TL: Submission from Greenpeace Australia to Senate Standing Committee on Industry, Science and Technology Inquiry into Generation, Transmission, Distribution and Use of Electricity and Gas. (GP) SO: Greenpeace Australia DT: 1989 Keywords: energy greenpeace australia australasia reports gp electricty gas / Introduction Greenpeace Australia welcomes the opportunity to contribute to this inquiry. Greenpeace considers that the electricity and gas industries, along with transport, are central to meeting or exceeding the Australian target for reductions in Greenhouse gas emissions. This inquiry provides the opportunity to link the current debate about structural change in the electricity and gas industries, with the development of a Greenhouse response strategy. The current debate about structural change in the electricity and gas industries is mostly about the efficiency of production of the individual commodities, electricity and gas. It is also divorced from the development of Australia's Greenhouse response strategy. From both an economic and an environmental point of view, we should be concentrating on the efficiency of production, transmission, generation and use of energy as a whole. Economically, this raises the question of efficiency in the allocation of resources between different energy sectors (electricity, gas, solar, end use efficiency, etc). Environmentally, it opens up the opportunities for substitution of renewable and efficient energy services in place of traditional greenhouse gas emitting energy production and use. Specifically, the debate about a national electricity grid with greater competition between power stations, is fiddling at the edges of a Greenhouse response strategy. Even if these changes led to lower reserve capacity and more gas-fired power stations (and there is no guarantee that they would lead to the latter outcome), they would not result in a 20% reduction in Greenhouse gas emissions. What will deliver this result? This submission addresses this question in three ways: 1. How do we get to an energy system which emits 80% or less of the current emissions of Carbon dioxide? (sections 1 to 3) 2. Under what conditions will proposed micro-economic reforms (such as a national grid) contribute to getting us there? (section 4) 3. What is the role of pricing policies? (section 5) 1. Greenhouse Energy Strategy. Rather than fiddling at the edges of existing institutions, structures and policies, Australia's Greenhouse energy response strategy needs to start with a vision of where we are trying to get to, ie an energy system which emits 80% or less of the 1988 emissions of carbon dioxide, and then work out how to get there. How can such a vision be developed? Firstly, an across the board comparison of the cost effectiveness of all types of carbon dioxide emission reduction measures is needed. The methodology for this is shown in a recent article in Energy Policy (Jackson, 1991). This methodology focuses attention on the cost of reducing carbon dioxide emissions from energy production and use, as against the cost of energy from energy efficiency and renewable energy sources. It enables comparison of all types of energy measures, including supply side efficiency (eg more efficient coal technologies), supply side fuel substitution (eg gas-fired electricity), supply side renewables (eg wind, solar thermal power), end-use efficiency (eg insulation), end- use fuel substitution (eg direct use of gas in place of electricity) and end-use renewables (eg solar water heating and steam). This approach is currently being applied in Victoria by consultants to the Victorian Government's Greenhouse Unit. The draft report of the Ecologically Sustainable Development Energy Use Working Group also suggests that such an analysis is needed (ESD Energy Use Working Group, 1991, p.108). The second and equally important component of developing a vision of a Greenhouse energy strategy, is to combine the most cost-effective carbon dioxide emission reduction measures in ways that achieve or exceed Greenhouse gas emission reduction targets. The methodology of carbon emission slopes developed by Dr. David Mills at the University of Sydney allows this to be done. (Mills, 1991). The vision of a Greenhouse energy strategy also needs to take into account the likelihood that Greenhouse gas emissions will not be allowed to stabilise at 2005 levels. Rather, they are likely to need to be reduced further. This is because: (i) according to the Intergovernmental Panel on Climate Change, a global reduction of over 60% in Carbon Dioxide emissions will be required to stabilise atmospheric concentrations of carbon dioxide (IPCC, 1990, p8); and (ii) industrialised countries, including Australia, will have to contribute more than average to solving the problem, because they have contributed more to causing the problem (Kelly, 1990, p30). The implications of deeper cuts in carbon dioxide for Greenhouse Energy Strategy is that measures that might deliver the 20% reduction target (eg replacing coal with gas in power stations), but cannot go further than this, will have to be prematurely replaced by measures which can deliver deeper cuts (eg end use efficiency and renewables). Thus, when comparing gas-fired power stations with very low carbon emission measures, the cost of future premature scrapping of coal and gas power stations needs to be included. (Mills, 1990, pp.4,6). 