Public Cover Sheet
Inquiry into Environmental Regulation in Victoria
Submission number:
24
Name of participant:
Monash Sustainability Institute
Date received:
15 October 2008
Number of Earlier Submissions:
Number of Pages: 3
Attachments submitted with this Submission:
To obtain copies of these attachments please call (03) 9092 5800
K:\VCEC\Inquiries\Inquiry - Environment\Submissions\Submission public cover sheet.doc
Submission to Victorian Competition & Efficiency
Commission, Inquiry into Victorian Environmental
Regulation
Monash Sustainability Institute
October 2008
Summary
The Monash Sustainability Institute is pleased to have the opportunity to provide
input into the Inquiry into Victorian Environmental Regulation and particularly the
Issues Paper (Victorian Competition and Efficiency Commission, 2008). The
proposed review of regulation in Victoria is especially important in the context of the
urgent need to respond to climate change, particularly the need to reduce greenhouse
gas emissions.
In summary, this submission makes the following points:
1. Concern is expressed about the Inquiry, as outlined in the Issues Paper,
predominately reflecting on regulation in terms of costs to business, with little
discussion about the benefits and opportunities which may arise from
regulation.
2. The importance of regulation is noted as an essential tool in a range of
measures which are needed to enable mitigation of, and adaptation to, climate
change. The example of the state of California is presented as a successful
model where extensive regulation has resulted in significant reductions in
greenhouse gasses.
3. Principles to guide regulation are suggested: environmental effectiveness,
equity and economic efficiency.
4. There is a need to bring in a wide range of new regulations to facilitate the
reduction of greenhouse gas emissions, including in the areas of
landlord/tenant associations, vehicle emissions and urban planning.
5. Coordination is important between the proposed Climate Change Legislation
and regulatory measures within Victoria, as well as with the federal
greenhouse gas reduction policies. Coordination will facilitate an
understanding as to whether reductions are meeting greenhouse reduction
targets and where adjustments to tools need to be made.
These points are now outlined in greater detail.
The need to consider all costs and benefits of
regulation
The scope of the task, as outlined in the Issues Paper, is to inquire and report on a
range of issues around regulation. For example, dot point one on page four of the
report mentions ‘the nature and scope of benefits from environmental regulation in the
modern Victorian economy’ (Issues Paper, August 2008, p.4). While the inquiry
relates to the costs to business of regulation, it is required to also investigate
‘regulatory opportunities’ (Issues Paper, August 2008, p.5). However, the content of
the Issues Paper appears to be largely concerned with understanding the costs of
regulation to business and how these costs can be minimised.
While minimising the costs to business is obviously of considerable importance,
regulation can also create opportunities for business. For example, regulations may
lead to research and technological innovations. These may offer benefits such as more
efficient processes with lower production costs or an improved work environment for
staff, as well as the potential to market these technological innovations. The growth in
climate change products has been rapid, now totalling four per cent of global market
capitalism (Harvey, 2008).
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Much regulation is designed for environmental conservation and amenity, and the
broader public good, improving the liveability of Australian cities and country. It is
insufficient to isolate the cost burden for one segment of society (business) without
viewing the benefits gained by that regulation being in place, in any review of
government policy, legislation and regulations. The purpose of regulation is to correct
broad market failures beyond the immediate micro business situation. While it is
important for regulation to be at minimum cost and maximum efficiency, these
considerations alone should not judge the worth of regulation.
The importance of regulation to address climate
change
The key policy approach to climate change being proposed by the federal government
is the Carbon Pollution Reduction Scheme (CPRS) which nominates a desired
national greenhouse gas output and issues pollution permits up to this level, which
will be mainly purchased through auction. This CPRS will directly target about 1,000
major companies who have the highest greenhouse gas outputs (Federal Government,
2008). It will influence greenhouse gas use in other companies and households
through likely price rises in the supply chain and end point of purchase of goods and
services.
However, as noted in the Stern Report (2007), the CPRS will not sufficiently address
all the issues around climate change, a range of measures being needed. The ability of
business, industries and households to respond to market price signals will depend on
a number of factors. These include infrastructure capacity, price elasticity, availability
of alternative goods, availability of low emission technology, human capital capacity,
the capital investment of industry and the ability to adapt within smaller time-frames.
The urgent need to respond to climate change necessitates the provision of a range of
measures to encourage behaviour change within a relatively short period of time.
Many effective measures to complement the CPRS, such as regulation, fall within the
capacities and responsibilities of State government.
The situation of the state of California is an interesting example of the value of
regulation to achieve reductions in greenhouse gasses. The state has a history of
mandatory emissions reporting for the major emitters. The introduction of a wide
range of regulatory measures together with reward systems which encourage energy
efficiencies, has enabled California to be one of a few states/countries successfully
reducing their carbon emissions.
Principles of Regulation
The principles of regulation should be based on:
• environmental effectiveness,
• equity, and
• economic efficiency and minimum cost to households and business.
