Energy-efficiency legislation powering up government agenda

Climate change and energy efficiency has been a much debated topic throughout the current election campaign with some suggesting energy efficiency doesn’t rank highly enough on the political agenda. Whichever government is successful, however, will have to take a hard look at its green policies and the measures it needs to put in place for the coming term in order to meet Australia’s energy-efficiency targets.

While Australia is making substantial inroads into meeting its Kyoto target (according to the National Greenhouse Accounts' report released earlier in the year, Australia’s emissions fell by approximately 13 million tonnes between 2008 and 2009), there can be no doubt that new initiatives will need to be introduced to ensure the target is met and consistently low greenhouse gas emissions are maintained in the longer term.

Almost a quarter (23%) of all carbon emissions come from buildings, with commercial buildings accounting for 10% of those emissions. Therefore, tackling commercial building emissions will be a focus for the government. However, how best to ensure new initiatives are adopted by these businesses remains a key topic of debate.

The most recent and notable move to address energy efficiency in commercial buildings was the enactment of the Building Energy Efficiency Disclosure Bill 2010, earlier in the year. The new law applies to commercial office buildings over 2000 square metres and, once the transitional period is over, owners of such properties will have to register a Building Energy Efficiency Certificate disclosing the sustainable qualities of the property or face fines of up to $110,000.

This legislation is indicative of the Australian government’s tendency historically to lean towards punitive schemes to encourage businesses to embrace sustainability. However, in a new push to further reduce carbon emissions, the government should consider the rewards-based approach of rewarding energy efficiency, which has been successfully adopted in the US.

A similar US scheme to the mandatory disclosure legislation in Australia involves providing positive monetary tax incentives for taxpayers who qualify under the related sections of the law. The US’s Energy Policy Act, introduced in 2005, provides tax incentives for energy-efficient buildings and retrofits of US$1.80 per square foot. Additionally, consumers who purchase energy-efficient products or renewable energy systems for their homes may also be eligible for tax credits of 30% of the cost, up to US$1500. There are also energy-efficient car tax allowances for both consumers and businesses and more for companies using fuel cells, micro turbines, combined heat and power (CHP) and on-site renewable energy sources.

While there are notable differences even between the two property schemes (the US legislation applies to residential as well as commercial buildings, for example), using tax credits is an innovative approach, which has been well received in the US and has garnered significant positive feedback.

There are a number of possible reasons that rewarding businesses financially could be more successful than financial punishments such as fines:

• Firstly, building owners faced with the possibility of a fine for failing to meet the terms of the legislation are potentially likely to seek loopholes to avoid the adhering and in turn the fine. However, turning this on its head and positively offering a reward encourages business to proactively try to meet the legal obligations in order to qualify for the financial reward.
• Additionally, it’s human nature to try to avoid any impending bad news and when faced with the threat of a fine, it’s likely building owners could convince themselves it won’t happen to them - they won’t fall victim to the penalty - which in turn may make them feel they don’t need to meet the terms of the legislation. On the other hand, if the opportunity to receive significant tax breaks is set in stone there is a much stronger incentive. They can also help provide demonstrable ROI for any initial outlay concerned with installing energy-efficient products or services.

Energy efficiency will have to be an important issue for the next government (whichever party it comes from) as it tries to cement a position on climate change and complete the Kyoto objectives. While ‘carrot versus stick’ will long be debated, when it comes to energy efficiency in business, the arguments in favour of rewards-based schemes far outweigh those for punitive measures. As the government moves forward, I would certainly hope this is the route we see Australia following with any future energy legislation.

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*Peter Garrett
Managing Director, Complete Technology Integrations (CTI)
Joint Managing Director, mySmart