Sunday, October 17, 2010

Energy Efficiency Report Part II

Reading through the report they seem to come to similar conclusions to me on Australia's track record on energy efficiency. The main goal is a 30% reduction in Australia's energy intensity by 2020. This implies an annual reduction of 2.6% per annum. Since 1980 energy intensity has declined by 1.3% per annum so the target is fairly ambitious in seeking to double this historical rate.

The centrepiece policy recommendation is to broaden existing energy efficiency schemes that currently exist in NSW, Victoria, and South Australia to a national energy certificate scheme. Credits would be generated by energy efficiency increasing investments that could then be sold to energy suppliers who would be obligated to improve the energy efficiency of their customer base. An interesting feature of this proposal is that it reduces the "split incentives" faced by renters and landlords. Often, landlords are reluctant to improve energy efficiency because they won't gain the benefits of energy cost savings while renters are ill-informed about the energy cost parameters of alternative rental properties and so don't make choices of where to live and how much rent to pay on that basis. In very tight rental markets there is often little choice anyway on where you can live*. Under the certificate scheme the landlord could sell the credit and the renters gain from the cost savings. Under an energy tax the incentives remain as asymmetric as they are now.

A problem with such schemes is that they seem to ignore the rebound effect. However, rebound effects are usually much less than 100%.

* See search markets

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