Since the wake-up call of the 1970s oil shock the major developed nations of the world have recognised the importance of government programs to encourage energy efficiency. Intervening to overcome information processing barriers surrounding energy efficiency provides benefits for the economy, energy security, social equity and of course environmental benefits. While Australia has been in a kind of energy efficiency policy hibernation until recently, the rest of the world has been active in developing progressive energy efficiency regulations and funding programs. In particular, policy makers have recognised that to capture the full economic and environmental potential of energy efficiency, it is necessary to complement regulatory standards with other programs that provide financial incentives for energy efficient products and equipment.

Europe

The European Union has set a 20 per cent energy efficiency target for 2020 that would deliver a 20 per cent saving in total primary energy consumption by 2020. This saving is on top of what would be achieved by price effects and structural changes in the economy, natural replacement of technology, and measures already in place. Achieving the goal would reduce CO2 emissions by 780 megatonnes (Mt) with respect to the baseline scenario. This is more than twice the EU reductions needed under the Kyoto Protocol by 2012 and 30 per cent more than Australia’s entire annual greenhouse emissions. Additional investment expenditure in more efficient and innovative technologies will be more than compensated by the more than 100 billion Euros in annual energy savings.

According to the European Commission’s Action Plan for Energy Efficiency:

“A number of detailed scenario studies indicate that the 20 per cent savings potential is in many respects a conservative estimate. With additional policies and measures it is considered completely feasible to realise cost-effective savings of around 28 per cent by 2020. This is based on calculations showing potentials of 27 per cent and 30 per cent for the residential and commercial sectors, respectively, while industry is estimated to have a potential of 25 per cent. For transport the savings potential is 26 per cent, including modal shifts.”

This target is binding on member countries but they have discretion on the policy mechanism by which they deliver on the target. It appears that a combination of mechanisms will be employed, covering:

- information programs such as labelling; - minimum energy efficiency regulatory standards applying to buildings and appliances; and, - financial incentives that act to motivate suppliers of energy using equipment to produce and sell more energy efficient equipment.

In terms of financial incentives a number of European nations are implementing tradeable certificate schemes not unlike the Australian Mandatory Renewable Energy Target. However their aim is to achieve a target for energy savings through increased deployment of energy efficient equipment, not renewable energy. In many respects they are similar to the demand side abatement component of the NSW and ACT GGAS. These are commonly referred to as white certificate schemes. At present, Italy, France and the UK have or are about to implement such schemes. Each of these countries schemes are summarised below.

Italy

Italy’s white certificate scheme has the goal of reducing the country’s energy intensity (energy use per gross domestic product) by 2 per cent per year until 2015, and then scaling up to 2.5 per cent per year until 2030. It became operational in 2005 and placed an obligation for gas and electricity distribution companies with more than 100,000 customers in 2001 to achieve specific annual energy savings targets during a five-year period from 2005-09. If the obligated parties fall short of their targets, they must pay a penalty for non-compliance.

During the five-year target period it is expected that total electricity savings could amount to nearly 14 terawatt hours (TWh), while natural gas savings could total about 3.3 billion cubic metres.

Specific demand savings values are recognised for specific energy-saving measures and are accepted as ‘deemed savings’ values, based on the results of previous measurements, calculations and evaluation studies - similar to NSW and ACT’s GGAS.

Some of the eligible measures recognised by the scheme and for which deemed savings values have been determined include:

- Electric motors and their applications - Lighting systems - Reduction of stand-by power - Reduction of electricity consumption in thermal uses - Reduction of air conditioning electricity consumption - Promotion of high efficiency electric appliances in offices and homes - Substitution of electricity to other energy sources with reduction of primary energy consumption - Heating/cooling and heat recovery in buildings supplied with non-renewable fuels, and - Development of renewable energy sources at users’ premises.

United Kingdom

The UK has set-up a scheme similar to a white certificates scheme known as the Energy Efficiency Commitment (EEC) which applies to the residential energy consuming sector. The EEC currently runs in three year cycles from 2002 to 2011, and there is now a policy commitment to extend some form of obligation on suppliers to 2020. It requires electricity and gas suppliers to achieve targets for energy efficiency either through activities directly undertaken by themselves or through contracting with appliance retailers, energy efficiency equipment suppliers and/or energy service companies. Under the EEC, projects related to electricity, gas, coal, oil, and LPG are allowed. In the first cycle, the overall savings target required when compared to 2002 levels, equals 63 TWh by March 2005. The target represents the cumulative energy savings over the lifetime of the measures and is equivalent to an annual average 1 per cent reduction in carbon emissions from all households. Although certificate trading is not an explicit design feature of the scheme, there is room for some level of trading between entities.