2. Institutions to deliver a Greenhouse Energy Strategy. The technical and financial barriers to implementing energy efficiency and renewable energy sources, and some of the ways of overcoming these barriers, are now well documented, including in your Committee's previous report (Senate Standing Committee on Industry Science and Technology, 1990, pp41-49; Reddy; Goldemberg et al, 1987, p88; Sioshansi, 1991; Gruber and Brand, 1991). Clearly, current institutions do not have the incentive to deliver these solutions. So the challenge for the Committee's current inquiry is to address the institutional and policy changes that are needed to implement the known technical and financial measures. Here, the concept of energy service companies, as recommended by your Committee in its previous report (p69), is fundamental. For energy service to become a reality, we need a competitive market in customer-oriented energy services. This, in turn, requires organisations that are able and have the incentive to combine different technologies and commodities (efficiency equipment, solar equipment, finance, gas, electricity etc) into packages that meet customer's needs in ways that are both cost effective for the customer and profitable for the energy service company. Some electricity distribution authorities are showing signs of thinking in this direction (eg Pailthorpe, 1991). But the current proposals for change in the industry are in exactly the opposite direction: the preoccupation with competition on the supply-side and "ring-fencing" of electricity and gas distribution (Industry Commission, 1991, p24) merely serve to reinforce the existing utility dependence on maximising sales of a single commodity. Greenpeace considers that these proposals for change are based on a flawed analysis of what is needed for overall economic efficiency (as against the narrow productive efficiency of electricity), let alone what is needed for Greenhouse abatement. What can the Committee do about this? Greenpeace suggests that the Committee could influence the direction of the debate to correct these flaws. Some possibilities include: (i) Commissioning a "Business Plan" for an energy service utility, to show how a comparable or higher rate of return could be obtained from this approach, compared with the traditional single-commodity approach. (ii) Commissioning economic analyses of the efficiency of allocation of resources among different parts of the energy sector, and between the energy sector and the rest of the economy. This would necessarily entail an examination of the effect of government guaranteed financing of power stations on investment levels, relative to end-use efficiency investments which are currently privately financed. (iii) Examination of the New Zealand proposals to open up the electricity distribution industry to competition. 3. Who will provide Energy Service? The Committee's Terms of Reference request consideration of who should co-ordinate and control the electricity and gas industries. Before this can be answered, it is necessary to identify the criteria on which such a choice would be made. If we are trying to deliver a Greenhouse Energy Strategy through energy service companies, Greenpeace considers that the criteria would include at least the following: (i) a substantial capital base to enable, for example, bulk purchases of efficiency/solar end-use equipment to push down unit prices; (ii) political clout comparable with existing utilities; (iii) credibility with energy customers; (iv) access to a share of the energy cost savings from efficiency and solar investments; (v) access to an energy billing system to allow efficiency/solar investments to be repaid from part of the energy cost savings; (vi) access to capital on the same terms as existing utilities. Because of differences among States and Territories, there is probably no single or correct answer to the question of who would meet these criteria. However, the criteria themselves point towards some type of joint venture between existing electricity and gas distribution utilities with a broadened charter, and private sector efficiency and renewable energy equipment manufacturers and suppliers. 4. The Context of Energy Service. Of equal importance to the question of who will provide energy service, is the question of the context in which energy service companies and other changes such as a South-East Australian grid would operate. Issues include: (i) the financial relationship between the energy service companies and electricity generating utilities, gas producers and electricity and gas grids; (ii) mechanisms to prevent abuse of monopoly and oligopoly powers; (iii) mechanisms to ensure that energy tariffs only reflect investments in true least cost measures, and do not allow over-over-investment in supply-side measures; (iv) mechanisms to ensure that the public interest in Greenhouse abatement and environment protection are incorporated into energy planning. These issued raise the question of public participation and regulatory mechanisms in energy planning. What is a suitable model here - the Australian Broadcasting Tribunal? AUSTEL (the telecommunications regulator)? the US Utility Regulatory Commissions? the UK Office of Electricity Regulation? Would making the electricity industry subject to the Trade Practices Commission and the National Companies Authority be sufficient? Greenpeace is still developing its views on this matter, but wishes to draw your attention to a number of pertinent discussions of these issues (Kaye and Outhred, 1990; Jacana Consulting, 1991; Association for the Conservation of Energy; Holmes, 1991; last two references enclosed). 