Australia Lagging Behind in Energy Policy

The World Energy Council (WEC) has released its third annual survey of global energy policies, ranking countries on a number of criteria. Australia comes in 22^nd overall, towards the bottom of major developed countries. First is Switzerland, followed by Sweden, Germany, Canada and Norway. Australia ranks just behind New Zealand and the Netherlands, and just ahead of Russia and the Philippines.

The report looks at each country’s energy and climate policy, with a view to identifying key areas for policy improvements and to understand how successful policies can be transferred from one country to another. The WEC's definition of energy sustainability is based on three core dimensions – energy security, social equity and environmental impact mitigation. The goal of the annual Index is to understand and provide high-level insights into a country's likely ability to provide a stable, affordable and environmentally sensitive energy system.

The countries in the Index fall into three main groups. Australia is in Group One – countries where energy is highly affordable (often through subsidies), and which have weak performance on energy security and environmental factors. Other countries in this group include China, India, Libya, Saudi Arabia and Turkey.

Group 2, of mostly developing countries, has low energy usage per capita and a low impact on the environment. Group 3, which comprises most developed countries, has balanced energy policies and strong energy equity.

Clearly, Australia’s performance is very poor. But why should we care? WEC's Energy Sustainability Index ranks the energy sustainability performance of the 93 WEC member countries, and some other countries. Australia is the not a member, but it is in good company – neither is Somalia, Sudan, Mauretania or Nicaragua.

Two speeds of carbon disclosure

The Carbon Disclosure Project (CDP) has released its 2011 Australia-New Zealand report, the sixth such annual local effort. This year exactly half the companies in the ASX 200 companies responded, but 73 of these were from the ASX 100 – only 27 from the bottom 100 made the effort. In New Zealand 42 of the NZX 50 responded.

Some highlights from this year’s report:

•  The response rate in ANZ is much lower than the Global 500 response rate of 81%.

•  Total Scope 1 (direct emissions) carbon emissions (CO₂e) from reporting companies in 2010 were 114 Mt, down from 140 Mt in 2009. But the reduction does not mean ANZ companies are emitting less – most of the reduction is because large emitter Bluescope Steel reported in 2009 but not in 2010.

• Nearly half the Scope 1 emissions (47 Mt) are from just two companies – BHP Billiton and Rio Tinto.

• Scope 2 emissions (indirect emissions – almost all is electricity usage) nearly doubled from 2009 to 2010, from 70 Mt to 128 Mt.

•  Only one third (36%) of respondents have had their emissions independently verified (the CDP relies on self-reporting).

• Only 4% of reporting companies said that carbon pricing is a high impact risk. “The carbon pricing results contrast sharply with media statements made by a number of companies and industry groups about the business impacts of carbon pricing.”

The report says there is evidence of a two speed business response to climate change in Australia and New Zealand, with the financial sector improving and other sectors mostly lagging.

Early this year the CDP established an office in Australia (in Sydney) to manage its Australasian programs. These include encouraging more companies to report, and expanding its consultancy programs, in conjunction with Deloitte Touche Tohmatsu.

The results are consistent with the findings of Connection Research’s report Australian Carbon Ratings, published in August 2011 in conjunction with SuperRatings. That report looked at the carbon emissions of the ASAX 100, using some data from the CDP and modelled emissions of non-reporting companies, comparing the impact of a carbon price to companies’ profitability. Total carbon pricing liability will be less than 3% of company profits – before any compensation.

This year’s Australia New Zealand CDP results show that, with few exceptions, there is still comparatively little activity from many Australia companies when it comes to emissions reduction or preparation for the effects of climate change. But then, that can be said of the world as a whole. There is lip service, but absolutely no sense of urgency.

Household TV and Computer Usage

Last week we reported on the new Australian Bureau of Statistics (ABS) data on household energy usage. The report also contains significant data on the usage of electronic devices. The data complements the findings in Connection Research’s recent Interconnected Home report, which asked many of the same questions, though of a smaller sample size. Combining the two sets of data and analysing other responses in the Interconnected Home report, some key trends emerge:

• Television usage is universal – more than 99% of households have at least one, and the average household has two. Around 60% are old style CRT TVs, and around 40% are flat panel TVs (mostly LCD or plasma).

• About one quarter (25.2%) of homes have a surround sound home theatre system. Most homes (83.0%) have a DVD player or recorder. But the figure has declined from 87.3% five years ago. The decline is most likely due to the increased popularity of internet downloads of movies and TV show

• The proportion of homes with a desktop computer has declined from 59.7% to 54.6% over the last five years, but the proportion with a laptop computer has grown from 38.1% to 60.9% over the same period. Nearly 90% of households have at least one PC.

TV and PC technology is merging. They will always be separate devices (the “lean forward” versus “lean back” experience), but they both have flat screens, and they are both increasingly connected to the internet. That is already the norm with PCs – many applications rely on internet connection. It is also becoming much more popular with TVs, which are increasingly downloading content from the internet, often with the PC as an intermediary.

