PART 3 Production Consumption and Waste

3.1 EnergyKey Findings

• Energy generation and consumption is the single largestcomponent of Victoria’s ecological footprint.

• Victoria’s _nal energy consumption has increased by over 80%within the last 30 years, and business as usual consumptionwill increase by almost 40% by 2030.

• Between 1990 and 2006, Victoria’s total greenhouse gasemissions increased by 12% but energy-related emissionsincreased by 27%.

• There was a slight decrease in total greenhouse gas emissionsin 2006, the most recent year for which data is available, andslight decreases in emissions from energy in 2005 and 2006,but it is not known whether this signi_es a long-term downwardtrend.

• In 2006, over 85% of greenhouse gas emissions generated inVictoria were produced by the energy sector.

• Stationary energy consumption accounts for only 20% of_nal energy consumption but 69% of total greenhouse gasemissions.• Transport is the greatest contributor to _nal energyconsumption (36%) but contributes only 17% of totalgreenhouse gas emissions.

• 95% of Victoria’s electricity is supplied from brown coal, themost greenhouse intensive source in Australia. Electricity isalmost six times more polluting than natural gas per unit ofenergy delivered in Victoria.

• 4% of electricity comes from renewable energy sources with solarcontributing just 0.006%..

• Victorian e_orts to reduce emissions from energy arelargely dependent upon the design of the Commonwealth’sCarbon Pollution Reduction Scheme (CPRS), the associatedemissions reduction trajectories, and the viability of technologydevelopment pathways including carbon capture and storageand non-intermittent base-load renewable energy, which as yetare not known.

• Electricity generators extract approximately 100,000 millionlitres of surface water per annum, which is approximatelyone quarter of the total water consumption of metropolitanMelbourne in 2006–07. A further 120,000 million litres ofgroundwater is extracted per annum for the mining of coal, oiland gas.

• Low-density urban design and high motor vehicle dependencymake metropolitan Melbourne vulnerable to oil a_ordability andcarbon price shocks.

Objectives

• Reduce greenhouse gas emissions from energygeneration and use

• Reduce energy demand by increasing energy ef_ciency• Support the development and deployment oflow-emissions technology

• Decrease the other environmental impacts of energy useDescription

Energy generation and consumptionis fundamental to everyday life andunderpins personal and economicactivity. The availability of abundant,cheap electricity has driven industrialdevelopment in the State and increasedits prosperity. Similarly, the availability ofcheap transport energy, together withpolicies that have favoured road-building,have given Victorians exceptional mobility.

However, with its reliance on fossil fuels,energy creates significant pressureson the environment. In Victoria, energyuse, particularly electricity generationand use, has the single biggest impacton the State’s Ecological Footprint. Thiscomes through a range of environmentalpressures, that include the emission ofgreenhouse gases and other air pollutants,water consumption and land use.

As noted in Part 4.1: Atmosphere –Climate Change, Australia is the world’s14th largest emitter of greenhousegases. Australia’s emissions constituteapproximately 1.5% of total globalemissions. However, Australia is one of thehighest per capita emitters in the world.

In 2006, Victoria was responsible for aboutone fifth of Australia’s emissions andabout 85% of greenhouse gas emissionsgenerated in Victoria were produced byenergy generation and use1 (see FigureE1). Sixty-nine percent of emissionscame from the stationary energy sector,primarily from electricity generation. Bycontrast, electricity contributed only 20%of Victoria’s total final energy consumptionin the same year, illustrating the emissionsintensity of Victorian electricity.

Since 1990, Victoria’s economy has beengrowing at a faster rate than population,while the Victorian economy has also beengetting more efficient in its use of energy.Between 1990 and 2006 the amount ofenergy consumed for every dollar of GSPdecreased by 18%. Over the same period,however, total energy use increased30%. See Part 2: Driving Forces for moreinformation.

Current projections show that Victoria’sfinal energy consumption will be almost40% higher again by 2030 on a businessas-usual basis3, although there are someindications of a reduced rate of increaseover the last two years.

In addition to the emission of greenhousegases, electricity generation in Victoriauses significant quantities of surfacewater, emits a range of other air pollutantsand has important implications for localgroundwater levels and land health. Manyof these environmental impacts will beexacerbated by climate change and willcontinue into the future without significantchanges to the way energy is generated

and consumed.

In Victoria, consumed electricity is almostsix times as polluting per unit of energyas natural gas, due to the use of browncoal. Brown coal provides around 95% ofVictoria’s electricity4; however, due to itshigh moisture content, less than a third ofthe potential energy embodied in browncoal is converted into electricity and sentout from power stations. By contrast,4% of electricity comes from cleanerrenewable sources5.

Because of the significance of theenergy sector’s contribution to Victoria’sgreenhouse gas emissions, and thereliance on cheap, brown coal forelectricity generation, efforts to reduceemissions need to focus on the energysector. Since 1990, Victoria’s overallgreenhouse gas emissions have increasedby 12%, yet energy-related emissions haveincreased by 27%.

Historically, Victorian Government energypolicy has focused on energy security andaffordability to support growing economicactivity while maintaining living standards.However, the urgency of reducinggreenhouse gas emissions requires thatthe environmental impacts of the energysector are also given the highest priority.

The need to adapt to a low-carbon energysystem and one where carbon emissionsare priced provides an additionaleconomic incentive to reduce emissions.The Commonwealth Government hascommitted to introducing a CarbonPollution Reduction Scheme (CPRS) in2010. Under the CPRS, carbon-intensiveindustries such as coal-fired powerstations will have to buy tradeable permitsin order to continue to emit greenhousegases. The cost of these permits will riseover time as the total number of permitsissued is reduced. The continued financialviability of the most carbon-intensiveenergy sources may be threatened aslow-carbon sources, such as renewableenergy, become relatively cheaper.

This chapter describes Victoria’senergy production and consumptionpatterns and the effect that these haveon the environment. In addition, it givesan overview of the government andcommunity responses to the energychallenge and provides recommendationsfor reducing energy-related greenhousegas emissions.

Victoria’s energy resources

Victoria’s energy system is principallybased on fossil fuels from the GippslandBasin and imported oil. Brown coal, themost abundant of the local resources, isthe main fuel used to generate electricityin Victoria. Gas is used either directlyfor heating or in gas-fired electricitygenerators. Oil is mainly used to producerefined petroleum products for use intransport.

Victoria’s abundant brown coal reservesprovide a cheap and reliable source ofelectricity. It is currently estimated thatthere are 430 billion tonnes of browncoal remaining in Victoria, over 40 billion

tonnes of which is currently economicalto extract7. This is mostly located in theLatrobe Valley and there is enough tolast almost 500 years at current levels ofconsumption8.

Victoria’s oil and gas reserves areprincipally drawn from the Gippsland andOtway basins. Reserves have declinedsteadily from 1982, with some minorincreases due to discoveries of newfields9.

Victorian oil is principally exported to otherstates for use in industry, rather than beingrefined to produce petroleum products.Natural gas extracted in Victoria is usedboth locally and interstate.

With a high likelihood that Australia hasalready passed its peak oil production10,Victoria will become increasingly relianton net oil imports in the future. Thiscreates significant potential supplyissues given that it is considered likelythat global peak oil production will occurwithin the next 20 years11. By contrast,Victoria is endowed with exceptionalrenewable energy resources. Victoria’ssolar resources are such that solar waterheaters have the potential to provide upto 60% of household hot water12. There isalready significant wind energy generationin Victoria and there is potential for muchmore. There is also significant potential forwave generation in Victoria, with waveenergyresources of up to 70 kW per metreoff the coast of Cape Otway13. Victoria’sagricultural resources provide strongpotential for development of a bioenergyand biofuels (see Transport energy)industry, and there is significant researchbeing undertaken into Victoria’s potentialfor geothermal energy.

Primary energy consumption

Indicator E1 Primaryenergy consumption

The majority of Victoria’s energy needsare met by fossil fuels, as is the case formost developed nations. Figure E3 showsVictoria’s historical annual primary energyconsumption. Over the last 30 years,Victoria’s primary energy consumption hasincreased by over 70%, while the State’spopulation has increased by only 35%14.

Brown coal, petroleum products andnatural gas supply over 98% of primaryenergy in Victoria. Close to 50% ofVictoria’s total primary energy comesfrom brown coal, which fuels the majorityof Victoria’s electricity and accounts formost of the growth in Victoria’s energyconsumption over the last 20 years.The use of petroleum products hasgrown steadily with increased transport,while natural gas consumption hasremained relatively constant, growingat approximately 1% per year since the

expansion of the gas network in the 1970s.Gas is also used in a small number ofgas-fired electricity peaking plants. Thegas network is currently being expandedacross Victoria.

Renewable energy sources accountfor a very small amount of primaryenergy consumption – only 1.8% of totalprimary energy consumption in 2006-07. Wood and wood waste combustedfor space heating continue to dominateconsumption from renewable sources(see Figure E3), although there has beenincreasing electricity generation from otherrenewable sources over recent years (seeFigure E5).

There is great potential to further developVictoria’s renewable energy supply usingproven technologies. However, as yetrenewable energy is currently significantlymore expensive and does not yet havethe capability to provide guaranteed, nonintermittentbase-load electricity supply.

Biomass from a range of sources,including agricultural waste, municipalsolid waste and residue from sustainablymanaged forest operations can makea valuable contribution to renewableenergy generation and offset methaneemissions. Modern biomass powergeneration facilities can utilise a numberof technologies which result in very lowemissions of air pollutants.

Victoria continues to rely on fossil fuels togenerate energy as a result of decisionsmade early in Victoria’s industrialdevelopment. This led to the constructionof large and expensive generators withconsiderable longevity at the site of themain coal resources. This has developedinto a highly centralised electricitygeneration system with an associatedinefficient and spindly transmissionand distribution network. In addition, oilrefineries and other energy supplierssupport and supply widely distributedinfrastructure and industry around theState.

Coal-fired power stations run twenty-fourhours a day and, consequently, generatelarge amounts of electricity overnightwhen demand is low but are unable tomeet peaks in demand during the day.Currently, peaks in electricity demand,when electricity prices are highest, are metby gas turbine generators which can beswitched on relatively quickly.

Reliability of supply to Victorian consumersis assisted by the connection of Victoria’selectricity network to the National ElectricityMarket. Victoria can export electricity toother states when local demand is low,and import electricity if local demandcannot be met by local supply.

Wind and solar renewable energytechnologies are perceived as being lessreliable and as introducing an inherentlevel of risk into the electricity supply

system. However, these technologies canbe effectively integrated into the existingelectricity supply system and internationalexperience shows that employing aportfolio of renewable and distributedenergy generators can ensure a highlevel of system reliability while emittingless greenhouse gases (See Box E4:German Renewable Energy Policy). Newer,developing renewable energy sourcessuch as biomass and geothermal will haveoutput characteristics similar to those offossil fuel generators.

One of the advantages of photovoltaic(solar) electricity generation is that it tendsto be most efficient when demand ishighest and electricity is most expensive,such as on hot, sunny days when airconditioneruse is greatest. A furtheradvantage of distributed generation is thereduction in electricity transmission lossesthat arise from highly centralised systems.

Furthermore, a network of smaller-scalegas-fired distributed generators basedon Victoria’s expanding gas networkwould produce a highly reliable systemwhich is considerably less pollutingthan the current system, particularly ifco-generation technology (deliveringboth electricity and heat) were used. TheMinisterial Council on Energy establishedthe Renewable and Distributed GenerationWorking Group in 2004 to start to addressthese issues16.

