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.”

The Carbon Price is here

The Carbon Price, aka the Carbon Tax, aka the Clean Energy Bill, aka the Great Big New Tax on Everything, is here. It’s through the House of Representatives and will likely pass the Senate, and then it will be L-A-W.

The opinion columns, the Twitterverse and Blogosphere, the airwaves, and the letters pages are full of real and confected outrage, and not a little congratulation and relief. The vituperation from opponents is astonishing in its spitefulness. Most ludicrous of all is the opposition’s complaint that the legislation was “rushed through” (thank you, Senator Abetz) – rarely has any policy been more widely debated.

Tony Abbot’s schoolyard “blood pledge” that he will repeal the legislation shows a breathtaking disregard for the interests of the business community, who need certainty above all else so they can make realistic investment decisions. The carbon pricing legislation and its related bills should offer that certainty, as well as the opportunity to build the sort of renewable energy industry that Australia and the world will need as we wean ourselves off fossil fuels over the coming decades, but the pettiness of the opposition removes that promise.

The opposition may well win the next election, and may well repeal the laws, but it will most likely take many years and many billions of dollars in compensation – time and money and effort that would be much better spent preparing ourselves for the inevitable move to a low carbon economy.

The strongest arguments against the legislation is the oft-repeated claim that the Prime Minister broke a promise in introducing it. Circumstances evolve, as John Howard found when he introduced his “never ever” GST. John Maynard Keynes once famously said “when the facts change, I change my mind. What do you do, sir?” Most opponents of the carbon price are consistent only in their inconsistency.

But they are right in one thing. This is not over yet. The words that have been spilled – and the blood that will be, if you listen to Tony Abbot – have hardly started to spew forth. It is ugly, and will remain so for some time.

Conspiracy versus Conspiracy

It seems you just can’t keep a good conspiracy theory down. The human mind seems to have an endless capacity to invent complex and sinister plots, particularly when there is ideology or stupidity involved.

Conspiracy theories are nearly as prevalent in the climate change debate as they were about JFK’s death. A group of Chinese scientists has come out saying that the sustainability movement is a rich world conspiracy, so that American companies can sell more renewable technology, or to keep poor countries poor be denying them the opportunities to develop the cheap but polluting industries that helped make the western world so wealthy during the industrial revolution.

An article in The Sydney Morning Herald on 8 October quotes Zhang Musheng, “one of China's most influential intellectuals and a close adviser to the People's Liberation Army” as saying that

global warming is a “bogus proposition”, and that it is an American ruse to sell green technology and improve its economy. So there - climate change is a capitalist plot.

Meanwhile, back in the USA, that hotbed of conspiracy theorists the Tea Party movement is claiming the exact opposite. According to chief Mad Hatter Tom DeWeese, president of the self-styled American Policy Center and one of the movement’s most prominent spokesmen, the whole sustainability movement is a leftist plot to destroy the American Way. Recently they’ve had a go at the innocuous Agenda 21, adopted by 178 governments at the first UN climate summit in Rio de Janeiro way back in 1992. The best summary I’ve seen is from the RNI (Republicans for the National Interest) website.

“Agenda 21 envisions local communities all across our nation adopting ‘comprehensive community plans’ that have as their real, though unstated, purpose the elimination of the very middle class quality of life, that has been the bedrock of our national independence and personal freedoms. In place of the suburb, it wants Soviet-style high density housing; changes in zoning laws that increasingly make it impossible to maintain single family residences (let alone build new ones); mandated use of public transportation … and severe limitations on private food, water, and energy consumption, in return for enormously high taxes that will fund cradle to grave care by the nanny government.”

So there - climate change is a communist plot. Or a capitalist one, take your pick. There is of course a third possibility. It just might be really happening.

Climate Change Denial – Anger in Action

Connection Research conducts many surveys of consumer and business attitudes and behaviours in the field of energy efficiency and sustainability. We try hard to make our surveys as representative as possible, encompassing all demographic groups. That means we get a broad range of views from the people answering our surveys, which is as it should be.

When we ask people their views on climate change, we get representative responses from the 15% or so of the population who deny the science of climate change. This percentage has been fairly constant across our surveys and many others we have seen. Mild scepticism and outright denial is on the rise.

Recently we sent respondents to our Interconnected Home survey a summary of the results, as promised. We received back an angry email from a climate change denier who we shall call AD (Angry Denier). The short note drips with vitriol, and is full of profanity, bad grammar and spelling mistakes. It accused us of manipulating the survey to get the answers we wanted – “I will waist (sic) no time in your pathetic manipulated and dishonest surveys” (full text below).

The email is indicative of the mindset of many of those who deny the reality of a warming planet. They believe the science to be a conspiracy, but are unable to counter with facts of their own. Instead they resort to foul language and personal abuse. Even in his survey response (he did “waist” his time completing it), he referred to us as “you bastards”. The anger is palpable.

Now, this fellow is not representative of all climate change deniers. Many of them are decent, if deluded, people. But they are not, generally speaking, the sharpest tools in the shed. They do not understand scientific method, nor the discipline of risk analysis.

We were glad to receive this email. It demonstrates the existence of a mindset impervious to reason, logic and fact. Such people exist, and they live among us.

Carbon Capture and Storage (CCS) is the technology that aims to reduce CO2 emissions by capturing it when it is produced and storing it so it won’t enter the atmosphere. The technology is unproven and highly contentious, but it has attracted a lot of attention and funding.

The Australian Government has taken a significant lead on CCS, setting up the non-profit Global CCS Institute in 2008 with $100 million in funding. The Institute is also receiving funding from other governments and from corporations with an interest in developing and publicising the technology

Yesterday the Institute published its Global Status of CCS report, an annual exercise intended to summarise CCS efforts around the world. The report is, as you would expect, bullish about the prospects for CCS. It identifies 74 large-scale integrated projects (LSIPs) around the world, of which 14 are operating or under construction. This is down from 77 last year, due to a number of cancellations of previously announced projects. The number at the primary “indentify” stage has halved over the last two years, from 19 to 8, indicating that the number of new projects is declining.

Large Scale CCS Projects, 2009-11

Source: Global CCS Institute

The Institute dismisses these numbers as unimportant – the report says it is not because of the technology, but because of weak economic conditions or the failure of many governments to put a price on carbon. CCS has attracted much criticism as an ineffective solution to reducing carbon emissions. It requires CO2 to be compressed and transported to a storage facility, both of which are themselves carbon-intensive processes.

The Global CCS Institute report has a section outlining the relative costs of CCS with other technologies such as solar. The report concludes that the “avoided cost” of CCS technology in power stations when the technology matures will be in the range of $US68 to $US123 a tonne, compared to more than twice that for PV and other solar technologies.

These prices are purely speculative – no-one knows until the technology matures. By that time the world will be a very different place. But is does show that whatever technology is used, there is a price to pay for reducing carbon emissions. It is one of the great tragedies of the modern world that so few people are prepared to pay this price.