Many TV stations offer the availability of downloading or streaming from the internet shows that the viewer may have missed. The availability of devices such as Apple TV and the usage of services such as Telstra’s T-Box or Optus’s new MeTV has made “shift viewing” less important.

Watching TV via the internet, whether the content is streamed or downloaded legally or illegally for later viewing, is changing the viewing habits of millions of Australians. The trend will continue. Pay TV penetration in Australia has peaked at about one third of households, and as many people are now discarding Pay TV as are taking it up.

Digital transmission has all but supplanted analogue. Most households now have a digital TV or a set-top box, and the last analogue signals (in Melbourne, Adelaide and Sydney) are scheduled to be turned off at the end of 2013. They already have been in many regional areas of South Australia and Victoria.

The TV world is changing. In fact, it has already changed. But what is not changing is the amount of energy all these devices are using. They are becoming more energy efficient, but the number of devices is increasing, and so is their usage.

TVs and PCs and their attendant equipment already make up more than 20% of the average household’s electricity usage – half as much again as HVAC (heating, ventilation and air conditioning), nearly twice as much as refrigeration, and three times as much as lighting.

It all comes at a price.

Make them pay

As Australia struggles with the inherent contradictions in its electricity pricing policy, many European countries are putting in place policies which reward energy utilities for reducing customer demand.

Australian distributors and retailers are required by the Australian Energy Regulator (AER) to encourage the usage of renewable energy sources like solar PV cells and reduce demand through demand side response (DSR) mechanisms. In practice they do little to encourage such practices, because their revenue and profitability is tied to increased energy consumption.

Many observers have pointed out the inherent contradictions in these perverse incentives, but little is being done about it. In Europe, things are different. McKinsey & Company, in its most recent McKinseyQuarterly, entitled “Winning the battle for the home of the future”, explains what is happening.

The report looks at changes in three factors: technology, regulation, and consumer behaviour, which it says will transform the residential energy market in the coming ten years. “To succeed in this new environment, utilities must place fine-grained bets on the segments where they can best create value for themselves and develop winning capabilities beyond their traditional business, often by seeking partnerships with companies from other sectors.”

McKinsey conducted research across four countries: the UK, Germany, Italy and Sweden. The report explores three scenarios, where each of the three factors is implemented incrementally, aggressively, and to the extent that homes become energy-neutral. These are then quantified.

The analysis shows that most of the potential energy savings will come from better building materials and the use of centralised systems such as heat pumps that will handle all heating and cooling in the home, including refrigeration. Smarter appliances are another important factor, with changed consumer behaviour through such technologies as smart meters comparatively unimportant.

But an important aspect of the analysis is McKinsey’s observation that utilities have a conflict of interest in promoting energy efficiency – which is exactly the case in Australia today. That calls for new business models, which are already being developed. The report gives some examples:

“Developing or acquiring new capabilities will be essential for utilities as they move beyond their comfort zones. They must, for example, help customers overcome the investment barrier by providing financing options through partnerships with banks or by creating internal financial units. Many players also realise that they have to join hands with other new entrants to cover the value chain effectively. The pan-European utility RWE, for example, has announced partnerships with a range of players, including Microsoft and EQ3 (for a central control unit linking all appliances) and Renault (to test the performance of electric vehicles in Germany’s commuter traffic). British Gas collaborates with the UK grocery retailer Sainsbury’s. Under their partnership, consumers can purchase energy-management products (such as solar panels and insulation) in a supermarket and British Gas installs them.”

The transition will not be easy. But it is necessary. Australian utilities should act now to pre-empt regulatory coercion that will force them to help consumers reduce energy consumption – which is bound to happen. Those that move early will reap the biggest benefits in the long run.

Household Energy Usage

Every three years the Australian Bureau of Statistics (ABS) publishes data on household energy usage. The latest data was released yesterday (24 October 2011). It is based on a detailed survey conducted in March 2011.

The ABS data has comparatively small margins of error – it has large sample sizes and uses a consistent methodology from year to year. This survey has now been conducted in 2005, 2008 and 2011, allowing for comparisons over time.

Some highlights from the report:

• The majority of Australian households had some form of insulation (69%), from a high of 81% in the ACT to a low of 44% in the Northern Territory. The figure increased from 61% in 2008 to 69% in 2011.

• Six in ten (61%) households owned at least one laptop computer in 2011, up from 38% in 2008, while those with desktops have dropped from 60% to 55%.

• Front loader washing machines are becoming more common. They are now found in 31% of households, compared to just 13% in 2005 compared to 31% in 2011

• When purchasing selected electrical appliances in the last year, around half of all households considered energy star ratings.

• Nearly half (48%) of households use mains gas. Mains gas as a source of energy inside dwellings is most common in Victoria (82%). A higher proportion of households in capital cities (63%) use mains gas compared with 23% outside capital cities, where LPG/bottled gas is more common (29% of households, compared to 10% in capital cities).