A number of barriers to distributedelectricity generation currently exist inVictoria. These include application andapprovals processes that can be costlyand time-consuming, and networkconnection requirements that can becomplex and also add significantlyto costs. There is also a lack of pricesignals that reflect both the reductionin transmission and distribution costs,and the reduced need to upgradeinfrastructure.

Current network planning tends to bebased on an incremental ‘business-asusual’approach rather than on morestrategic consideration of alternative futurescenarios. Given the long lead timesnecessary for fundamental changes toelectricity generation, Victoria needs tobe considering alternatives now. Futurescenarios could include a ‘soft start’to emissions reductions, such as thatproposed by Professor Ross Garnaut,with modest emissions cuts in the first tenyears of the CPRS, allowing potential cleancoal technologies time to be developed,and a more aggressive emissionsreduction trajectory which could lead tobrown coal generation becoming unviablerelatively quickly.

Recommendations

E1 The Victorian Government conduct astudy to identify and address regulatoryand other barriers to the development ofa network of distributed renewable andgas-fired electricity generators to meetgrowing energy demand and delay theneed for further augmentation of browncoal generators.

E2 The Victorian Government conductscenario modelling to considerfundamental future restructuring ofVictoria’s energy supply industry,including the potential for a significantshift towards distributed energy, cogenerationand renewables.

Conversion, transmissionand distribution

Primary energy is converted to useableforms of final energy via a range ofprocesses. The stationary energy sectoruses thermal conversion processes,whereas the transport sector undergoesa process of oil refining prior to thecombustion of refined fuels in transport.Electricity generation is the least efficientof Victoria’s energy conversion processes.This is caused by the high moisturecontent of brown coal (approximately 60%water)18, and the use of ageing steamturbines to generate electricity. Browncoal is the cheapest source of electricitygeneration; however, less than a third ofits energy content is sent out from the

power station as electricity. In addition, asubstantial amount of electricity is usedwithin power plants to power on-siteoperations19.

By contrast, the efficiency of renewableenergy conversion is largely dependenton the renewable energy source and thetechnology in question. For example,wind turbines can convert up to 50% ofthe energy in wind into electricity.22 Whilegeneration from these resources is notable to be scheduled to meet demand,as is the case for fossil-fuel generators,the times when they are operational oftencoincide with times of peak demandwhen electricity is at its most expensive.However, developing renewable energysources such as geothermal and biomassare similar in output characteristics tofossil fuel generators. Coal generators,have the disadvantage of being unable tobe scaled back at times of low demand(for example, overnight), producing largeamounts of electricity at times when it isnot needed.

The inefficiencies of all electricitygeneration sources are added to byelectricity being lost through electricalresistance as it flows through the networkof transmission and distribution lines23.Losses are directly associated withdistance and temperature. In 2005-06,average distribution losses ranged from4.3% for an urban distributor to 7.9% for arural distributor. Transmission losses arearound 2%24. These losses are applicableto all electricity forms, but are generallyless for renewable energy and distributedgenerators which have lower loss factorsdue to their distributed nature. Together,the losses from conversion, transmissionand distribution of energy account forapproximately 40% of all forms of primaryenergy consumed in Victoria.

The amount of energy used to processnatural gas and refine petroleum productsis considerably lower, while distributionlosses are also much lower. In 2004,‘unaccounted-for gas’ comprised 2.8%of total gas consumption26, only halfof which is believed to be due to theleakage of natural gas. Over the longdistances energy is transmitted in Victoria,transmission and distribution losses forgas are proportionately lower, as theydo not change with distance, whereaselectrical resistance is linear and thereforethe further it travels, the more is lost.Distribution losses of petroleum productsin Victoria, such as through oil spills, arerelatively small and uncommon, but areenvironmentally hazardous when they dohappen.

Victoria’s electricity supply system is linkedto that of New South Wales, Queensland,the ACT, South Australia and Tasmaniathrough the National Electricity Market(NEM). Under the NEM, Victorian browncoal-fired generators can take advantageof their lower fuel costs compared tointerstate generators, allowing them togenerate more electricity than is requiredto meet Victoria’s electricity needs,which is then exported to other states.This has led to increased utilisation andaugmentation of brown-coal generationthrough efficiency gains in existing plantssince the commencement of the NEM in199827. Victoria both imports and exportsenergy within the NEM, but remainsa net exporter. In 2005, the total netexport represented approximately 4% ofelectricity generated in Victoria28.

Final energy consumption

The demand for energy and the way inwhich it is supplied and consumed arethe ultimate drivers of the environmentalimpacts of energy use in Victoria.Infrastructure design, end-use patternsand consumer choices influencethe quantity and mix of primary fuelsconsumed, which has direct implicationsfor Victoria’s greenhouse gas emissionsprofile (see Environmental pressures,below).

Indicator E2 Finalenergy consumption

Final energy consumption has increasedmore than 80% since 1973-74 (see FigureE6). Projections suggest that by 2030,if we continue on our current path, finalenergy consumption in Victoria will bealmost 40% higher than 2005-06 levels29.Final energy consumption is dominated bypetroleum products. In 2006-07, petroleumproducts accounted for approximately51% of energy use, having grown by anaverage of 1.2% per year since the mid-1970s (see Transport Energy, below).

Despite the predominance of petroleumproducts, it is electricity consumption thathas grown at the fastest rate. Since 1973-74, consumption has grown approximately3.8% per year, with total annualconsumption more than doubling over thepast 20 years. Electricity consumption nowaccounts for close to 20% of final energyconsumption. Projections indicate thatelectricity consumption will increase by afurther 10-15% over the next decade31,32unless there is greater uptake of energyefficiency than in the past.

Consumption of natural gas increasedrapidly in the early 1970s with theinstallation of Victoria’s reticulated naturalgas network. Following this, growth in gasconsumption has slowed to approximately1% per year over the last decade. RecentVENCorp forecasts anticipate that growthwill continue at approximately 0.8% perannum over the next five years33.

The overall growth in energy consumptionis driven by a range of factors. Theseinclude the structure and activity of theeconomy and changes in fuel mix resultingfrom government policies and initiativesas well as consumer demand for cleanerenergy34. Greater uptake of energyefficiency and renewable energy will playa key role in decreasing consumption offossil fuels in future.

Historically, growth in the economy(measured by GSP) and final energyconsumption have been tightly linkeddue to the economic reliance on energyintensive industries. However, there issome evidence of recent decoupling

of energy consumption and economicgrowth (see Figure E7), reflecting sectoralchanges in the Victorian economy thatinclude a shift away from heavy industry.This trend is not standard across allfuels. Increasing demand for electricityin Victoria is tracking relatively closely tothe growth in GSP, whereas petroleumproducts and natural gas have divergedslightly. This may be due to the growthin the electricity-intensive commercialand services sub-sector and the ongoingpressures of a growing population.

Stationary energy

Indicator E3 Sectoral finalenergy consumption

Annual final energy consumption inVictoria is dominated by the transportsector, consuming 36% of the totalin 2006-07 (see Figure E8). Withinthe stationary energy sector, themanufacturing and residential subsectorsaccount for the largest sharesof final energy use in Victoria (33% and18%, respectively). Energy consumptionin the manufacturing sector grew morethan 45% from 1973-74 to the late 1990s(1.5% per year). In contrast, final energyconsumption in the residential sector hasgrown steadily, by an average of 2% peryear over the last decade.

While these sectors consume significantquantities of energy, it is the commercialand services sector that has displayedthe greatest rate of growth in final energyconsumption. Energy consumptionincreased by more than 160% in the last30 years. While this sector still accountsfor only 8% of final energy consumed in2006-07, the rate of growth (3.2% per year)signals that the commercial and servicessector will be an important consumer ofenergy in the future economy.

The growth in final energy consumption inthe transport, residential, and commercialand services sectors may suggest thatthe declining energy intensity of theVictorian economy suggested by FigureE7 is the result of a shift away frommanufacturing and toward less energyintensivecommercial services. However,it is possible that this shift is also dueto improvements in energy efficiency,although limited evidence is available.

Over the past decade, growth in electricityconsumption in the manufacturing,residential, and commercial and servicessectors has been over 3% per year, onaverage. This has important ramificationsfor the greenhouse gas emissions fromVictoria’s energy sector, as the samegrowth rate in natural gas use wouldlead to significantly lower emissions (seeEnvironmental pressures).

Despite the increasing dependence of thepower industry and the services sectoron electricity, gas is also a significantfuel source. In the residential sector,consumption of natural gas has increasedby more than 300% in recent decades(see Figure E10), making the residentialsector the dominant end-user of naturalgas. The manufacturing sector remains alarge consumer of gas, but total annualgas use has declined marginally since the1980s (see Figure E9).

By contrast, wood and wood waste hasremained a significant and relativelyconstant fuel source, but only within theresidential sector (see Figure E10), whereit is predominantly combusted for spaceheating. The impact this has on Victoria’sair pollution is discussed in Part 4.1:Atmosphere – Air Quality.

The increasing trend in electricity useholds particular significance because ithighlights the fact that growth in Victoria’sfinal energy consumption has been drivenby the most greenhouse-intensive form ofenergy.

Manufacturing sector

The manufacturing sector is the greatestconsumer of stationary final energy inVictoria. Consumption of gas is fairlystable, while consumption of petroleumand electricity has been increasing (seeFigure E9). Due to varying industrialprocesses, fuel consumption and fuelintensity, it is not possible to provide ananalysis of final energy consumption byfuel source within manufacturing subsectors.However, the majority of electricity,gas and petroleum consumption withinthe manufacturing sector is consumedwithin the resource extraction and metalproducts sub-sectors38.

The metal products sub-sector aloneaccounted for over 30% of Victoria’s totalelectricity consumption in 2005-06 andapproximately 67% of manufacturingelectricity consumption in the sameperiod39. Within the metal productsindustry, aluminium smelting is thegreatest single electricity consumer. ThePoint Henry and Portland aluminiumsmelters, which receive discountedenergy prices when aluminium prices arebelow a certain threshold and which willcontinue to be supported in this way until2014 and 201640, respectively, accountfor approximately 18% of the State’s totalelectricity consumption41.

Recommendation

E3 The Victorian Government shouldconduct a review that identifies andmakes public any existing energysubsidies to industry, including themetal products sector. It should includeproper assessment of impacts of

subsidies on greenhouse gas emissionsand an evaluation of net strategic benefits.Residential sector

Energy use by the residential sector hasincreased by an average of 1.8% per yearsince 197442. In 2007, the residential sectorwas the third largest user of energy (17% oftotal final energy use; see Figure E8).

Energy is used in the residential sector fora range of purposes including heating andcooling, lighting, cooking and for poweringappliances. Over 55% of all energy used inhomes is provided by gas, with electricityaccounting for a further 25%. In Victoria,wood combusted to provide space heatingcomprises 16% of final energy use. FigureE11 shows the estimated breakdown ofenergy use by major task. In Victoria, 59%of energy consumed in homes is used forspace heating and cooling.

The energy intensity of the residentialsector is increasing with the recenttrend in increasing house size43 anddecreasing occupancy rate44. Risingenergy consumption within the residentialsector is further exacerbated by the trendtowards an increasing number of electricalappliances within homes. Sales ofwhitegoods are estimated to have doubledin the period 1993-200545 in contrastto a 13% rise in population in the sameperiod46. Minimum Energy PerformanceStandards for appliances have beendeveloped to counteract this growingenergy consumption (see ManagementResponses, below).

