller solar hot water system than one
that uses water wastefully. A recent study for the
NSW Government shows how a mix of such approaches
can deliver economically attractive outcomes.[91]
Brief overviews of some of the issues are provided
in key works from Watt and Outhred,[92]
as well as Greene and Pears.[93]
Key factors include:
• Energy is a relatively small cost for most
people and businesses (in fact gas and electricity
are, on average, less than 1.5 per cent of business
input costs), and therefore does not attract much
attention.
• Most decisions that impact on energy use
are not understood to be energy-related by the decision-makers:
businesses upgrade a photocopier because they want
a higher speed model or new features, and rarely
realize that this could impact on their energy use.
Even where energy performance is a factor, it generally
rates well-below other criteria such as price, aesthetics,
status, reputation for reliability, etc.
• Split incentives such as the landlord–tenant
problem mean that often those who have to pay for
energy efficiency don’t get the benefits.
• Markets are heavily stacked against energy
efficiency as we now have many highly resourced
marketing groups working for energy suppliers whose
job it is to steal market share from their competitors,
the overall effect of this marketing effort is an
increase in energy use. Further, for energy suppliers,
there is more profit at the margin from selling
one extra unit of energy than from saving it, because
a large proportion of their costs are sunk capital,
which they have to pay for whether it is used or
not.[94]
Also, appliance and equipment markets are biased
in favour of energy waste. For example, a salesperson
selling boiling water units for an office kitchenette
has a vested interest in selling a bigger model
because it provides more profit for the same effort:
but it is also less efficient. Similar pressures
encourage the sale of bigger refrigerators and heating
units and even houses.
Dealing with these barriers will require strong
policy action, technology development, strong incentives
to do things differently, as well as an education
and cultural change programme that makes it clear
that using energy wastefully is foolish. A new paradigm
for the energy sector is showing that efficient
use of energy is vital for nations that wish to
catch the next wave of innovation.
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References
88.
These recommendations are a summary from Alan Pears,
Ch 2 of submission to Federal Government’s 2030
sustainable cities enquiry on behalf of the Planning
Institute of Australia. (Back)
89. DRE (Department of Resources
and Energy) (1987) Energy Demand and Supply Australia
1960–61 to 1984–85, DRE, Bureau of
Resource Economics, AGPS, Canberra. (Back)
90. DEFRA (2003) UK Emissions
Trading Scheme off to Flying Start, Department
for Environment, Food and Rural Affairs, News Release
168/03 12 May, Nobel House, London. (Back)
91. Allen Consulting (2003) Sustainable
Energy Jobs Report: A Report for the Sustainable Energy
Development Authority, The Allen Consulting Group,
Sydney. (Back)
92. Watt, M. and Outhred, H. (1999)
Electricity Industry Sustainability: Policy Options,
Australian Centre for Renewable Energy. (Back)
93. Pears, A. and Greene, D. (2003)
Policy Options for Energy Efficiency in Australia,
The Australian CRC for Renewable Energy (ACRE), January.
(Back)
94. Vine, E., Hamrin, J., Eyre,
N., Crossley, D., Maloney, M. and Watt, G. (2003)
‘Public Policy Analysis of Energy Efficiency
and Load Management in Changing Electricity Businesses’,
Energy Policy, vol 31, pp405–30. (Back)
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