• Just over half (52%) of hot water systems in Australian households are electric, and around a third (36%) use mains gas. Less than one in ten (8%) are solar powered (8%). The Northern Territory has the highest proportion of households with solar hot water systems (46%) followed by Western Australia (21%).

• Over a third (37%) of Australian households uses electricity as the main source of energy for heating, while just under a third (32%) uses gas. One in ten households still uses wood as the main source of energy for heating (10%).

• The proportion of households with a cooler in use (either a refrigerated air conditioner or an evaporative cooler) increased from 59% in 2005 to 73% in 2011.

The figures are consistent with Connection Research’s survey data, as most recently published in The Interconnected Home report. Usage of all manner of devices and appliances is rising – a later SER posting will detail usage of electronic devices.

The Newsweek 2011 Green Rankings

Newsweek has released its third annual Green Rankings, a rating of the top 500 public companies in the world, based on their environmental credentials. Australia does very well, with National Australia Bank coming in third overall (behind Munch Re and IBM).

Actually, it is Australian banks who do well – after NAB, ANZ is number 5, and Westpac is number 18, with Commonwealth Bank on number 76. Four other Australian companies rank in the top 500 – Woolworths (146), Telstra (207) Wesfarmers (300) and Rio Tinto (322).

ICT companies also do well. After IBM in second spot are Indian companies Tata (7) and Infosys (8), then Bell Canada (12), Fujitsu (13),  HP (15) and SAP (20) all in the top 20. Companies you might think would do well are a little further down – Apple is on 117 and Google is on 134, both below Microsoft on 91. Apple, which loudly boasts of its green credentials but is also known for its secretiveness, is let down by a very low score for disclosure.



Newsweek’s article comments on the fact that while government efforts in sustainability have gone backwards in recent years (except in Australia, where the carbon price receives a favourable mention), private industry is becoming more sustainable.

“Top-ranked companies are approaching green projects with increasing tenacity, even in this weak economy. Corporate sustainability, it seems, is here for the long haul—it makes sense not just for the sake of the planet, but for business.

“For corporate executives, what matters is that waste cuts into profits, and that reducing wasted energy, for example, curbs greenhouse-gas emissions while bolstering the bottom line. We face a future in which resources that were once taken for granted—water, land, minerals, fossil fuels—will be limited and costly. Preparing now to succeed in—and even profit from—that difficult future could make all the difference.”

That is true, but there are signs, at least in Australia, that sustainability is wearing just a little thin in the corporate sector. NAB does very well overall, but it has recently outsourced many of its sustainability activities, and many other organisations have downgraded their internal sustainability function.

To produce the 2011 Green Rankings, Newsweek collaborated with leading environmental research providers, Trucost, and Sustainalytics to assess each company’s environmental footprint, management of that footprint, and transparency. Companies are ranked by their overall Green Score. This score is derived from three component scores: an Environmental Impact Score, an Environmental Management Score, and an Environmental Disclosure Score; weighted at 45 percent, 45 percent, and 10 percent, respectively. All scores are out of a possible 100.

GHG Protocol Releases Scope 3 Accounting Standard

The Greenhouse Gas Protocol group has launched its new Product Life Cycle and Corporate Value Chain Standards. The standards were developed through a three year global multi-stakeholder process that included more than 2,300 participants and were road-tested by 60 companies in 17 countries.

The Corporate Value Chain Standard is the first standard that organisations can use to assess their full Scope 3 carbon emissions up and down the supply chain and identify the most cost-effective ways to reduce emissions. The Product Life Cycle Standard enables organisations to measure the greenhouse gas emissions of an individual product all the way from raw materials through use and disposal, and identify opportunities to increase efficiencies, improve product design, remove risks, and achieve emissions reductions.

The Greenhouse Gas Protocol group (GHG Protocol) is the most widely used international accounting tool for quantifying and managing greenhouse gas emissions. It is a partnership between the World Resources Institute and the World Business Council for Sustainable Development, and is working with businesses, governments, and environmental groups around the world to build a new generation of credible and effective programs for tackling climate change.

It provides the accounting framework for nearly every GHG standard and program in the world – from the International Standards Organization to The Climate Registry – as well as hundreds of GHG inventories prepared by individual companies.

The development of a Scope 3 tool is an important step. Most GHG reporting legislation around the world require only Scope 1 (direct emissions) and Scope 2 (indirect emissions, mostly as a result of the use of grid electricity) to be measured and reported upon. Scope 3 has been excluded because it is difficult to measure or calculate. Without a standardised methodology there is danger of double counting or major miscalculation.

“Scope 3 emissions can represent the largest source of emissions for many organisations,” say the guidelines. “They present the most significant opportunities to influence GHG reductions and achieve a variety of GHG-related business objectives. Developing a full corporate GHG emissions inventory – incorporating Scope 1, Scope 2, and Scope 3 emissions – enables organisations to understand their full emissions impact across the value chain and focus efforts where they can have the greatest impact.”