The 5 Star energy standard for newhomes, which came into effect in July2005, is also a positive step towardsenergy saving across the residentialsector. The standard sets energyperformance levels to be achieved by newhousing. It applies only to the buildingitself, rather than appliances, and wasrecently extended to include renovations.

The standard currently requires that a solarhot water unit or a rain tank is installed.These requirements serve differentobjectives yet both are compromised byfostering a price-driven choice betweenthem.

The benefits of the standard may havebeen outweighed, however, by consumertrends, particularly in lighting. Lightingis not covered by the 5 Star standard,and recent increases in halogen lighting,together with increases in the size ofhomes, have offset reductions in energyconsumption in many new homes47 to theextent that 5-star homes are responsiblefor 6% more emissions than older homes.Moreover, studies show that the 5 Starstandard in Victoria is still well below theaverage energy performance standards ofnew housing in Europe.

These issues, together with considerationof measures that could be employed toincrease the energy efficiency of Victoria’sexisting building stock, are discussedfurther in Management Responses.

RecommendationE4 The Victorian Government increasethe energy efficiency of the 5 Star

Standard to international best practicelevels and extend it to include fixedappliances including hot water systems and lighting.Commercial and services sector

The commercial and services sub-sectorhas been the fastest growing of all theeconomic sectors, and is highly energyintensive (see Figure E12). Energyconsumption in the commercial sectorgrew at an average of 3.2% per annumfrom the mid 1970s until around 2000,predominantly from growth in electricityconsumption. Energy consumptionappears to have remained fairly constantsince 2000.

Similar to the 5 Star standard forresidential buildings, minimum energyperformance standards were introducedfor commercial buildings in May 2006. Thestandard, which is designed to reducethe use of artificial heating and coolingand increase the energy performance oflighting, air conditioning and ventilation, isexpected to save over 5 million tonnes ofenergy-related greenhouse gas emissionsby 201648.

Drivers of final energy consumption

Final energy consumption is driven bya range of factors including increasingpopulation growth and affluence, thestructure of the economy (see Part 2:Driving Forces), consumer choices andthe price of energy in Victoria.

Until the Carbon Pollution ReductionScheme (CPRS) commences, lowenergy prices in Australia will continueto provide no signals to consumers onthe environmental impact of their energyconsumption choices. While the price ofpetroleum products is largely influencedby the world oil market, electricityand gas prices are controlled by localfactors. By world standards, Victoria hasextremely low electricity and gas prices49.These prices take advantage of the lowextraction cost of brown coal to providea competitive advantage for industrialinvestment in Victoria, particularly for largebusiness and metal manufacturing, manyof which are eligible for declining blocktariffs which provide discounts on top ofthe already cheap prices. However, thelow prices fail to discourage inefficientuse of energy amongst all consumers –commercial, industrial and residential.

While electricity prices do factor in thecost to the generators of their air qualityand water treatment requirements, theycurrently fail to factor in the cost to theenvironment of carbon dioxide emissions.This will change upon commencement ofthe CPRS, which will put a price on eachtonne of emissions.

Due to Victoria’s privatised energyindustry, there is a lack of knowledge ofthe level of energy use and the price whichconsumers pay for energy. This createsbarriers for monitoring the scale of energyuse at local levels, such as within localcouncil areas, and prevents effective localaction to reduce energy demand.

Combined with limited, albeit growing,community awareness of the link betweenenergy use and the environment, theissues listed above reinforce inertia andact as a barrier to the uptake of energyefficiency and renewable energy inVictoria. The introduction of the CPRSwill effectively put a price on carbonemissions, which will increase the cost ofelectricity and create financial incentivesfor renewable, low emissions and energyefficiency technologies.

Much recent research indicates thatsignificant emissions reductions can beachieved through increases in energyefficiency. Analysis by McKinsey andCompany demonstrates that manypossible energy efficiency improvementsare already financially viable and delivershort-term net savings even without aprice on carbon50. The analysis suggeststhat greenhouse gas emissions couldbe reduced affordably by 30% by 2020,and around 25% of this reduction couldbe made at zero or negative cost, mostlythrough improved energy efficiency inbuildings and appliances.

A recent report by the AustralianSustainable Built Environment Council51states that the building sector is expectedto reduce greenhouse gas emissionsby around 8 Mt per annum as a result ofincreased energy prices under the CPRS.However, with a range of measures toencourage significant energy efficiencyin the building sector, around 60 Mt ofemissions could be saved either at net

benefit to the economy or at no cost.

See Management Reponses forfurther discussion of energy efficiencyopportunities.

Recommendations

E5 The Victorian Government, throughthe Essential Services Commission,mandate disclosure of all large energycontracts offered by Victorian energyretailers and Vicpower Trading to createtransparency of energy prices andtherefore incentives and disincentivesfor energy efficiency on offer.

E6 The Victorian Government establisha process to collect and discloseenergy consumption data from energyretailers at a local scale, including atlocal government level, to encouragelocal energy efficiency initiatives andallow assessment of the social andeconomic impacts of increased energyprices.

E7 Through COAG, the VictorianGovernment should support increasedenergy efficiency and thermalperformance within the Building Codeof Australia.

Environmental pressures

Indicator E4 Greenhouse gas emissionsGreenhouse gas emissions are the mostsignificant environmental pressure fromthe energy sector. In fact, the energysector, through electricity generation, isthe biggest single contributor to Victoria’stotal greenhouse gas emissions. In2005, Australia produced 559.1 Mt ofgreenhouse gas emissions, accountingfor about 1.5% of the global total52. In thesame year, Victoria produced over 121 Mtof greenhouse gas emissions, or 22% ofAustralia’s total emissions53.

Between 1990 and 2006, Victoria’s totalgreenhouse gas emissions increased bymore than 12% (see Figure E13). Therewas a slight decrease in total emissionsin 2006, but it is not clear whether thisrepresents the beginning of a long-termdownward trend. The energy sector,including both stationary and transportenergy, accounted for 85% of totalemissions in 2006. Stationary energy useaccounted for 69% of total emissionsin 2006, growing by 28% since 1990.In contrast, transport energy, which isthe greatest contributor to final energyconsumption (36%), contributed only16.5% to total greenhouse gas emissions.This difference reflects the difference ingreenhouse intensity of petrol comparedwith brown coal.

Energy-related greenhouse gas emissionsare growing at a slower rate than theeconomy, as measured by gross stateproduct (see Figure E14). In fact, energyrelatedemissions reduced slightly in 2005and 2006, the last two years for whichdata is available. This indicates somelevel of decoupling of the economy fromgreenhouse gas emissions. However,

energy-related emissions have beenincreasing at a much higher rate thanpopulation growth. Between 1990 and2005, Victoria’s energy-related emissionsincreased from 18.3 to 20.4 tonnes carbondioxide equivalent per capita, which ismore than double the rate of growth ofenergy-related per capita greenhouse gasemissions of most OECD countries54

Victorian electricity is the most greenhousegas emissions-intensive in Australia,as the other states rely on black coal,hydro-electricity and natural gas. Despiteonly representing 20% of final energyconsumption, electricity accounts for 68%of Victoria’s energy-related greenhousegas emissions59.

There is potential to decrease theemissions intensity of Victoria’s electricitysupply through a range of measures whichinclude increasing the share of renewableenergy, greater reliance on natural gasfiredelectricity generation or throughemployment of ‘clean coal’ technologies(see Box E3).

A sectoral breakdown of energy-relatedemissions based on the fuel cycleapproach, which accounts for the totaldirect and indirect emissions associatedwith the extraction, conversion, distributionand combustion of energy attributableto the end-use sectors, shows that themanufacturing sector contributed thegreatest quantity of emissions in 2005,followed by the transport, residential andcommercial and services sectors (seeFigure E16). Comparing the emissions ofeach sector with their contribution to finalenergy consumption highlights the highemissions which come from the electricityintensive sub-sectors.

The substantial and increasing use ofelectricity in each of the residential,commercial and services, andmanufacturing sectors has significantimpacts on Victoria’s total greenhouse gasemissions. With electricity use projectedto increase by 10-15% over the nextdecade62,63, greenhouse gas emissionswill also continue to climb without majorchanges to the way in which Victoriagenerates, supplies and uses energy.

Indicator E5 Water extraction,consumption and flow

The prominence of water resourcesustainability has increased in recentyears with the decline in water availabilitybrought about through drought (seePart 4.3 Inland Waters). Coal mining,electricity generation, and offshore oiland gas production all extract significantquantities of water through direct use orthe secondary effects of core activities.

Water is either taken from surfacesources, typically for use in boilers andfor evaporative cooling during electricitygeneration, or is extracted from theground as a by-product of mining forcoal, gas and oil. The concentration ofthese industries in the Gippsland region,and their combined total extractionof water resources from the complexaquifer system of the Gippsland Basin, iscontributing to the overuse of the region’sresources64.

Over 50% of the total surface water use inthe Latrobe Basin is extracted by browncoal electricity generators. In 2004-05, thiscomprised 91,250 ML of surface water –54% of total surface water use65. Annualwater use has ranged from around 90,000ML to around 106,000 ML over the lastten years. On average, over two litres ofwater is used in the generation of everykilowatt-hour (kWh) of electricity sent outin Victoria, higher than in any other stateor territory66. The impact of this extractionon inland waters will increase as theavailability of water declines with climatechange, under which water resources willbecome even more scarce (see Part 3.2:Water Resources).

Water consumption for electricitygeneration can be decreased in severalways. Water used in the generation ofelectricity can be cooled without usingfurther water by employing a technologyknown as dry cooling. This has beendeployed in many power stationsinternationally and greatly decreasesthe water consumption of electricitygeneration.

With increasing future water scarcityunder climate change, the costs forwater supply to electricity generatorscould be increased to better reflect thecost to the environment of this inefficientwater use. Increasing the cost of waterwould acknowledge Victoria’s worseningpredictions for water security and drivemore efficient consumption. See Part 3.2:Water Resources for more information.

Groundwater is extracted by the energyindustry from the Gippsland Basin aquifersystem for several reasons, includingstabilising the mines during coal miningin a process known as mine dewatering.In offshore oil and gas production, wateris extracted as a by-product of the miningprocess. The combined effect of theseprocesses, in addition to the extractionof offshore liquid oil and gas, has been acomplex and widespread depressurisationof groundwater within the Gippsland Basinover the past decades.

Figure E18 shows the combined extractionof groundwater by the energy sectorfrom the Latrobe Aquifer system of theGippsland Basin. In 2005, over 120,000ML of water was extracted by the energyindustry, the bulk of this for offshoreproduction of oil and gas. This is incomparison to the small amount extractedfor irrigation and town water (shownin Figure E18 as ‘Other Extractions’).It is important to note that the waterextracted during offshore productionis hypersaline, and cannot be usedfor human consumption. Groundwaterextraction by mines in the Latrobe Valleyis undertaken in accordance with theirlicence conditions, which set maximumvolumes that can be extracted annuallyfrom nominated aquifers and requiresmines to report their extraction to the Stateannually

Extracting groundwater has two distinctimpacts on the environment. The firstis the actual decline in groundwateravailability and levels. Onshoregroundwater levels in the Gippsland Basinhave declined by an average of 1.1 m peryear since 1975, and are continuing atthe same rate with no sign of reaching anew equilibrium68. Declining water levelshave an adverse impact on irrigators in theregion. It will be necessary to lower boredepths in Gippsland in the coming yearsto ensure access to water69 and pumpsin existing bores may also need to belowered. In addition, pumping durationsmay need to be increased, requiringfurther consumption of energy70.

