1. What should the new VEET target be?
Other
Other (please specify a target and
length): [Required if 'Other' selected] *
Minimum of 6.9 Mt/yr CO2-e for a period of
at least five years
1a. Please outline why you prefer the
target you identified, or why you selected
"No response":
Modelling data provided in the stakeholder
consultation documents show that the highest
net benefits are delivered by the highest target
modelled – 6.2 Mt/yr CO2-e for 5 years. The
modelling has therefore not demonstrated
where the peak of the curve lies – the point at
which maximum benefits are delivered. This
suggests that higher targets may also achieve
positive net benefits, and this is supported by
subsequent analysis (extrapolation only),
showing that significant net benefits (in fact,
maximum benefits) are delivered at a target of
6.9 Mt/yr CO2-e for 5 years. On this basis, we
would urge that additional modelling be
undertaken of a range of targets between 6.2
Mt/yr and 10 Mt/yr to establish a sound
evidence base for decision-making. We
understand that running the model again
would take some additional time and financial
resources, but believe this is justified by the
creation of a rigorous dataset which clearly
identifies the 'sweet spot' on the curve.
Furthermore, Environment Victoria is of the
view that the cost-benefit analysis has
significantly under-estimated the benefits and
potentially over-estimated the costs associated
with each target (see Questions 2 and 4).
Consequently, it is likely that the modelled net
benefits represent the lower bound of net
benefits which will actually be delivered. The
fact that modelling based on such conservative
assumptions has yielded positive net benefits
for all targets modelled, should give the
government significant confidence that higher
targets can be justified. Hence, a 6.2 Mt/yr
CO2-e target should be considered an absolute
minimum, with serious consideration given to
conducting additional modelling to establish
whether a higher target of at least 6.9 Mt/yr
CO2 can be justified. Environment Victoria
supports establishing the new VEET target for
a minimum of 5 years. Allowing the target to
be set over a longer period than 3 years would
avoid wasted resources associated with
frequent reviews and increase certainty for
Victorian-participating businesses. However,
as the VEET review is occurring within the
context of a complementary process to set a
new Victorian Emissions Reduction Target, it
is important that the scheme builds in the
flexibility for the target to be revised upwards
in light of Victoria’s greenhouse gas
abatement responsibilities into the future.
Furthermore, given the conservative
assumptions underpinning the modelling it is
likely that Victorian Energy Efficiency
Certificate (VEEC) prices will not be as high
in practice as has been assumed (see Question
2). A low certificate price would signal
additional untapped opportunity within the
market, justifying an upwards adjustment of
the target. Consequently, and particularly if
there is not enough time to conduct further
modelling given the deadlines for decisionmaking, we would urge that any target be
framed as a 'floor' target for the 3 or 5 year
period. The target should be set at a minimum
level of 6.2 Mt/yr CO2 (or 6.9Mt/yr CO2) for
the next 3 or 5 years with flexibility for
revision upwards if the Climate Change
review requires, or if certificate prices are
lower than anticipated.
2. Comments are invited on the
modelling approach used to determine
the costs and benefits of the VEET
scheme. Is there any additional data or
information that should be considered?
Environment Victoria welcomes the improved
approach to modelling compared with the
2014 Business Impact Assessment –
specifically the inclusion of environmental
benefits, exclusion of private participant costs
and the assumption of persistence of energy
savings. However, a number of other benefits
of greenhouse gas emission abatement and
energy efficiency have not been taken into
account. These include wider economic
benefits such as employment growth and
direct savings to the government’s energy
concessions budget, as well as mitigation of
the public health costs and risks of living in
low quality housing particularly during
extreme weather events such as heatwaves.
Environment Victoria understands the
limitations of any modelling exercise and the
difficulties in accurately assessing variables.
However, exclusion of these benefits means
that the modelled results likely represent the
lower bound of benefits which will actually be
delivered. Similarly, it is likely that targets
higher than 6.9 Mt/yr CO2-e would also
deliver net benefits had these additional
benefits be taken into account. Furthermore,
there are several reasons to believe that the
modelling approach has over-estimated the
certificate price and hence the compliance
costs associated with higher targets. Firstly,
operation of the VEET scheme can be
expected to exert downward pressure on the
price of the dominant technology in the
market, and hence on certificate prices over
time. However this effect has not been taken
into account. Secondly, if government adopts
recommendations for measures (both internal
and external to the scheme) to improve
participation by low-income households, this
should assist in lowering compliance costs for
Accredited Providers associated with reaching
'hard to reach' segments of the population. It is
possible that the presence of such measures
could deliver additional activity sufficient to
achieve a higher target at a lower certificate
price.