Regulation should be based on international knowledge about effectiveness and best
practice. Regulation should also be comprehensive and broad and coordinate with
federal climate change mitigation policy. As discussed again below, regulation
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policies should sit within the context of the proposed Victorian government
legislation on climate change and be part of a cohesive policy, the impact of which is
measurable. Regulation needs to be accompanied by clear information about the need
and purpose.
Areas of Regulation
Regulation should be extended to a wide range of planning, building, appliance and
production standards and other areas, along the example set by the state of California.
A selection of items on which standards have been set in California is shown in
Figure 1, by way of illustration.
Figure 1: A sample of goods on which regulation of standards have been applied
in the state of California.
Source: A New Architecture for Domestic Climate Policy: Trading, Tax or Technologies? Talk by
Professor Michael Hanemann, University of California, Berkeley, Monash University, 15 August 2008
Three particular areas where new regulation is needed, are mentioned in this
submission: regulation relating to energy efficiencies in private rental properties,
regulation on vehicle emissions and urban planning.
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Rental properties
Renters face specific barriers in responding to climate change:
The classic problem is split incentives between the landlord and the tenant.
Landlords have limited incentive to institute energy efficiency measures
because they will gain no financial benefit from reduced energy bills. While
renters will receive the benefit, they are unlikely to be able or willing to pay
the considerable up-front cost, particularly when they have limited security of
tenure. Low-income renters often face a further difficulty. Their housing is
generally at the residual end of the rental market. Energy efficiency in these
dwellings is often poor but landlords are often reticent to spend money on
improvements. Where improvements are made they often lead to increased
rent which places further stress on low-income tenants. (Brotherhood of St
Laurence, September 2008 p.3)
Regulation is needed to change the incentives to improve energy and water efficiency in
structural components of rental properties such that the property is retrofitted to achieve at
least five star rating. While there are already incentives to landlords in the form of tax
deductions and the ability to claim capital depreciation, regulation could be accompanied by
additional support for landlords, such as low interest loans, grants for appliances such as solar
hot water services, information and advice and assistance with organised bulk purchases of
materials, such as insulation. Accompanying the assistance to landlords should be associated
with regulation which prevents rental price rises as a result of the energy efficiency measures.
Emission controls
Transport accounts for about 16.5% of Victoria’s greenhouse gas emissions, cars
producing 69% of this in Melbourne (Stanley and Loader, 2008). Emissions from this
sector are growing faster than all other sectors except stationary energy. To achieve
significant reduction in transport greenhouse gas emissions, reducing the emission
intensity of the motor vehicle fleet is critical. Little reduction has been achieved to
date under the current voluntary system, improvements at the individual vehicle level
being off-set by increases in average vehicle mass. Mandatory emission controls will
be needed to deliver significant and sustained reductions.
Urban Planning
Reducing the need to travel will also be a significant factor in reducing transport
emissions. This will require significant revision of urban planning regulation in
Victoria. Measures will include service centres located within walking, bike riding
and public transport easy access, re-zoning housing height and the requirement to
have a mix of affordable housing for low income families around transport nodes and
public transport routes, and the provision of access for buses in new housing areas.
Co-ordination of regulation with other emission
reduction measures
Regulatory measures around the reduction of greenhouse gasses need to be
coordinated with the proposed Victorian government legislation and with federal
carbon pollution measures. Given that Victoria (along with other state governments)
has the capacity to legislate and regulate in diverse areas, Victoria should establish
state greenhouse gas targets. To stabilize CO2e at 450 ppm, a position which would
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offer a 50% risk of a temperature rise above 2 C degrees, greenhouse gasses would
need to be reduced by 25% to 45% in 2020 from 1990 levels (IPCC, 2007, p.776). A
coordinated approach together with the setting of emission targets will facilitate the
measurement of greenhouse gas reduction outcomes and assist in understanding the
need for (more or less) measures and standards, and the success of regulation in terms
of costs and benefits.
References
Brotherhood of St Laurence (2008) Enabling Low Income Households in the Private
Rental Market to Respond to Climate Change, BSL, September.
Federal Government (2008) Carbon Pollution Reduction Scheme, Green Paper,
Department of Climate Change, Commonwealth of Australia, July.
Harvey, F. (2008) Climate groups’ revenue hits $300bn, Financial Times, 8 October.
IPCC Working Group111 (2007) Climate Change, Accessed October 2008
http://www.ipcc.ch/ipccreports/assessments-reports.htm
Stanley, J. & Loader, C. (2008) Climate change and land transport: achieving
emissions reductions, Strategic Transport Planning Conference, Municipal
Association Victoria, 28 August.
Stern, N. (2007) The Economics of Climate Change: The Stern Review, Cambridge:
Cambridge University Press.
Victorian Competition and Efficiency Commission (2008) Issues Paper: Inquiry into
Victorian Environmental Regulation, August.
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