Eligible energy efficiency measures include:

- Insulation of attics, walls, and water heaters - High efficiency hot water tanks - Window glazing - Lighting measures - Heating measures: boilers, heating controls, solar water heating, heat recovery ventilation, ground source heat pumps - Energy efficient appliances - Combined heat and power - Fuel switching

Savings for these measures are calculated based on the results of previous measurements and evaluation studies. The total energy savings projected over the lifetime of the energy efficiency measure are deemed upfront for the commitment period (e.g. savings expected over a measure with a 20 year lifetime are credited upfront over a three year commitment period).

Over the first commitment period energy savings totaled 87 TWh, exceeding the goal by 40 per cent. The largest share of savings (56 per cent) came from building insulation measures. Installation of compact fluorescent lights (CFLs) accounted for 25 per cent of the savings achieved, followed by efficient appliances (11 per cent), and heating measures (9 per cent). Overall, energy savings were achieved at an average cost of about 0.7 pence (1.6 cents AUD) per electrical kilowatt hours (kWh) saved.

Because of the larger than expected savings in the first commitment period, higher goals were established for the second commitment period (EEC-2). For this period, a goal of 130 TWh was set, which was roughly double the target set for EEC-1.

The Carbon Reduction Commitment

In addition to the EEC, which applies to the residential sector, the UK Government announced in its 2007 Energy White Paper that it would be introducing an energy efficiency trading scheme that would apply to commercial businesses which it has titled the Carbon Reduction Commitment. This scheme is different to emissions trading in that it will focus on non-direct emitters. The businesses covered will be large non-energy intensive public and private sector organisations such as hotel chains, supermarkets, banks, central Government and large Local Authorities. At present the Government is consulting on the details of how this scheme will operate.

France

France introduced an energy efficiency target and associated white certificates scheme in July 2005. The total energy savings target for the first period of the scheme between July 2006 and June 2009 is 54 TWh in final energy, cumulative over the life of the energy efficiency actions. Energy savings targets are set for suppliers of electricity, natural gas, domestic fuel, and heating and cooling for stationary applications, but not for suppliers of fuel for transport.

Among the eligible technologies are:

- Energy efficient lighting, appliances, boilers, and motors - Insulation of attics, walls, and water heaters - Double glazing of windows - Heating controls - Variable speed motors - Wood-fired heating systems for homes, district heating, or industry.

If an obligated supplier cannot submit a sufficient number of certificates to meet its obligations, it must pay a penalty price of 2 Euro cents per kWh of the total shortfall.

Because the scheme has only been operating for a short period there are limited results to report on as yet.

United States

Since the energy shock of the 1970s the United States has led the world with a number of innovative energy efficiency programs. It has had an active and well resourced program (although less active under the current federal administration) for setting minimum regulatory standards for energy efficiency of appliances and buildings that has formed as a template for Australia’s own program in this area. Eighteen state government jurisdictions also apply a small levy (fractions of a cent per kWh) on electricity sales to fund what they call public benefit funds that act to fund energy efficiency programs that promote and support energy efficient products. The Federal Government provides quite a large number of tax incentives to encourage uptake of energy efficient products as well.

It is worth noting that under the North Eastern US States’ emissions trading scheme there is a requirement to auction a minimum of 25 per cent of emission permits. The funds raised through these auctions are to be allocated to public benefit funds which will support energy efficiency and technology R&D. A number of proposals for emissions trading before the Federal US Congress contain similar provisions.

In addition to these programs, a number of state government jurisdictions have begun to put in place requirements for energy utilities to deliver energy efficiency targets, often with the flexibility of achieving them through market based tradeable certificate schemes. The states with these schemes in place are graphically illustrated in Figure 1.

Several of these schemes are quite ambitious in scope. Texas’ program was implemented in 2003 and creates a requirement for electric utilities to offset 10 per cent of their demand growth through end-use energy efficiency. According to the American Council for an Energy Efficient Economy, Texas utilities have exceeded these targets over each year since the scheme came into effect. California has set a target to deliver via regulatory requirements 23,183 GWh of savings in electricity from energy efficiency by 2013 as well as substantial savings in natural gas. The electricity savings are equivalent to about 8 per cent of California’s current electricity consumption.

It is expected that in achieving targeted savings between 2006 and 2008, California’s electric and natural gas utilities will invest $2 billion in energy efficiency upgrades. This 2006-08 investment is expected to:

- Meet more than half of future electricity load growth and prevent the need to build three large (500 MW) power plants; - Reduce carbon dioxide emissions by more than 3 million tonnes per year by 2008; and, - Achieve net savings of more than $2.7 billion for consumers.