3. Which greenhouse gas coefficient
should be used to quantify the reduction
in greenhouse gas emissions achieved by
the VEET scheme?
Updated marginal coefficient
3a. Please outline why you believe this
option is preferred, or why you selected
"No response":
Environment Victoria supports the use of the
updated greenhouse gas coefficient to reflect
recent Victorian energy market changes.
4. The Department has valued
greenhouse gas emissions reductions
attributed to the VEET scheme by
adopting a carbon valuation series that
was produced by the Federal Climate
Change Authority as part of its 2014
Targets and Progress Review.Please
outline whether you think this approach
is appropriate for valuing greenhouse gas
emissions reductions over the period
2016 to 2050?
Using the Climate Change Authority (CCA)
carbon valuation (or price) series as a proxy
for benefits is likely to have significantly
under-valued the benefits of GHG emissions
reductions. Any price set within a carbon
abatement market by definition represents the
lower bound of the value of that abatement –
otherwise there would be no economic
justification for undertaking abatement at that
price. Even using price as a proxy for value,
the 2015 prices in the CCA series are well
below the most recent price set in an
Australian market – that established by the
first round of Emissions Reduction Fund
auctions (April 2015) This established an
average price of $13.95 per tonne – almost
double the 2015 values used in the VEET
modelling. A superior estimate of GHG
abatement benefit is given by the social cost
of carbon, defined as the costs imposed on the
wider economy by greenhouse gas emissions.
These economic damages can take various
forms including decreased agricultural yields,
harm to human health, property damages from
increased flood risk and lower worker
productivity. The United States uses a value of
$37 per ton of GHG abatement to guide
energy policy decision-making, although a
recent study has suggested the actual cost
could be as high as $220 per ton. Closer to
home, recent research provided to
Environment Victoria calculated the social
(combined GHG and air pollution) cost of
electricity generation in Victoria to be at least
$59 per tonne. The fact that modelling based
on such low values for GHG abatement
benefits has nevertheless produced positive
net benefits for all targets, reinforces the
conclusion that the cost benefit analysis
results are highly conservative and that higher
net benefits are likely to be realised in
practice.
5. Is there a case to exclude any business
sector(s) from participation in the VEET
scheme?
No
5a. Please outline why this is your
preferred option, and comment on how
this should be implemented:
5b. Please outline why this is your
preferred option:
Environment Victoria welcomes the
suggestion in the consultation paper that large
energy using sites (industry, hospitals,
universities) be considered for inclusion in the
VEET scheme. There is ample evidence that
significant opportunities exist for business and
industry to improve energy efficiency at low
or negative cost, and that such efficiency and
productivity improvements would deliver
substantial benefits both to individual
businesses and to the wider Australian
economy. Including large users will also be
critical to the achievement of higher targets.
Eligibility could be defined on the basis of
participation in the Environmental and
Resource Efficiency Plans (EREP) program
(now closed), and/or those entities defined as
emissions-intensive trade-exposed (EITEs).
However, it is important to note that the
VEET legislation contains an ‘additionality’
provision, requiring that only those energy
efficiency activities which are demonstrably
additional to those which would have occurred
under business as usual scenarios, should be
eligible for the generation of Victorian Energy
Efficiency Certificates (VEECs) under the
scheme. The relevant clause Section 19 (2) of
the VEET Act states: “Without limiting the
generality of subsection (1), the discount
factors are to take into account any
uncertainty associated with the reduction of
greenhouse gas emissions that would
eventuate from a specified prescribed activity
or specified class of prescribed activities but
for (emphasis added) the existence of the
VEET scheme.” It is reasonable to assume
that many large energy-using businesses will
have invested in energy efficiency
improvements for sound business reasons in
recent years, taking advantage of the short
pay-back times and high economic returns
delivered by improved efficiency. It is
therefore important that appropriate baselines
are established for the entry of new business
sectors (such as large sites previously
registered under EREP) into the VEET
scheme, so as to ensure any activity
subsequently generated under VEET is
genuinely additional to business as usual.