The second impact of groundwaterextraction is depressurisation of theaquifer system. This is due to theextraction of both on- and off-shore fluid(including the oil and gas itself) and hasimportant effects on groundwater levelsand land subsidence. Subsidence of upto 2.3 m has already occurred aroundthe coal mines in the Latrobe Valley,with the potential for further subsidenceidentified as a risk by the CSIRO71. Undertheir licence conditions, coal mines arerequired to monitor land subsidence.However, due to uncertainty around howcontinued falling pressure will affectland subsidence, and the lag time forsubsidence to occur, further study andmonitoring is required. The Departmentof Primary Industries has established aprogram to monitor for subsidence along

the coast.In addition to these impacts, there isalso the potential for seawater to intrudeinto freshwater aquifers, creating furtherimpacts for Gippsland irrigators andagriculture. While this has not beenidentified to date, there is significantpotential in some regions for this to occuras a secondary effect of energy generationoperations72. It is expected that therewould be a long lag time for any seawaterintrusion into onshore aquifers.

Due to the complexity of the aquifersin the Gippsland Basin and the lack ofclarity on the location and extent of naturaldischarge and recharge systems, it isdifficult to attribute the exact cause ofgroundwater decline and depressurisationto each of the energy industries. However,a report by the CSIRO on falling waterlevels in the Latrobe Aquifer concludedthat it was highly likely that it is mostly dueto offshore oil and gas production73.

Hydroelectricity also has importantimplications for water due to itsassociated infrastructure. Construction ofhydroelectric dams in rivers significantlyalters the flow and temperature balance ofthe water, and can have negative impactson water chemistry and sedimentation.These changes significantly alter thehabitat for a range of aquatic and riparianplants and animals. These impactsare lessened when using hydroelectricgenerators which do not rely on theconstruction of dams.

Indicator E6 Land disturbanceand rehabilitation

Energy use affects the condition ofland through the construction of energygeneration infrastructure and the processof extracting mineral fuels. The principalinfrastructure impacts in Victoria areconcentrated around the Latrobe Valley,where the bulk of Victoria’s fossil fuelreserves are located. Negative impactsfrom construction of generators, and fromthe process of mining brown coal, aretherefore concentrated in one of Victoria’smost fertile land areas.

Coal mining is an intensive process that

disturbs large areas of land through theextraction of coal and the movement ofthe soil which overlays the coal seams(known as overburden), see Part 3.3:Materials. Furthermore, extraction ofgroundwater, as mentioned above, leadsto land subsidence, where land drops dueto decreased aquifer pressure.

In 2005-06, 24,081.8 hectares of land inVictoria was disturbed for coal mining.This included 416.8 ha which had beenundisturbed prior to that year, and 80.2 hawhich was rehabilitated, signifying a netincrease in land disturbed.

In contrast to the amount of land requiredfor coal mining operations, renewableenergy generators occupy comparativelysmaller areas and the land is oftenavailable for other uses simultaneously.This is particularly true of wind generationfacilities, which can still be used forgrazing and leave no lasting environmentalimpact once the turbines are removed.

Indicator E7 Air pollutantsfrom stationary energy

In addition to greenhouse gases,combustion of fossil fuels releases otherharmful air pollutants. In urban andindustrial areas, combustion of fossil fuelsfor stationary and transport energy is thekey source of these pollutants. The majorenergy-related air pollutants in Victoria areoxides of nitrogen (NOX), carbon monoxide(CO), sulfur dioxide (SO2) and particulates(PM10 and PM2.5). Motor vehicles andelectricity supply (largely brown coal-firedgenerators) both emit significant amountsof these pollutants in Victoria. A morein-depth analysis of the state of air qualityin Victoria is given in Part 4.1: Atmosphere

– Air Quality.–

The contribution from stationary energyvaries between airsheds. In the LatrobeValley, electricity supply is the majoremissions source of all four pollutants (in2004-05: oxides of nitrogen, 92%; sulfurdioxide, 97%; carbon monoxide, 36%;particulates, 79%). This is because ofthe concentration of energy generatorswithin this airshed. In contrast, in the PortPhillip airshed motor vehicles are the mainsource of emissions of oxides of nitrogen(74% in 2004-05), carbon monoxide (75%)and particulates (18%). However, sulfurdioxide is largely from diffuse sources offuel combustion (41% in 2004–05) and thebrown coal electricity generator located atAnglesea (39%).

Carbon monoxide, oxides of nitrogen,and sulfur dioxide levels in the PortPhillip and Latrobe Valley airsheds havenot exceeded the thresholds set in theNational Environment Protection Measure(NEPM) for ambient air quality andVictoria’s State Environment ProtectionPolicy (SEPP – Ambient Air Quality)since at least 1998. It is important to

note, however, that the Latrobe ValleyAir Monitoring Network has recordedincidences of plume strikes (where thereis no wind and the concentrated plumereaches the ground) of sulfur dioxide74,75.Monitoring of particulates has recordedsome exceedences of the NEPM andSEPP thresholds76; however, this cancome from a range of sources, includingwindblown dust.

Due to the nature of atmospheric mixing,it is difficult to attribute any effects onenvironmental or human health to theemission of air pollutants from any givenindustry. However, the potential humanhealth effects of air pollutants and amore comprehensive discussion of theemissions profile in Victoria are included inPart 4.1: Atmosphere – Air Quality.

Transport energy

Indicator E8 Final transport energyConsumption

Transport energy is predominantly derivedfrom petroleum products and is thereforedependent on the continued supply ofsignificant quantities of oil. Only 0.53% isderived from electricity and only 0.25% isderived from natural gas.

The transport sector in Victoria is thegreatest consumer of total final energy(see Figure E8). This consumption hasgrown by 85% since the mid 1970s, andis predominantly in the form of petroleum(see Figure E18). The small contributionsfrom electricity are a result of electrifiedtrains and trams.

Final energy consumption in the transportsector has increased by 1.8% a yearover the last 30 years77. This rate ofenergy consumption is directly relatedto increasing demand for mobility drivenby increasing affluence and rates of carownership, population growth and urbandesign (see Part 2: Driving Forces).

In 2006, 52% of transport energy wasconsumed by passenger cars and 81%by all road-based transport78 (see Figure

E19). There is significant potential todecrease the final energy consumption ofpassenger cars, with analyses showingthat 40% of car trips in Victoria are lessthan 3 km, and approximately 50% areless than 5 km79. With encouragementfrom governments through the provisionof appropriate infrastructure, there ispotential to shift a significant proportion ofshort trips to cycling and walking.

Switching modes to lower energy-intensityforms of transport will play a major rolein decreasing consumption within thetransport sector. While passenger carsare the greatest energy consumer withinthe transport sector, the rate of growthin energy consumption is greatest indomestic and international air travel,growing by 185% and 216% respectively inthe period 1985–2006.

In contrast to passenger cars, energyconsumption from public transport isvery low, at 0.3% of the total in 2006.The energy intensity of Melbourne’spublic transport, a measure of energyuse in relation to standard traveldistances and occupancy, is also low incomparison to cars. Based on full-fuelcycle consumption, the energy intensityof cars in Melbourne is 3.18 MJ perperson-kilometre, compared to 3.02 forbuses and only 2.73 and 2.82 for trainsand trams respectively81. The difference isdue to higher occupancy rates in publictransport. Recent increases in publictransport patronage will serve to reducethe energy intensity of Melbourne’s publictransport system further. There is potentialto further reduce the energy intensity ofpublic transport in Victoria by supportingmeasures, including pricing mechanisms,which encourage a shift from cars topublic transport.

Energy consumption by trucks and lightcommercial vehicles in Victoria currentlyaccounts for 27% of total final energyconsumption. However, Victoria’s freighttask is expected to more than double inthe next 30 years. The increase in energyconsumption associated with this willdepend on the mode that is used.Expanding rail freight will lead to a smallerincrease in energy consumption than theequivalent increase in road-based haulage.

Environmental pressures

Transport places a range of pressureson the environment. The emission of airpollutants, which include carbon dioxideand other greenhouse gases, is the mostwidely debated. These environmentalpressures are exacerbated by secondaryissues such as noise pollution andcongestion (which increase the rate ofemission of these pollutants and theirconcentration in areas of high congestion)and urban design (which has led toconcentrations of people around majorroad networks, increasing the rate ofmortality and morbidity). However, it is onlythe primary environmental pressures fromtransport that are discussed here.

Indicator E9 Greenhouse gas emissionsfrom transport

Greenhouse gas emissions from transportarise from the combustion of fossil fuels tocreate transport energy and also from theenergy consumed to move transport fuelsaround the globe. Australia and Victoriaare both net importers of oil to meet theirtransport energy needs82,83, creatinga large amount of emissions from thetransport and refining of crude oil.

Greenhouse gas emissions from transportin Victoria have grown by over 26%since 199084. While the transport sectoraccounts for the greatest share of finalenergy consumption, it accounts foronly 16.5% of Victoria’s total greenhousegas emissions (see Figure E1). Thediscrepancy is due to the predominanceof petroleum in the fuel mix, which hasmuch lower greenhouse gas emissionsintensity than electricity (see Figure E15).

Within the transport sector, passengercars are the greatest contributor togreenhouse gas emissions85 (see FigureE20). Emissions from passenger carsincreased by 23% in the period between1988 and 2006, and accounted for 32% oftotal transport emissions in 2006. The rateof growth in emissions, however, is highestin air travel from Victoria, rising by 129%from 1988 to 2006.

Emissions from passenger vehiclescome primarily from cars. Figure E21shows the proportion of emissions fromdifferent modes of passenger transport inMelbourne.

At the same time as being the highestcontributor to overall greenhouse gasemissions from the transport sector,passenger cars also have highergreenhouse intensity per unit of distancetravelled and passengers carried than anyother form of passenger transport. Despitepetroleum having a lower greenhouseintensity than the electricity used to power

Melbourne’s trains and trams, occupancyrates of cars are low compared with publictransport and cars are often used for shorttrips87.By contrast, trains and trams use moregreenhouse-intensive electricity as a fuel,but they use more energy-efficient electricmotors and carry many more people.Based on full fuel cycle greenhouse gasemissions factors and average occupancyrates, passenger cars emit 0.213 kg ofCO2-e per person-kilometre travelled,compared with 0.145 kg CO2-e/PKT fortrains, 0.158 kg CO2-e/PKT for trams and0.159 kg CO2-e/PKT for buses88. Thegreenhouse intensity of public transportwill further decrease if occupancy levelscontinue to rise, and as a result of futureincreases in the proportion of renewableand low-carbon electricity in the electricitynetwork.

While public transport performs only 30%better, on average, in terms of greenhouseintensity than cars, significant greenhousesavings can be achieved by encouraginga shift from cars to public transport. Inoff-peak periods, where there is sparecapacity on public transport, around 95%of emissions can be saved, as shown inFigure E22.

With rapidly rising fuel prices in recentyears there has been some shift towardssmaller, more efficient cars. This hascontributed to an increase in importedvehicles because no small vehicles are yetmade in Australia. There has also beenan increase in the sales of scooters andmotorcycles, which are significantly morefuel-efficient, and thus less emissionsintensive,than cars.

After many years of significant subsidies,the Commonwealth Government hasrecently received a review of futureassistance to the automotive industry fromformer Victorian Premier Steve Bracks.This represents an opportunity to ensurethat future assistance is dependentupon significant improvements in theenvironmental performance of the vehiclesproduced.

Recommendations

E8 A step change increase in theprovision of public transport services isrequired, particularly in outer suburbs,to actively drive a shift from privatevehicles.

E9 The Victorian Government continueto encourage mode-shifting from cars tocycling and walking through the furtherprovision of appropriate infrastructure.

