Workshop 2: Energy efficiency and environmental fiscal reform
Managing Demand: Environmental benefits of improved energy efficiency
in Australian electricity markets
Rowena. E. Cantley-Smith, Monash University, Australia Electricity generation in Australia is heavily biased towards the use of coal, giving the stationary energy sector the dubious title of the country’s single largest greenhouse gas emitter. While this situation is far from desirable, effecting reductions in greenhouse gas emissions (GGEs) is proving to be a difficult task. Despite a raft of initiatives directed towards reducing the footprint of the energy sector on the environment, the adverse impact of stationary energy production and consumption on the Australian environment is significant and continues to grow. In the face of such a troublesome energy externality, it is apparent that a broader approach to policy decision making and subsequent implementing legislation is needed to induce any significant abatement in the stationary energy market’s GGEs. Given the propensity for improved end-use efficiency and enhanced end user participation to lead to overall reductions in consumption, there is a growing awareness of the need to encourage better demand side management of the Australian electricity market. The Australian Federal Government recently embraced a range of policy and legislative initiatives, several of which focus on supporting and encouraging increased end-use efficiency in electricity markets through various mechanisms. These include the National Framework for Energy Efficiency, which sets down a number of collaborative energy efficiency measures such as Minimum Energy Performance StandardsEnergy Efficiency Opportunities Act 2006 (Cth), which imposes, inter alia, obligations on large end-users to assess potential energy efficiency opportunities in their respective industries. While these measures are certainly a step in the right direction, there are several economic and legal impediments to improving demand management and end use efficiency in the Australian electricity market. Not only is there a failure to include an environmental objective in the national energy legislation, there is also a notable absence of mandatory enforcement mechanisms within the emerging federal energy efficiency legislative framework. Moreover, Australian electricity consumers pay some of the cheapest prices for this essential service. A continuing failure to include the costs of environmental externalities in electricity prices presents as a serious threat to the uptake of end-use efficient technologies and effectiveness of related measures. Overall, it is unlikely that the various government initiatives in this context will have any significant impact on emission abatement.
This paper commences with a brief overview of recent NEM reforms and the role of the stationary energy sector in rising GGEs levels. The importance of demand management and the growing need for greater reform on the demand side of the market to ensure improved end-use efficient outcomes are achieved is then considered within the context of the emerging federal energy efficiency legislative framework. Several economic and legal impediments to improving demand management and end-use efficiency, and ultimately reducing stationary energy GGEs, are then examined. The discussion then considers the issue of overcoming such impediments, together with the imperative to refine and strengthen the legal support for other possible mechanisms, such as a carbon tax and other market based instruments operating on the demand side of the electricity market. This is followed by concluding remarks in the last part of the paper.
An analysis of Spain's energy legal framework for the promotion of
renewable energy and energy efficiency: positive effects achieved so far
and remaining structural and legal barriers
Francisco Javier de Cendra de Larragán, University of Maastricht, Netherlands
Emissions associated with the production and consumption of electricity account for the lion’s share of total greenhouse gas emissions in Spain. Reductions in emissions can be achieved through the deployment of renewable energy and through measures increasing energy substitution and energy efficiency. The aim of reducing those emissions must be understood in the context of the other objectives of energy policy, namely ensuring that electricity prices remain as low as possible, guaranteeing security of supply, and fostering (or preventing?) competition in the market. The former two remain dominant in the Spain’s current economic context, characterized by strong economic growth supported mainly by the construction sector, leading to ever increasing electricity demand.
Much has already been achieved. The main success has indeed been the spectacular growth of some forms of renewable energy (especially from wind), due to the RES-E support scheme, but nevertheless there are several limits to this growth and many other measures are required. Much more remains to be done. The government has acknowledged this and in February 2007 has issued a new climate change strategy. However, many political, legal and structural barriers remain in place.