Consequently, Environment Victoria does not
support the retrospective generation of VEECs
for historical investment in efficiency
improvements. Investment decisions made
prior to inclusion in the VEET scheme were
presumably based on sound economic and
business rationales, and hence meet the
definition of ‘business as usual’.
6. Should the VEET scheme be amended
to better ensure support for low income
households?
Yes
6a. Please outline how the VEET scheme
could better support low income
As all Victorian energy users share the costs
of the VEET scheme, it is important for equity
households, and comment on why this
option should be preferred:
reasons that barriers to participation facing
low-income households are minimised.
Furthermore, as the market for low-cost
efficiency measures becomes saturated, it will
be important to increase the take-up of higher
value measures if higher targets are to be
achieved in future. No policy measure in
isolation will be sufficient to overcome the
range of financial and ‘split incentive’ barriers
to participation facing different low-income
groups. A number of complementary
measures including targeted financial
assistance and regulatory measures such as
minimum standards at the point of sale or
lease are also needed (see Question 9). These
measures should be considered as a coherent
package for implementation through
amendments to VEET where appropriate, as
well as within the wider context of the
Victorian government’s Energy Efficiency
and Productivity Plan currently under
development. In particular, there is an
opportunity for the Victorian government to
demonstrate leadership by stepping in to the
breach left by the Federal Government’s
decision to close the successful Low Income
Energy Efficiency Program in May 2016. A
comprehensive Victorian low-income energy
efficiency program could build on the
successful education and behavior change
work done by LIEEP-funded projects
targeting ‘hard-to-reach’ groups, by also
providing funding for comprehensive
household retrofits. It would complement
VEET by providing a mechanism for funding
the co-contribution of higher value measures
which are currently difficult for low-income
households to access, as well as by facilitating
the delivery of ‘whole of house’ audits and
retrofits. Environment Victoria is not opposed
to the introduction of priority sub-targets
within VEET as part of a comprehensive
approach to broadening participation by lowincome and disadvantaged groups. We
acknowledge that the introduction of subtargets may increase costs of the scheme
overall. However, Environment Victoria is not
aware of any rigorous analysis of the
magnitude of these costs and hence whether
they could be outweighed by the benefits of
assisting low-income groups to access the
benefits of energy efficiency. Victoria’s major
energy retailers have a large and growing
problem with bill payment arrears and
customer debt, and have indicated a
willingness to explore innovative ways of
addressing this financial liability. There
should be opportunities for government and
retailers to capitalise on the synergies between
their respective policy goals and develop a
regime that is to the benefit of all.
6b. Please outline why this is your
preferred option:
7. In addition to expanding the range of
energy efficiency activities available in
VEET, should any other action be taken
to target participation by certain groups?
Yes
7a. Please outline the actions you believe
should be taken:
It is important to note that households beyond
the ‘low-income’ group may also be at risk of
fuel poverty and similarly face financial
barriers to participation in efficiency schemes
such as VEET. Less than half of the customers
participating in a retailer hardship program in
Victoria are eligible for a concession card or
fall within the lowest income brackets. Many
of the remainder are large families on modest
incomes who are not eligible for concession
cards, but who live in relatively inefficient
homes and use large amounts of energy.
Consideration should be given to ensuring that
current requirements for energy retailers to
provide assistance to hardship customers
extends beyond addressing payment arrears.
Energy retailers should also be required to
provide practical assistance with improving
efficiency and lowering energy usage. This
could be achieved by including this group
within the definition of households eligible for
inclusion in a priority sub-target group, should
they be established within VEET (See
Question. 6 above). Measures outlined in
Question 9 such as minimum energy
efficiency performance standards at the point
of sale or lease will also act to lower housing
running costs for this group whether they are
homeowners or renters.
7b. Please outline why no other action
should be taken, or why you selected "No
response":
8. Please suggest up to five activities that
should be prioritised for revision or
introduction to the VEET scheme. Please
outline why you believe these activities
should be prioritised.