E10 The Victorian Governmentshould ensure that future commercialassistance provided to the automotiveindustry is tied to demonstrableimprovements in vehicle fuel efficiencyand should seek to achieve this throughCOAG

Analyses of freight greenhouse intensityare less robust, but preliminary analysesshow that transport by light commercialvehicles is relatively intense, at about 1.5kg of CO2e per tonne-kilometre. Air freightis the most greenhouse-intensive freightmode (about 3 kg per tonne-kilometre),but carries a small proportion of the total.

Improving the energy efficiency of vehicles,reducing the need for car use throughimproved urban design, enhancing publictransport and developing alternativefuels all have a role to play in decreasingemissions from transport.

Such measures also have the potential toprovide greater security against the risksof future oil shortages and rising oil prices.In 2008 the CSIRO published a reportindicating that petrol prices could rise toas much as $8 per litre by 2018 if there isa near-term peak in production resulting indeclining future supplies90.

Indicator E10 Air pollutionfrom transport energy

Motor vehicles are a major source ofair pollution in Victoria, especially inurban areas, accounting for up to 77%of carbon monoxide emissions and 74%of emissions of oxides of nitrogen91.

Pollutants from motor vehicle use,including carbon monoxide, oxides ofnitrogen, sulfur dioxides and particulates,are controlled through the AustralianDesign Rules (ADR), which applystandards to fuel and engine design.They are also regulated by the DieselNational Environment Protection Measure(NEPM)92.

Due to improvements in design, thecontribution of air pollutants from motorvehicles in Victoria is improving. Despiteincreasing car usage, pollution from thissource has been in decline since 1988(see Figure E23). This is particularlynotable for carbon monoxide and lead.The emission of lead from motor vehicleshas declined so significantly since theintroduction of unleaded petrol in 1986that lead monitoring ceased in 200593 (seealso Part 4.1: Atmosphere – Air Quality).

The decoupling of pollution from vehicleuse is promising and is largely due to thecompliance of motor vehicle engines andfuels with increasingly high standards setby the ADR95 for certain pollutants underthe National Pollutant Inventory, and due toincreased global supply of vehicles. Thisachievement highlights the potential forintroducing effective engine and vehicledesign standards that also limit carbondioxide emissions, thereby reducing thecontribution of greenhouse gases from thetransport sector.

Although decreasing emission rates ofpollutants attributable to transport energyuse is encouraging, there are concernsthat they may be negated in the futureby further increases in the use of motorvehicles, highlighting the need to continueto address travel and car use patterns aswell as engine and fuel standards.

Biofuels

The environmental impacts of biofuelsare complex and depend upon a rangeof factors including the feedstocks andtechnology used in the fuel’s production.While there may be benefits relatingto regional development and energysecurity—and these have often beenthe main drivers of government policiesto encourage biofuels—most currentAustralian biofuels do not significantlyreduce greenhouse gas emissionscompared to petrol due to the significantamount of energy used in their growing,harvesting and manufacture. Emissionscan also be released through the use ofnitrogen-based fertilisers.

On a global level, other significant impactsof biofuel development include the loss offorests for biofuel plantations, in particularpalm oil, and the increase in food pricesresulting from the diversion of landfrom food crops to biofuel production.So far, the production of biofuels, whileproviding a substitute for fossil fuels, hashad significant environmental and socialconsequences.

Second generation biofuels are beingdeveloped that address many of thecurrent concerns. Feedstocks such aswoody waste materials and algae promisenet greenhouse savings and do notcompete with land and water resourcesneeded for food production.

Recommendation

E11 The Victorian Government shouldensure that any support to the biofuelsindustry is directed at technologies thatdeliver positive environmental benefitsincluding reductions in greenhouse gasemissions.

Transport funding

Transport funding and taxation policieshave favoured road-building and car useover increased public transport for severaldecades. In recent years, public transporthas been given higher priority in Victoriathrough programs such as Meeting ourTransport Challenges (MOTC). However,the legacy of past decisions leaves cardependentouter suburbs increasinglyvulnerable to rising oil prices. For moreinformation, refer to the Commissioner’stransport position papers – Creating a citythat works96 and Public transport’s role inreducing greenhouse gas emissions97.

With the additional urgency of reducinggreenhouse gas emissions, there existopportunities to change funding prioritiesin favour of more sustainable transportmodes.

The Commonwealth Government’sprogram of transport funding, includingAusLink and AusLink 2, continuesoverwhelmingly to favour new roadinfrastructure, with only a small proportiondirected at rail freight. In contrast to mostOECD countries, no Commonwealthfunding is currently available for publictransport. Funding priorities at both thestate and Commonwealth levels shouldgive priority to more sustainable transportmodes. It appears likely that a proportionof the Commonwealth Government’srecently established Building AustraliaFund will be used for public transportprojects and this is encouraging.

The Victorian Government is currentlyfinalising another transport plan, as thepatronage levels and population growthforecast within MOTC were significantlyunderestimated. The new plan is expectedto be announced towards the end of2008. One key input to the plan is SirRod Eddington’s East-West Link NeedsAssessment98, which has proposed asignificant new cross-city road tunnel andtwo new major rail projects as the keyelements of a $20 billion dollar packageof proposals. The Victorian Government isexpected to seek Commonwealth fundingtowards the new plan and whatever majorcapital projects it decides to pursue.

There are also several taxation policiesthat favour car usage, including theFringe Benefit Tax concession for theprivate use of company cars. Thisconcession provides a financial incentiveto drive company cars further to reachset thresholds above which lower taxlevels apply. The policy therefore activelyencourages the creation of greenhousegas emissions without any economicbenefit.

Recommendations

E12 Through COAG, the VictorianGovernment should continue toencourage the CommonwealthGovernment to provide funding forpublic transport infrastructure.

E13 The Victorian Government shouldencourage the CommonwealthGovernment to abolish the current FBTconcession for private use of companycars as part of its current review of theAustralian tax system.

Management Responses

Current government responses tothe environmental impacts of energyproduction and consumption in Victorianeed to address four key environmentalobjectives:

• reduce greenhouse gas emissions fromenergy generation and use

• reduce energy demand by increasingenergy efficiency

• support the development anddeployment of low-emissionstechnology

• decrease the other environmentalimpacts of energy use.

Of these, the most critical is reducinggreenhouse gas emissions from energygeneration and use while continuingto maintain energy security. Whilekeeping energy affordable has been akey government priority in the past, theintroduction of a carbon price via theCPRS will inevitably result in higher energyprices to drive a transition to less pollutingenergy sources and technologies.

Both the Commonwealth and VictorianGovernments have committed toachieving a 60% reduction in greenhousegas emissions by 2050 from 2000 levels.

The Victorian Government has developeda portfolio of responses to the complexissue of reducing the environmentalimpact of energy generation and use inVictoria. As such, there are a broad rangeof responses to the objectives listedabove. Following is a list of representativestrategies and programs to address eachobjective.

Reducing greenhousegas emissions

Response NameCarbon Pollution Reduction SchemeResponsible AuthorityCommonwealth Departmentof Climate ChangeResponse TypeProgram

This section should be read in conjunctionwith Part 4.1: Atmosphere – ClimateChange.

In July 2008 the CommonwealthGovernment published its CarbonPollution Reduction Scheme (CPRS)Green Paper. The proposed CPRS, thename proposed for Australia’s emissionstrading scheme, places an annual limitor ‘cap’ on the total amount of emissionsallowed and requires affected businessesto purchase a permit for every tonne ofemissions they produce. The annual capsare reduced over time to drive overallreductions in emissions. The CPRS isexpected initially to cover approximately1,000 of the country’s largest emittersof greenhouse pollution, representingapproximately 75% of total emissions. TheGovernment plans to consider expanding

the coverage of the scheme in future,with the earliest date for coverage of theagricultural sector being 2015.

Parties are allowed to buy and sell permitsin a market. As the caps decrease, thevalue of a permit will rise. Businesseswill choose between paying increasingprices for permits to continue emitting,and acting to reduce their emissions. Thescheme is intended to reduce emissionsat the least overall cost and is planned tocommence in 2010.

The Australian and Victorian Governmentshave committed to a 60% reduction ingreenhouse gas emissions by 2050against 2000 levels. This target may berevised upwards as research continuesand awareness of the urgency of climatechange action increases. Interim targetsand the mechanism by which emissionspermits will be allocated are still underconsideration.

The Commonwealth has indicated thatby December 2008 it will announce thenational five-year trajectory to 2013 (thatis, the remaining period under the KyotoProtocol), including the target reductionrange and the approach it will take tosetting emissions caps for the CPRS. Ifan international agreement is reached,Australia’s trajectory settings would bechanged accordingly.

One significant input to the Government’sthinking is the Climate Change Reviewrecently completed by Professor RossGarnaut.

Pending international negotiations on post-Kyoto arrangements, Professor Garnaut’sreview suggests a set of possibilitiesfrom which the best option should bedetermined, within an internationalcontext. These options create a pathwayto an eventual 400 ppm greenhouse gasCO2-e concentration goal. The suggestedpossibilities are:

• a 25% (or 40% per capita) reductionon 2000 levels by 2020 within a globalagreement aimed at returning emissionsto 450 ppm CO2-e, and 90% emissionsreduction by 2050.

• a 10% (or 30% per capita) reductionon 2000 levels by 2020 within aglobal agreement aimed at stabilisingemissions at 550 ppm CO2-e, and 80%emissions reductions by 2050.

• an Australian commitment betweenthe 450 ppm and 550 ppm position,corresponding to a global agreement inbetween.

• if no international agreement isachieved for the post-Kyoto period,a 5% emissions reduction on 2000levels by 2020 to achieve Australia’sexisting commitment to achieve a 60%emissions reduction target for 2050.

Professor Garnaut states that the 450 ppmtarget is in Australia’s interests.

While the CPRS will be the primarymechanism for driving reductionsin greenhouse gas emissions, othermeasures will be required. These aregenerally known as complementarymeasures and will be needed at bothnational and state levels. The GarnautReview acknowledged that the CPRSshould not be relied upon on its own todeliver the required emissions reductions.

Various complementary measures will berequired to reduce the costs and impactsof emissions abatement. Complementarymeasures will be needed in sectors ofthe economy not covered by the CPRS. Ifemissions can be reduced in non-coveredsectors, the economic burden on thecovered sectors in meeting the long-termreduction targets will be reduced, and theoverall impacts on the economy will bereduced.

Complementary measures are alsoapplicable to sectors of the economythat are covered by the CPRS, such aselectricity generation. Complementarymeasures will not lead to additionalemissions abatement, as the overalllevel of abatement is a function of theemissions caps. However, they canenable emissions reductions targets to beachieved at lower overall cost than relyingon the CPRS alone, thereby reducing theeconomic impacts of the scheme.

Complementary measures includesupport for the research, developmentand deployment of low emissionstechnologies. Examples of such measuresinclude support for new technologiessuch as geothermal and other formsof renewable energy and clean coal.Such measures support low-emissionstechnology research and developmentand commercialisation. Low-emissionstechnologies need to be developed, asthey are expected to play the key role inreducing emissions significantly in thelonger term.

Demand-side measures will also continueto be required to reduce greenhouse gasemissions by reducing energy demandthrough increased energy efficiency. It hasbeen demonstrated that significant gainsare achievable at low cost, particularly forbuildings and vehicles. Complementarymeasures can also address marketfailures such as ‘split incentives’; forexample, where landlords have nofinancial incentive to invest in makingrented housing more energy efficient asthey do not receive the benefit of lowerenergy bills.

