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Will the NEG change the net zero game?

photo: Daniel Norris
photo: Daniel Norris

Some of Australia’s leading property companies have set ambitious targets to reduce greenhouse gas emissions to zero or beyond. Investa, AMP Capital, GPT, DEXUS and Mirvac are among those working hard to deliver efficient buildings running on renewable energy by 2030 or 2040, at the latest.

Because electricity use is the biggest slice of operational building emissions, we need to understand if the energy policy settings in the National Energy Guarantee (NEG) are going to help or hinder.

There’s a natural hierarchy of strategies to achieve net zero and energy efficiency is still number one. This is because it’s the one that pays for itself by cutting energy bills.

However, the NEG doesn’t have much to say about it except that efficiency is expected to continue to improve in future forecasts. It’s a missed opportunity not to have energy efficiency supported at the national level as it’s one of the best ways to reduce consumers bills – one of the primary aims of the NEG.

The NEG is quiet on gas

Net zero demands building owners do something about natural gas use on site. The NEG is silent on gas initiatives except to forecast that prices are likely to go up. With gas predominantly used for heating in commercial property, owners are left to choose between eliminating the need for heating – difficult if not impossible with existing building stock – replacing gas heating with electric, or resorting to carbon offsets – the least sustainable option. There’s capacity building needed in boiler replacement feasibility but certainly the NEG isn’t going to help.

No incentives for embedded generation

In commercial property the largest proportion of emission reduction must come from switching to renewable electricity supply. This is possible by waiting for the grid to move to 100 per cent renewables – installing solar panels (and on many buildings that’s a limited opportunity) or by purchasing zero emission, renewable electricity via the grid. It’s been widely discussed already that the NEG provides no further incentives for renewables beyond what is predicted to be delivered through the Renewable Energy Target (RET). So, there will be no help for greening the grid or on-site renewables from the NEG before 2030.

Some property owners imagine a future where the big roof areas on shopping centres and warehouses are covered in solar, with the electricity generated use onsite or exported off to their other buildings or consumers.

Surely the NEG is designed to take advantage of this embedded generation that helps support the grid and reduce reliance on transmission lines? It would appear not. There is some description of embedded generation, but there is no talk of incentives for more of it. Seems like another missed opportunity.

Offsite renewable electricity has been deferred

As for offsite renewable electricity, GreenPower has been a robust product to buy through the grid. It was assured to have come from “new” post-1997 renewable generation from sustainable sources, so no new dams and no burning old growth forest. Since the RET started, GreenPower has relied on retirement of large-scale generation certificates (LGCs) as the transaction record. Under the NEG and post RET, it’s unclear how GreenPower will be defined or recorded. Additionality – ensuring that your GreenPower premium went to the right purpose and wasn’t just swept into a fund to comply with a mandatory target – was important, but with individual states setting higher renewable targets than the NEG it’s not clear where to measure additionality from.

Although the NEG is supposed to be all about certainty, here’s an area that requires further work. The principle is easy: electricity consumers should be able to confidently buy zero emission, renewable, sustainable electricity beyond any mandated target. However, the detailed design of the NEG effectively says “we’ll work that out later”.

Unclear on emissions factors

In accounting for emissions from buildings and business in Australia, business has long used the National Greenhouse Factors as the reference for the emissions intensity of various energy sources. These factors aren’t perfect – they’re an average – but to avoid complexity they’ve been commonly used. The NEG isn’t clear on how emission factors, which will now be calculated on a retailer basis, should be applied in voluntary carbon accounting. The government is, however, “considering this issue”.

Doesn’t help calculate offsets

The last resort for most property owners is to purchase offsets. The National Carbon Offset Standard is a ready reference for the kind of offsets that are reliable and additional to national targets. You might have thought the NEG would help to discover a cost of carbon across the broader economy – that’s what the carbon price did and to some extent what the RET did. But, disappointingly, the NEG is specially designed so that a cost of carbon cannot be attributed.

The emissions guarantee is delivered by each retailer having an emission target to achieve. If they miss the target there isn’t a penalty per MWh of tonne there’s a non compliance issued and the retailer may face a civil action in the courts maybe resulting in a fine.

In summary, the NEG doesn’t help us to understand the cost of carbon or inform the cost of offsets.

It supports EITE companies

There is one group of businesses that the NEG does look after – the emissions intensive, trade exposed (EITE) companies. Since before carbon trading was even introduced, these companies received protection from the carbon price to maintain competitiveness in global markets.

Even when the RET was introduced, EITEs were quarantined from the requirements to increase renewable energy supply. From the information on the Clean Energy Regulator website, it seems that EITEs use around 20 per cent of all electricity delivered via the National Energy Market (NEM) and they receive 100 per cent exemption from the RET. Even though some of these companies are now signing large power purchase agreements with renewable energy generators because they are commercially beneficial, they still enjoy 100 per cent exemption from contributing to the NEG’s emissions guarantee. This seems a bit ironic.

All companies with net zero carbon targets will likely achieve their goals, probably even earlier than expected. The NEG was never designed to allow property owners or any electricity consumers an accelerated path to a sustainable future and it shows. The question we can all ask is, “Why not?”

Bruce Precious is principal consultant at Six Capitals Consulting.

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