Ceiling insulation Ceiling insulation is one of
the most effective ways to increase the
thermal efficiency of a dwelling and hence
reduce energy use and household bills,
particularly in Victorian climate zones.
Increasing the uptake of this higher value
measure will also be important to the
achievement of higher targets into the future.
Insulation was effectively removed from
VEET to avoid duplication with the Federal
Home Insulation Program, which is now no
longer in place. As insulation was removed by
the administratively simple measure of
reducing its abatement factor to zero, it could
be just as easily re-instated by assigning it an
abatement factor sufficient to drive uptake.
Consideration should also be given to
including an activity addressing underinsulation, given the relatively higher
proportion of homes which fall into this
category. Any real or perceived risks of
insulation installation can be addressed by
establishing a best-practice suite of measures
including accreditation, training, auditing and
minimum product standards. Commercial
lighting VEET has a narrower range of
allowable activities than comparable schemes
such as the Energy Saver Scheme in NSW. In
particular, there are significant opportunities
for expanding activity in the commercial
lighting sector which currently represents a
fraction of total activity in Victoria. As
commercial lighting installations are relatively
more labour-intensive than other activities, an
expansion in this area would create an
estimated 400 jobs in addition to the 2000 jobs
already created under the current target and
activity mix. Commercial lighting activity in
Victoria could be boosted by adopting the
relevant methodologies from the NSW Energy
Saver Scheme. Split system air-conditioning
units for heating Electric split system airconditioning units used for heating are
currently ineligible for the generation of
VEECs in gas-reticulated areas, based on the
historical assumption that gas is a more
affordable and less emissions-intensive
heating fuel relative to electricity. However, in
the current context of rapidly rising retail gas
prices and the emergence of highly efficient
electric appliances, those assumptions no
longer hold. Recent research has concluded
that highly efficient reverse cycle airconditioners and heat pumps offer lower-cost
space heating solutions for householders than
gas appliances. The replacement of inefficient
gas heaters with efficient reverse cycle airconditioning units should therefore be eligible
for the generation of VEECs.
9. Please suggest up to three changes
which should be made to improve the
VEET scheme. Please outline why you
believe these changes should be a
priority.
Incentives for ‘whole of house’ upgrades A
‘whole of house’ approach beginning with a
comprehensive audit saves time and money by
identifying the best mix of efficiency
measures for each house. Providers should be
encouraged to deliver ‘deeper’ comprehensive
household retrofits, for example by allowing
for the bundling of complementary measures
(eg. ceiling insulation and down-light covers).
Appropriately targeted incentives could
encourage significant business and
employment growth in the energy services
sector. A more integrated approach will also
become more important as the market for lowcost measures becomes saturated. Financial
assistance to address capital barriers Financial
assistance to address the capital barriers to
energy efficiency upgrades can take a variety
of forms including grants, rebates, lowinterest loans, on-bill financing arrangements
and tax incentives. There is an opportunity for
the Victorian government to demonstrate
leadership by reinstating funding for
successful Federal and State low-income
energy efficiency programs which have been
closed or are due for closure. A
comprehensive Victorian low-income energy
efficiency program would complement VEET
by providing a mechanism for funding the cocontribution of higher value measures which
are currently difficult for low-income
households to access, as well as by facilitating
the delivery of ‘whole of house’ audits and
retrofits. Minimum energy efficiency
performance standards Mandatory disclosure
of the energy and water efficiency
performance of residential buildings at the
point of sale or lease has been proposed in
recent years as a way of improving
transparency for buyers and renters, and to
create incentives for homeowners and
landlords to invest in improvements so as to
capitalise on increased market value.
However, progress on policy development has
stalled. Furthermore, mandatory disclosure
operates through the mechanism of consumer
choice. However, low-income renters and
home-buyers typically have few housing
options and little market power.
Consequently, disclosure in the absence of
minimum standards may simply push people
with limited housing options into the least
efficient properties. Minimum 5-star energy
and water efficiency standards should be
introduced at the point of sale or lease within
2 years, combined with a comprehensive
range of financial assistance (as outlined
above) to assist homeowners and landlords to
implement the new standards. This would
improve low-income households’ access to
the benefits of efficiency and drive the
progressive upgrade of Victoria’s housing
stock over time.