The CPRS will impact very stronglyon Victoria’s energy sector due to itspredominant reliance on brown coalelectricity generation. Electricity generators

will have to buy permits to continue toemit greenhouse gas pollution. The extracosts may be passed on to electricityconsumers who will be encouraged toconsume less as a result and, as the priceof permits increases, less carbon-intensiveforms of electricity generation will becomerelatively cheaper and more attractive.

Electricity generators have called forfinancial assistance to soften the impactof a carbon price and allow more timeto adapt to low-carbon alternativetechnologies. However, it is essentialthat any assistance that is provided istransitional in nature, does not providelong-term support that prevents or delaysstructural adaptation, and does not distortthe CPRS.

Impacts of the CPRS on transport energyuse will be minimal in the early years ofthe scheme as, for the first three years ofthe scheme at least, the Commonwealthis proposing to offset any increase inthe price of petrol with a correspondingreduction in fuel excise.

Following on from its Climate ChangeSummit in April 2008, the VictorianGovernment is also developing itsown Climate Change Green Paper andsubsequent legislation. The VictorianGovernment has already committedto the same long-term target as theCommonwealth – a 60% cut in emissionsby 2050 against 2000 levels. It isexpected that this target will be includedin the Climate Change Green Paper andsubsequent legislation. However, it isnot clear what the continued value of aVictorian target will be once the CPRScommences.

See Part 4.1: Atmosphere – ClimateChange for further discussion aboutemissions reduction and the CPRS.

Recommendations

E14 The Victorian Governmentshould develop a strong program ofcomplementary measures – includingmeasures which are required inthe lead-up to the CPRS –, supportrenewable energy, support research anddevelopment of low-carbon technology,address market failures, and reduce thecost of abatement in covered sectorsor related sectors not covered by theCPRS.

E15 The Victorian Government influencethe design of the CPRS to ensurethat it is comprehensive in coverage,contains minimal concessions tocarbon-intensive sectors (such asfree allocation of permits), and thatemissions caps are established thatreflect the urgency of the science andlead to rapid and significant emissionsreductions.

Response NameEnergy Technology Innovation StrategyResponsible AuthorityVictorian Departmentof Primary IndustriesResponse TypeStrategy/Policy

The Energy Technology InnovationStrategy (ETIS) aims to containgreenhouse gas emissions from thegeneration and use of energy and to drivedevelopment of a sustainable energysector in Victoria. It is one of a range ofstrategies which were introduced underthe Greenhouse Challenge for Energypackage in 2004 and provides funds topre-commercial low-emissions technologyprojects to assist in their development anddemonstration.

The first round of the program made atotal of $187 million available for eligibleprojects, which has been fully allocatedto a range of renewable energy andclean coal projects, including $50 milliontowards a 154 MW solar power stationin north-west Victoria. In April 2008, theVictorian Government announced newETIS funding: $72 million for large-scalerenewable energy projects, and $110million for pre-commercial carbon captureand storage projects.

Reducing energy demandResponse NameVictorian Energy Efficiency TargetResponsible AuthorityVictorian Department of PrimaryIndustriesResponse TypeProgram

Initiatives aimed at increasing energyefficiency offer some of the cheapest waysto reduce greenhouse gas emissions. Infact, as recent analysis by McKinsey andCompany demonstrated99, significantabatement can be achieved at zero ornegative cost without major technologicalbreakthroughs or lifestyle changes.

The Victorian Government announceda target to reduce greenhouse gasemissions from Victorian householdsby 10% by 2010 as part of its electioncommitments in 2006. The key strategyunderpinning this commitment is theVictorian Energy Efficiency Target (VEET).The program aims to remove barriers toenergy efficiency through providing lowor no cost energy efficiency measuresto Victorian households. Only residentialbuildings are covered by the VEETscheme. In contrast, the NSW Governmentis proposing an energy efficiencyscheme that will apply across residential,commercial and industrial sectors.

Under VEET, energy retailers willbe required to provide support tohouseholders to meet mandated targets.

The energy savings produced throughthese measures will create tradeablecertificates, which must be surrenderedto prove compliance with annual energyefficiency targets.

The VEET scheme is scheduled tocommence in 2009. Targets have been setfor 2009-2011 requiring annual savingsof 2.7 million tonnes of greenhouse gasemissions. The activities implementedunder the first three years of the programare expected to reduce emissions by atotal of 8.1 million tonnes. Further targetswill be set in three-yearly phases in futureyears, subject to a review of the program’sperformance.

A suite of other measures will assist inmeeting the Government’s 10% target,including rebates for energy efficiencyinstallations, regulations on the energyefficiency of appliances, and informationcampaigns such as the VictorianGovernment’s ‘Black Balloons’ mediacampaign.

Recommendation

E16 The Victorian Government establishlong-term energy efficiency reductioninitiatives and targets across theresidential, commercial and industrialsectors beyond 2011 to complementthe national Carbon Pollution ReductionScheme.

Response Name5 Star Building StandardResponsible AuthorityVictorian Building CommissionResponse TypeProgram

The Victorian Government introducedminimum energy standards for newresidential buildings effective from 1 July2004. The 5 Star Standard requires thatall new houses in Victoria be designed toachieve a specified energy performancelevel before they are granted a buildingpermit. The Standard applies only to thebuilding itself and not to the appliancesinstalled within it, nor, currently, to lighting.It also requires installation of either solarhot water units or rainwater tanks. In 2008the scheme was upgraded to includeresidential renovations.

As at June 2007, 100,000 new homeshad been built to the 5 Star Standard.Without the new standard, it is estimatedthat these homes would have beenresponsible for 33% more greenhousegas emissions overall. However, as aresult of increased house sizes in recentyears and changes to lighting preferences(such as halogen), it is also estimated thatemissions from 5 Star Standard homesare 6% higher than from houses built

before the Standard was introduced. Thisis an example of how improvements toefficiency, while essential, are not enough.

The 5 Star Standard is relatively low incomparison to European standards anddoes not require that seasonal standardsare met. This has meant that housing inVictoria has tended toward high energyefficiency for winter, when Victorians spendthe bulk of their energy bills on heating,and very low energy efficiency for summeras a consequence. This increases theneed for further energy consumptionthrough installation of air conditioners andother cooling systems.

However, the vast majority of Victorianhomes were built before the 5 StarStandard was introduced, representing92% of Victoria’s housing stock100, andtherefore provides a greater opportunityfor increased energy efficiency than newhousing. The Centre for InternationalEconomics estimates that the buildingsector, comprising both residential andcommercial building, is responsiblefor 23% of national greenhouse gasemissions, yet electricity demand couldbe halved by 2030 through energyefficiency.101 As yet, although the VEETscheme (see above) is due to commencein 2009 and will apply to residentialbuildings only, there are no currentmeasures aimed at improving the energyefficiency of existing buildings throughencouraging modifications such as doubleglazing and insulation through pre-saleobligations or information disclosureprograms.

There are also a number of regulatorybarriers to increasing the energy efficiencyof buildings. These include excessivecompliance and transaction costs forsmaller scale projects such as retrofits.Costs could also be reduced by theadoption of policies such as greendepreciation, which provide accelerateddepreciation for buildings that meetspecified energy-efficiency standards.

Recommendations

E17 The Victorian Government shouldintroduce measures to significantlyimprove the energy efficiency of existingresidential buildings by requiring, forexample:• compulsory disclosure of energyefficiency at point of sale.• mandatory roof insulation before sale.• subsidies to convert electric waterheaters to zero or low-emissionsalternatives.

E18 The Victorian Government,through COAG, support measures toreduce regulatory barriers to energyefficiency improvements and improvefinancial incentives for energy efficiencyimprovements, including green

depreciation.

Response NameIndustry Greenhouse Program,and Environment and ResourceEfficiency PlansResponsible AuthorityVictorian Environment Protection AgencyResponse TypeProgram

The Industry Greenhouse Programcommenced in 2002 and was the firstregulatory greenhouse and energyefficiency program for businesses inAustralia. The program required all EPAlicence holders to audit their energyconsumption and identify measuresfor energy and greenhouse savings.Eligible businesses were then required toimplement any identified strategy whichhad less than a three-year payback period.

At the end of 2007, greenhouse gasemissions savings were projected to be1.23 million tonnes of carbon dioxideequivalent a year, which amounts to anaverage reduction in greenhouse gasemissions of 3.5% per eligible business,and $38.2 million in annual cost savings.The associated energy savings areequivalent to one year’s growth inVictoria’s total electricity demand, andthree years’ growth in total gas demand.The program, however, only applied tothe 777 Victorian businesses which areEPA licence holders. Further, only thehighest energy consumers amongstthem (approximately 300 businesses)were required to implement and report onenergy and greenhouse savings. Largersavings could have been achieved ifmandatory actions were required of alllicensees and extended to include a widerrange of Victorian businesses.

The Industry Greenhouse Programconcluded in 2007. However, thesuccesses of the program have beenused in the design of the Environment andResource Efficiency Plans (EREP) programwhich has replaced it. From January2008, all commercial and industrial sitesin Victoria that use more than 100 TJ ofenergy or 120 ML of water per year arerequired to submit a plan that identifiesactions to reduce energy and water useand waste generation. Actions must havea payback period of three years or less.

EREP employs a similar method ofauditing and mandatory implementationas the Industry Greenhouse Program forenergy, water and materials consumption.

Response NameMinimum Energy Performance StandardsResponsible AuthorityCommonwealth Department of Water,the Environment and the Arts; EnergySafe VictoriaResponse TypeProgram

Minimum energy performancestandards (MEPS) for some residentialand commercial electrical equipmentare mandated in Australia by stategovernment legislation. The State andCommonwealth Governments together setstandards which prevent the manufactureor import of inefficient appliances,reducing energy demand and theassociated greenhouse gas emissions.Standards do not currently exist for allappliances but will be expanded in 2008to include a greater number of commonhousehold and business appliances.

With increasing numbers of appliancesinstalled in Victorian households, thepotential for MEPS to contribute toabatement of greenhouse gas emissionsis increasing. MEPS are estimated to havesaved 813,000 tonnes of carbon dioxideequivalent in Victoria in 2006–07. MEPSalso illustrate the ease with which realenergy efficiency savings can be regulatedand implemented.

While MEPS is an important mechanismfor achieving energy savings, it onlyprovides for eliminating the least energyefficientproducts in the market. A similarprogram called ‘Top Runner’, introducedin Japan, uses the most efficient products,rather than eliminating the least efficient,as the basis for establishing futureminimum efficiency standards. Theprogram has achieved energy savingsof 11% for refrigerators and over 40% forcomputers.

In addition, given the number of productson the market and the rate of innovationthat leads to new products, MEPS arealways developed after products are onthe market, preventing the sale of theworst performers only after they havebeen installed in homes. Complementaryresponses are required which challengeenergy efficiency leaders to develop moreefficient products at the same time aspreventing the sale of energy inefficientappliances, and which allow for theimplementation of MEPS earlier in thecommercialisation of products.

Recommendations

E19 The Victorian Government increasethe funding and resources to MEPSdevelopment to allow greater and fasterroll out.

E20 The Victorian Government modifythe MEPS program such that minimum

energy efficiency standards are based on the performance of the most efficient products available.Increasing renewable energyResponse NameMandatory Renewable Energy TargetResponsible AuthorityCommonwealth Department of ClimateChangeResponse TypeProgram/LegislationResponse NameVictorian Renewable Energy TargetResponsible AuthorityVictorian Essential Services CommissionResponse TypeProgram/Legislation

The Mandatory Renewable Energy Target(MRET) commenced on 1 April 2001,and aimed to supply an extra 2% ofAustralia’s energy from renewable sourcesby 2010. Under MRET, energy retailershave an obligation to provide a regulatedpercentage of energy from renewableenergy generators. This obligation ismeasured through the trade of certificateswhich are granted to renewable energygenerators for every unit of electricity theygenerate.