The main political barrier is the overriding political concern of ensuring low prices of electricity, which largely directs energy policy. The most relevant structural barriers are: (1) the inadequacy of the grid to cater for more wind farms, especially offshore wind farms; (2) the lack of a mature market for the production and transport of biomass; (3) the lack of competition in the retail market, which allows companies to refrain from offering more energy services to consumers. The most relevant legal barriers are: (1) the unstable character of the framework for the promotion of renewable energy, which reduces legal and investment certainty and hampers both innovation and the introduction of new technologies; (2) the maintenance of the regime for the compensation of stranded costs established by the electricity sector Act; (3) the legal regime of the wholesale market for electricity which negatively impacts access of renewable energy plants; (4) a very problematic regime for the distribution among generators of the proceedings from the electricity tariff; (5) planning law and conflicts of competences. Aside from specific barriers, there are also relevant interactions between regulatory instruments within energy and environmental policy, such as the RES-E support scheme and the recently introduced EU emissions trading scheme, which must be explored. Both instruments pursue different but compatible objectives, namely the promotion of renewable energy and reduction of emissions, respectively. The manner in which they interact will impact both objectives as well as prices of electricity, and thus will have distributional effects. Those effects are also shaped by the existing regulatory framework of the electricity sector. The most important ones stem from the organization and functioning of the wholesale market, the mechanism for the formation of prices of electricity and the coverage under both schemes.
This paper seeks three aims: to present what has already been achieved in the supply and demand sides, to systematically identify and explain existing barriers, and to check to what extent the new climate change strategy tackles them. To that end, the paper proceeds as follows: it will elaborate a taxonomy of existing measures to ensure low prices, then will confront them with possible solutions arising from the analysis and those proposed in literature which would achieve the same objective while ensuring a higher deployment of renewable energy and energy efficiency, and finally will confront them with the new climate change strategy.
US Tax Expenditures for Household Energy Consumption:
The Challenges of Turning Concepts into Reality
Prof. Janet E. Milne, Vermont Law School, USA
In its effort to reduce households’ reliance on fossil fuels, the United States has relied heavily on tax subsidies for a range of activities. For example, homeowners are eligible for a tax credit for energy efficiency improvements to the building envelop and for the installation of photovoltaic or solar water heating equipment. They may also be able to take a tax credit for the purchase of a fuel-efficient vehicle to put in their garage. Building contractors can claim a tax credit for building new, energy efficient homes. Manufacturers can offset their taxable income with a tax credit for manufacturing household dishwashers, clothes washers and refrigerators that meet certain energy standards.
By using tax expenditures rather than energy taxes that send the broad negative signal, government must choose which technologies it will support. The tax laws must then define precisely which investments or activities qualify and which do not. Using the US tax expenditures as a case study, this paper explores the policy, drafting, and implementation issues involved in translating the general concept of supporting household energy patterns into the realities of a tax code and tax administration.
Issues in energy efficiency and renewable energy supply for the G-7 countries,
with focus on Germany
Prof. Jon Strand, Tax Policy Division, Fiscal Affairs Department, IMF, USA
This paper deals with issues related to structure, impact, costs and efficiency of current and future supply of renewable energy in large advanced economies (the G-7 plus Spain), with particular focus on Germany. This topic is currently a central part of the political agenda, and at the intersection of climate and energy policy. It entails an evaluation of policies whose more direct aim is to promote renewable alternatives to GHG emissions-generating energies, thus potentially contributing to reducing such emissions. Our evaluation in this paper attempts to encompass two closely related aspects: the extent of renewables production, in particular its scaling up in recent years; and the costs of this production, in particular as these costs relate to benefits, accruing to the countries and to the world society. Benefits can, for the countries, be defined in terms of the main stated objectives of renewables support policies, which are reductions in net carbon emissions; and increased energy security. For the global society, benefits should be more focused on carbon emissions reductions. The paper starts with presenting a number of summary relationships (overall renewables production and energy shares, and assessed implied costs per ton of net reduction in carbon emissions due to displacement of fossil fuels), for all 8 countries in question, with a particular discussion of biofuels production. In latter parts of the paper, the analysis focuses on Germany, which is the main producer of non-traditional renewables in Europe such as power generation from photovoltaic and wind sources. The discussion here centers on efficiency and effectiveness of the current policy design. A crucial issue discussed in this part is whether the large subsidies and other support, to produce and develop these renewable energies in Germany, is worth while, and whether the structure of given subsidies is efficient. One conclusion is that, on the whole, the level of subsidies cannot be automatically justified, relative to other possible measures to increase energy security and reduce carbon emissions. A second conclusion is that there seems to be an excessive emphasis on support to current productive activity, relative to the support given to the development of (possibly, radically different) new technologies.
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