5. Pricing Policies The debate about electricity and gas prices shows some similarities with the debate about electricity industry structural change: a preoccupation with the price of individual commodities, rather than the cost of energy services to customers. At a day to day political level, this shows up as State government promises that electricity prices will rise by less than a predetermined amount. Yet what matters to customers is the bottom line: their total energy bill. There is far greater scope for reducing bills by reducing energy use through end- use investments, than there is from reducing real electricity prices. A similar misconception appears in the debate about using price mechanisms to reach Greenhouse targets. Some of this debate assumes that higher energy prices are the only or the main economic instrument available to reduce energy use and greenhouse gas emissions (eg Marks, Swan, Dixon and McLennan, 1989; Tasman Institute, 1991). Price by itself is a very blunt policy instrument to achieve these goals. In practice, price should be only a part of a broader policy package, not all of it, for several reasons. (i) The non-price barriers to efficiency and renewable energy mean that if policy relies primarily on prices, they have to rise by very large amounts to have an impact on demand (eg Tasman Institute, 1991). This is of course used by those who oppose acting to mitigate global warming, to oppose any action at all. (ii) The prices of energy commodities are not the only price signals which affect energy demand. Equally important is the price relationship between energy commodities and end-use efficiency and renewable energy investments. If end-use investments were relatively less expensive, consumers would tend to buy more of them and less energy. But the "price" of end-use equipment is usually of a different nature to energy itself ie up-front cost for end-use equipment, as against quarterly bills for electricity and gas. So what is more important is the apparent price faced by the energy customer. Reducing this "apparent" price of end-use investments (without the need to subsidise them) leads straight back to the energy service concept, and innovative financing to amortise end-use investments. This approach also deals more effectively with equity issues because higher energy prices do not translate into higher energy expenditure by low income people. This is more lasting than relying solely on ephemeral income redistribution mechanisms for people disadvantaged by higher energy prices. All this is not to argue against increased energy prices or carbon taxes in some form. Clearly low energy prices hide the environmental costs of energy and encourage inefficient use of energy. Some energy price rises or carbon taxes are needed, but at levels which: (i) reflect the environmental and social costs of energy production; (ii) help change the relative price of energy and end-use efficiency equipment; (iii) raise capital to 'kick-start' investment in efficiency and renewable energy sources. REFERENCES. Association for the Conservation of Energy. Regulating for Efficiency. Ecologically Sustainable Development Working Groups, 1991. Draft Report Energy Use. Australian Government Publishing Service, Canberra. J. Goldemberg, T.B. Johansson, A.K.N. Reddy, R.H Williams, 1987. Energy for a Sustainable World. World Resources Institute, A Centre for Policy Research. E.Gruber, M Brand, 1991."Promoting Energy Conservation in Small and Medium-Sized Companies". Energy Policy, April. A. Holmes, 1991. Electricity in Europe The triumph of free enterprise?. Financial Times Business Information, London. Industry Commission, 1991. Energy Generation and Distrubition Vol.1: Summary and Reccomendations. Australian Government Publishing Service, Canberra. Intergovernmental Panel on Climate Change Working Group 1, 1990. Policymakers Summary of the Assesment of Climate Change. IPCC Group, Meterological Office, Bracknell, UK. Jacana Consulting, 1991. Review of Public Participation in Demand Planning. Report for Electricity Commission of NSW. T. Jackson, 1991. "Least-cost greenhouse planning: supply curves for global warming abatement". Energy Policy Volume 19, Number 1, January/February. University of NSW Reort No :DEPE 90.1220, 1990. Review of Public Participation Practices in Demand Planning: North American Experience. Report for The Electricity Commission of NSW. P.M. Kelly, 1990. The Climate In Crisis: Halting global warming. Greenpeace International, Amsterdamn. P.L. Swan, P.B. Dixon, P. McLennan, 1989. The Feasibility and Implications for Australia of the Adoption of the Toronto Proposal for Carbon Dioxide Emissions. Report to CRA Limited. D.R. Mills, 1991. Supply Side Energy Technology Mix to Meet Atmospheric Stabilisation Goals. Working Paper for ECNSW New Technologies Panel. M. Pailthorpe, 1991. Marketing Electricity A Utility Viewpoint. Sydney Electricity. A.K.N. Reddy, undated. Barriers to Energy Efficiency Improvments. Draft unpublished paper. Indian Institute of Science.