As a market-based scheme, MRET favoursthe development of wind energy, which iscurrently the cheapest form of renewableenergy. A review in 2003 found that theMRET scheme had significant potentialto support the development of a strongrenewable energy industry in Australia,but was limited by the cap on supportingonly an extra 2% (or 9,500 GWh) perannum102. It was recommended that thelimit on MRET be increased to supportthe growing renewable energy industryand reduce Australia’s energy-relatedgreenhouse gas emissions.

The Victorian Renewable Energy Target(VRET) commenced in January 2007.Under the scheme, electricity retailersand wholesale purchasers are obliged topurchase renewable energy. The targetis for 10% of electricity in Victoria to besupplied by renewable sources by 2016. Itis expected that VRET will be incorporatedinto MRET.

The Rudd Government has committedto extending the MRET to supply 20% ofAustralia’s energy from renewable sourcesby 2020, with $15 million allocated tothe scheme in the 2008-09 Budget. Thisis an effective five-fold increase in theMRET cap and guarantees developmentopportunities for renewable energytechnologies in Australia for the years tocome.

The future of the MRET scheme maybe impacted by the introduction of theCarbon Pollution Reduction Scheme(CPRS), with the Garnaut ClimateChange Review interim report suggestingphasing out MRET under the CPRSfor maximum economic efficiency103.However, continuing support for renewableenergy will be required to ensure that

renewable energy technologies continueto develop. In the early years of the CPRSit is unlikely that the carbon price will behigh enough to make renewable energyfinancially competitive. It is essential thatthe renewable energy industry continuesto develop, bringing costs down as newtechnologies are adopted so that it isready to provide significant quantitiesof low-carbon energy when the carbonprice is high. Additionally, bringing thecosts of renewable energy down will lowerthe carbon price at which it becomescompetitive. This will lower the financialimpacts of the CPRS on energy prices forall sectors of the economy.

Response NameSolar Feed-in TariffResponsible AuthorityDepartment of Primary IndustriesResponse TypeProgram/Legislation

The Victorian Government announced inMay 2008 that it would introduce a feed-intariff to support development of smallscalesolar generation from 2009. Feed-intariffs offer a rate of payment to ownersof small-scale photovoltaic units that isabove the rate they pay for energy, therebycreating a financial incentive to own asolar power system. The feed-in tariff wasintended to create a strong market fordistributed solar energy in Victoria, therebybringing down the cost of photovoltaicsystems by increasing demand.

In 2009, households with a solarpanel under 2 kW will be paid 60c perkilowatt-hour of electricity fed into thegrid. However, this will be paid on thenet amount exported into the grid (thedifference between what is generatedby the household and consumed by thehousehold over a time period) ratherthan the gross amount (the total amountgenerated before accounting for the use ofelectricity within that household). As mosthouseholds do not generate more froma 2 kW solar panel than they consumefrom the electricity grid, the paymenteffectively becomes negligible for the bulkof households, and benefits householdswith less consumption during the day (thepeak electricity production time of a solarpanel). Under this design, the feed-in tariffis rendered ineffective for achieving itspurpose. Using net metering, the paymentwould have to be $2 per kilowatt-hour tohave the same effect as a program usinggross metering.

Furthermore, the feed-in tariff only appliesto small solar units and specifically doesnot apply to other small scale renewableprojects or any projects larger than 2kW of installed capacity. Countries suchas Germany (see Box E4) and Denmarkhave used feed-in tariffs across a broadrange of technologies of all scales,which has helped them to develop a

strong renewable energy portfolio andsubstantially decrease their reliance on fossil fuels.

As photovoltaic systems deliver theirpeak energy at peak periods of demand– namely, hot sunny days when airconditioninguse is greatest – they reducethe need for new generating capacity.They also reduce the need to upgradethe transmission and distribution network.The Australian Energy Regulator’s 2007State of the Energy Market104 stated that44% of the revenue from electricity billswas directed at network upgrades, withjust 41% meeting the wholesale electricityprice.

The Garnaut Climate Change ReviewFinal Report recognised the benefits ofboth deferred augmentation of distributionand transmission networks, and reducedtransmission losses. As these benefitsapply to all electricity generated, not justthe amount sold back to the network, thereport suggests gross metering is themore appropriate approach.

However, the Government has stated thatsmall-scale renewable energy generationis significantly more expensive in termsof tonnes of emissions abated per dollarthan larger renewable projects (althoughincentive schemes can leverage privateinvestment that would not otherwisebe spent on abatement). The VictorianGovernment estimates the total abatementcost of a small photovoltaic system ataround $500 per tonne – ten or twentytimes the expected price of carbon in thefirst years of the CPRS, and six times moreexpensive than Solar Systems’ proposedlarge scale photovoltaic power station.Given this, the Government designed thescheme to balance the incentive providedwith the cost to all energy consumers,although it is unclear whether all costs andbenefits were considered.

In the context of the CPRS driving leastcost abatement, residential feed-in tariffsmay be reviewed. The issues raised hereshould be considered in the design of anongoing scheme.

Recommendations

E21 The Victorian Government shouldreview the purpose and design of thefeed-in tariff in the context of the CPRS,accounting for the full range of potentialcosts and benefits.

E22 The Victorian Government releasethe detailed calculations used indesigning the on-going solar feed-intariff scheme to better communicate thepolicy objectives.

Reducing transport emissionsResponse NameIncreasing Public Transport PatronageResponsible AuthorityDepartment of TransportResponse TypePolicy

The Victorian Government has a targetof 20% of motorised passenger trips inMelbourne being taken by public transportby 2020. If achieved, this would be asignificant increase from only 8% in 2002.

Progress towards the target ismonitored by the Department ofTransport and reported in the VictorianGovernment Budget Papers. In 2005-06, the percentage of motorised trips inmetropolitan Melbourne being taken bypublic transport had increased to almost9%. However, data from 2006-07 showeda slight drop in that percentage. Whilepublic transport patronage had grownvery strongly, there had been even greatergrowth in passenger vehicle kilometres.

Public transport patronage has grownby around 30% over the last three yearsdue to a range of factors including rising

petrol prices, reduced fares and strongemployment growth in Melbourne’s CBD.This growth has already led to crowding,especially on trains. However, currentpolicies and initiatives to expand servicesare only playing catch-up with this growingdemand rather than actively driving ashift towards more sustainable transportmodes.

The Garnaut Climate Change ReviewFinal Report reinforces the importance ofgovernments lowering the economic costsof adjusting to both a carbon emissionsprice and future oil price increases byplanning for denser cities and providingincreased public transport. In the report,it is estimated that a shift to publictransport could account for a quarter ofemissions reductions in urban passengertransport, ‘lowering the cost of transitionand delivering multiple benefits to thecommunity’105.

There are significant challenges toachieving the 20% target, whichrepresents more than doubling of currentpatronage levels. Forecasts suggestcapacity will be reached on many lineswithin five years without the provision ofsignificant levels of new infrastructure.This is being addressed to some extentby the public transport elements of the2006 transport package, Meeting ourTransport Challenges. The Governmenthas ordered new trains and is installingnew track at bottlenecks in the rail system.

There have also been initiatives suchas the introduction of Early Bird fares toencourage patrons to travel outside ofpeak times (peak-spreading).

In 2007 the Government commencedthe Transport Legislation Review, whichaims to better integrate Victoria’stransport legislation. Part of the processis the development of a set of overarchingobjectives that would have tobe considered in decision-making. Theestablishment of strong environmentalobjectives, including the need to urgentlyreduce greenhouse gas emissions, isessential. This will help to guide futurepolicy and programs towards moresustainable transport outcomes.

The Victorian Government is currentlyconsidering Sir Rod Eddington’s East-West Link Needs Assessment report,which contains an $18 billion packageof recommendations for increasing thecapacity of transport connections acrossMelbourne. While the report containsmany proposals for improved publictransport services, the overall greenhouseimpacts are assessed as being ‘minimalbut beneficial’. The Government needs toconsider the report, and to consider whichof the recommendations to implementin the context of a long-term transportplan for Melbourne which has emissionsreduction and oil vulnerability at its core.

Response NameIncreasing the provision of publictransport in outer suburbsResponsible AuthorityVictorian Department of Transport,Growth Areas AuthorityResponse TypePolicy/Legislation

Lack of effective public transport in fastgrowing outer suburbs also presents asignificant challenge to the achievementof a 20% shift to public transport by2020. Much of Melbourne’s populationgrowth is in outer areas with no accessto trains or trams. Although homes innew developments are built to 5 Starenergy efficiency standards, it is ironicthat the people who live in them areoften dependent on energy-intensiveprivate cars and are vulnerable to futurepetrol price increases resulting from oilavailability or the CPRS.

In 2006, the Director of Public Transportwas made a referral authority underthe Planning and Environment Act 1987for developments above a certain size.Outer suburban bus services have alsobeen expanded and improved in recentyears. Yet many areas remain without effective and frequent services. This leadsto increasing car dependency and roadcongestion, and economic and socialvulnerability to increased oil prices.

Precinct Structure Plans, which are nowrequired for new developments, requirethat adequate levels of public transportare provided. However, the adequacy ofthe current service standards, in particularthe frequency and hours of operationof bus services, is often debateable. Toencourage a shift to public transport,reduce car dependency and reducevulnerability to possible future fuel priceshocks, it is essential that PrecinctStructure Plans require high quality publictransport services.

Response NameIncreasing passenger vehicle fuelefficiencyResponsible AuthorityCommonwealth GovernmentResponse TypeVoluntary agreement

The high proportion of transport emissionsthat come from passenger vehiclesillustrates the importance of improvingvehicle fuel efficiency if emissions from thetransport sector are to be reduced. Thefuel efficiency of Australia’s passengervehicle fleet is low by internationalstandards and has not improvedsignificantly in recent years. In Victoria,the average rate of fuel consumption ofpassenger vehicles was 11.53 litres per

100 km in 2004-05 compared with 12.33litres per 100 km in 1984-85106.

While rising fuel prices have encouraged ashift to smaller, more fuel-efficient models,more could be done. An increasingnumber of countries, including the USA,the European Union, Japan and Chinahave introduced or are considering theintroduction of mandatory vehicle fuelefficiencytargets.

In Australia, the CommonwealthGovernment reached a voluntaryagreement with the automotive industryin 2003 on a voluntary target of 6.8 litresper 100 km for petrol passenger cars by2010. In 2005 this was changed to a targetbased on emissions of 222 grams CO2/km, equivalent to 9.3 litres per 100 km.The new target is much less ambitiousthan the original and much less ambitiousthan those being introduced or consideredoverseas. The rise in popularity of morefuel-efficient cars appears to be comingfrom consumer choice as a reaction tohigher fuel prices rather than as a result ofindustry action.

Recommendations

E23 The Victorian Government considerthe Eddington Report as part of along-term transport plan for Melbournewhich has key objectives of reducinggreenhouse gas emissions and buildingresilience to future oil and carbon priceincreases.

E24 The Victorian Government shouldincorporate strong environmentalobjectives, including the reductionof greenhouse gas emissions, intonew transport legislation through theTransport Legislation Review.

E25 The Victorian Government ensurethat effective minimum standard levelsof public transport services are requiredfor new developments.

