The white, green and black of energy

With the inclusion of a National White Certificate Scheme in the coalitions CPRS amendments, we need to ask what is it? And what is it good for?

Australia’s stationary energy sector is responsible for more than 50 per cent of Australia’s greenhouse emissions. Government policy to transition our energy sector from carbon high to carbon lite is the key to protecting both our economy and the environment.

Internationally there is consensus: the least cost and most economic secure path to a sustainable energy future is aggressive energy efficiency (the white), permanent shift to renewable energy (the green) and strategic use of fossil fuels (the black). But this is not currently the direction the energy market is taking us.

The energy market was deregulated in the 1990s and before greenhouse abatement was a priority. It is a commodity market and generators and retailers profit by selling more energy (either green or black). The challenge is to “decouple” energy sales from energy services.

Energy sales and energy use is growing at about 2 per cent per annum. Sure, this reflects economic and population growth but it is also growth in energy waste. Australia is the bottom of the class when it comes to energy efficient economies. We could learn from California, where they have been maintaining high levels of economic growth and yet they have stabilised energy growth.

A compounding problem is that our growth in renewable energy generation is much less than 2 per cent. Consequently, the additional growth in demand is not even being met by green generation but by black generation. So despite almost ten years of a green target, renewable energy is losing market share.

Without aggressively pursuing energy efficiency, the renewable energy target will continue to chase a receding target and there is also a risk the oldest and dirtiest coal-fired power stations may remain in operation even with a CPRS. So we could end up with the same level of emissions and the same generation mix but just be paying more for it.

Aggressive energy efficiency is the rationale behind the White Certificate Scheme (WCS). A WCS is the “white” policy patch on the energy market, which would allow energy retailers to make a profit from energy efficiency. Energy efficiency becomes another commodity to be sold and marketed to clients (householders, businesses, commercial properties and industry). The other difference with WCS is that inefficient appliances must be retired: that 2nd fridge which is belching in the garage that we kid ourselves is keeping the beer cold will have to be unplugged and go.

WCS had its genesis in Australia with the New South Wales Greenhouse Abatement Scheme in 2003 and a strengthened WCS was proposed as part of the COAG endorsed National Framework for Energy Efficiency in 2004. While the recommendation was for a national scheme this was not supported by the Howard government. The South Australian, New South Wales and Victorian governments went ahead with state-based schemes as energy security measures. A national WCS would be an opportunity to harmonise the state schemes but also an opportunity to include Queensland which is struggling with large growth in energy demand.

The green, black and white markets are distinct and not fungible. The black ETS market has carbon intensity measured at the smoke stack; the white energy efficiency market is measured at the meter. The green renewable energy market is carbon neutral generation and includes commercially competitive renewable energy technologies such as wind, hydro and solar. Each market has its own cost curve and technologies.

WCS is also an opportunity to help the ailing Renewable Energy Target which is currently experiencing a market price collapse. Current REC price is $28: enough to deliver investment in solar water heaters but not enough for the more expensive renewable energy of wind, solar thermal or geothermal. Water heating was a contentious inclusion in the green market. It has long been argued that water heaters are an energy efficiency measure. A better outcome would be to take water heaters out of the green market and include them in the white market (and building codes).

With the time frame we have to decarbonise our energy sector we need to push on each of the three policy fronts - the green, black and white - at the same time.

Other governments have taken this approach. The European Union, the United States and the United Kingdom are just a few examples:

• Europe Union through the “20, 20, 20 by 2020”: 20 per cent reduction in GHE, 20 per cent increase in renewable energy, 20 per cent improvement in energy efficiency by 2020.
• USA with the California loading order and the Waxman Markey Bill.
• UK and its recent Energy White paper.