E26 The Victorian Government, throughCOAG, should support the introductionof aggressive mandatory fuel efficiencytargets for new passenger vehicles tosignificantly drive down emissions.

Reducing waterconsumption in energy generationResponse NameEastern Water Recycling ProposalResponsible AuthorityDepartment of Sustainabilityand EnvironmentResponse TypeProgram

The Eastern Water Recycling Proposal(EWRP) was put forward in the VictorianGovernment White Paper, Our Water OurFuture. The initiative outlines the proposal

to pipe recycled water from Melbourne’sEastern Treatment Plant to the LatrobeValley, for use in the electricity generators.This would free up 139 GL (more thana quarter of metropolitan Melbourne’sannual water use) of potable water perannum currently allocated to the electricitygenerators, which could then be used forurban or environmental purposes. It wouldalso provide security of water supply tothe generators in the face of increasingwater shortages and divert discharges ofwastewater from the ocean.

A feasibility study of the EWRP wascompleted in October 2007. The studyfound that the project is technically,environmentally, socially and economicallyfeasible, relative to the other options tofree up the same quantity of potablewater. The principal alternative option isthe construction of the desalination plantat Wonthaggi, which could also be usedto provide water to the Latrobe Valleygenerators.

Both of these solutions are energyintensiveand, through the installationof expensive infrastructure with a longlifetime, would guarantee water supply tocoal-fired power stations. This investmentmay create further barriers to loweremissions energy supply technologies.The earliest that the EWRP could beoperational is 2017, which raises concernsabout its ability to meet current securityof supply concerns in the face of droughtand climate change.

Recommendation

E27 The Victorian Government, inconsultation with industry, develop andimplement programs to reduce potablewater use in electricity generation.

Evaluation of managementResponses

The energy sector is critical to the Victorianeconomy. The availability of abundant,cheap electricity has driven industrialdevelopment in the State and increasedour prosperity. Similarly, the availabilityof cheap transport energy, together withpolicies that have favoured road-building,have given Victorians exceptional mobility.

However, our reliance on energy placessignificant pressures on the environment.The most critical issue for Victoria’s energysector is the urgent need to reducegreenhouse gas emissions and supportAustralia’s transition to a low-carbon economy.

The Victorian Government has adopteda range of responses to address theenvironmental impacts of the energysector, including measures to decreasegreenhouse gas emissions, water

consumption and air pollution. These morerecent environmental objectives now sitalongside historical objectives of ensuringenergy security and affordability.

Much uncertainty surrounds thedevelopment of appropriate climatechange policy responses. As a globalphenomenon, individual countries such asAustralia are ultimately dependent uponglobal negotiations to successfully reversethe trends of recent decades. Victoriais itself dependent upon actions at thenational level such as the design of theforthcoming CPRS, interim targets and theemissions trajectories that are put in place.Climate science continues to evolve, anda range of developing low-emissionstechnologies compete for limited funds.

Victoria’s total greenhouse gas emissionsdecreased slightly in 2006, and emissionsfrom energy decreased slightly in both2005 and 2006. Due to its reliance onbrown coal, 84% of Victoria’s greenhousegas emissions are produced by the energysector. Despite current managementresponses, emissions from the energysector have risen at 28% since 1990 – agreater rate than Victoria’s total emissions.In the absence of a carbon price, therehas been little incentive to reduceemissions and renewable energy is stillsignificantly more expensive.

From 1999 to 2006 there was animprovement of nearly 15% in thegreenhouse gas emissions intensity of theVictorian economy. This was associatedwith a slowed rate of growth in totalemissions and an absolute decrease inemissions in 2006. It is unclear whetherthis decrease marks the beginning of acontinuing trend or is just a yearly variationlikely to be overwhelmed by furtherdemand from population growth andincreasing affluence (see Part 2: DrivingForces for further discussion).

The primary mechanism for futurereductions in greenhouse gas emissions,including those from the energy sector,is the Commonwealth’s Carbon PollutionReduction Scheme (CPRS), the designof which is still being finalised. Theeffectiveness of the CPRS will dependupon the interim and long-term emissionsreduction targets and trajectories, therobustness of the scheme in light ofpressure from high emitting industryfor allocations of free permits and otherpreferential treatment, and the potentialfor Australia’s emission reduction targetsto be conditional upon future internationalagreements. The CPRS Green Paperhas already flagged that any increasesin petrol prices as a result of the schemewill be offset by an equal reduction inexcise, thereby removing the price signalto drive behaviour change in the transportsector within at least three years of thescheme’s commencement, but allowingfleet operators and households time toconsider their future purchasing needs.

The Garnaut Review has proposeda range of potential greenhouse gasemission reduction targets. Two of thesetargets are tied to the achievementof a global agreement on emissionsreduction and one represents the currentunconditional 60% by 2050 reduction.The Review concludes that gaining initialglobal agreement for a 550 ppm CO2-eglobal concentration, which would requirean Australian emissions reduction of 10%by 2020 and 80% by 2050, is more likelyto be achieved than aiming exclusivelyfor 450 ppm, but this may well provide apathway to a subsequent 450 ppm andeven a 400 ppm global stabilisation level.

The Garnaut Review itself acknowledgesthat a 550 ppm concentration targetwould not be in Australia’s interests, giventhe likelihood and scale of the expectedimpacts. Given the urgency of reducingemissions as dictated by the science,and Australia’s position as one of themost vulnerable developed countriesto the effects of climate change, theCommonwealth Government needs to beleading the developed world by exampleand pushing for much more ambitioustargets. (See Part 4.1: Atmosphere –Climate Change for more information.)

It is recognised that a market-basedapproach to reducing emissions is themost effective. The market, throughthe CPRS, must provide incentives forreduced energy demand, energy efficiencyand low-emissions energy generation,whether they relate to renewable energyor reductions in the emissions-intensityof coal-fired generation. However, it isessential that the market is not distortedto provide long-term support to the mosthighly emitting energy sources such asbrown coal. The carbon price needs todrive investment decisions and consumerchoice quickly. Any assistance to browncoal must be transitional, not ongoing,to allow a rapid shift to less emissionsintensivealternatives.

Reductions in emissions in Victoria will bedependent upon the national target, butthis does not mean that the State has norole to play. Complementary measuressuch as those to increase energyefficiency will be required to achieveoverall least-cost abatement, alongsideinvestment in research and developmentof low-carbon technologies. The State isalso well placed to introduce measures tocounter social vulnerability to increasingenergy prices, such as improving urbandesign and public transport to reducetransport emissions while maintainingaffordable mobility.

The Victorian Government, having been atthe forefront of the debate within Australiafor many years, is currently developingits own long-term plan for emissionsreduction through its Climate ChangeGreen and White Paper process. It hasalready committed to a 60% reductionby 2050 against 2000 levels, the same

as the Commonwealth Government’snational target. However, future actions toreduce emissions in Victoria will be drivenby the CPRS and the trajectories that areestablished, so it is not clear what role theState target will continue to play. As theState with the most emissions-intensiveelectricity generation, it is clear that theCPRS will drive significant opportunities forchange in Victoria.

The Victorian Government also has anopportunity to show leadership. It shouldbe committing to the highest level ofgreenhouse (and water) performance forits own operations, as it makes up around15% of GSP. It should also be leadingpublic disclosure of greenhouse, waterand waste performance reporting. SeePart 5: Living Well Within Our Environmentfor further discussion.

Although there are programs to increaserenewable energy production, muchreliance is being placed on ‘clean coal’technologies such as carbon captureand storage to reduce emissions fromelectricity generation. The potentialbenefits of clean coal technologiesbeing successfully developed areacknowledged, given coal’s role in globalenergy supply and black coal’s economicimportance to Australia as an exportcommodity. However, an over-reliance onclean coal as a primary means of reducingemissions also presents significant risks.This technology remains unproven, andin any case is not expected to be in placebefore 2020, with a long ramp-up timeafter that. Climate change science hasstressed the importance of emissionspeaking by 2015 and there beingsignificant reductions by 2020. Reliance ona technology that will not be ready by 2030or later risks emissions continuing to risefor some time. Care should also be takennot to discourage investment in renewableenergy technologies that may be urgentlyneeded if clean coal fails to deliver theexpected reductions, especially thosesuch as geothermal that may be able toprovide future base-load generation.

Only 4% of Victoria’s electricity comesfrom renewable sources107. In fact, theshare of renewable electricity has comedown in recent years due to the reductionof water levels in hydroelectric dams andbecause Victoria has increased its exportof electricity to NSW and Tasmania. It isexpected that the guaranteed share ofrenewable energy promised by MRETwill provide much-needed support to therenewable energy industry.

There has also been some evidence ofemissions decoupling from economicgrowth through an improvement in energyintensity, though more so from natural gasand petroleum than electricity. However,total emissions have grown faster thanpopulation growth and, as a trend, arestill increasing. While increasing efficiencyof energy use is critical, it has not, todate, been sufficient to reduce absolute

pressures.

There has been no evidence of a reductionin water consumption from electricitygeneration. Victoria has very high wateruse, compared to other states, per unitof energy. Faced with ongoing droughtand the likelihood of reduced rainfall as aresult of climate change, the Governmenthas committed to energy-intensivedesalination as a key strategy to ensurewater security. The Government shouldreview all potential actions to improve thewater efficiency of the stationary energysector.

Transport energy consumption is almostentirely in the form of oil, although theState’s metropolitan train and tramservices are electricity-driven. Despitea recent shift in priorities, the transportsystem reflects a legacy of funding thathas overwhelmingly favoured roads andcars above public transport, cycling andwalking. The most funding has been givento the least sustainable transport mode.

The Government has an ambitious targetof 20% of motorised trips being takenby public transport by 2020. Despiteunprecedented rises in public transportpatronage in recent years, the latestBudget figures suggest the proportionis actually falling due to even strongergrowth in car use. With public transportproducing fewer emissions than cars,the Government needs to actively drive ashift from cars to public transport, ratherthan continue to attempt to keep up withdemand. Given the current dominance ofpassenger cars in the transport system,the Government also needs to pursueambitious national mandatory motorvehicle fuel efficiency standards to reducetransport emissions.

Beyond the reduced greenhouse gasemissions benefits of public transport,peak oil and carbon pricing providefurther reasons why significant additionalinvestment in alternative transport optionsneeds to be provided – particularly innew developments and in car-dependentouter suburbs. The energy sector, bothstationary and transport, and thus theeconomy as a whole, remains vulnerableto future price shocks through carbonpricing or oil availability.

An evaluation of global, national andVictorian responses to the environmentalimpacts of the energy sector mustconclude that the measures taken so farhave been insufficient. With a history ofcheap, abundant energy and the lack ofa carbon price, Victorian energy-relatedgreenhouse gas emissions have risensignificantly. There have been someimprovements to energy efficiency butthese have been overtaken by increasesin population and consumption. Absolutepressures have continued to increase.

While our understanding of climatechange and the urgent need for

fundamental change continues to improve,the primary mechanism for tacklinggreenhouse gas emissions has not yetstarted. The problem has been recognisedfor many years, but actions and policies todate have lacked urgency and ambition.

Uncertainty remains regarding thedesign of the scheme and the targetsto be proposed, but it is clear that theCPRS will bring significant challengesand opportunities for Victoria. Given ourheavy reliance on carbon-intensive browncoal, it is inevitable that there will besignificant changes in the energy sector.The proportion of renewable energy willincrease, while energy efficiency willcontinue to improve. For coal to continueto play a role, low-emissions technologieswill need to be developed and put inplace.

There is no simple or single answer toreducing greenhouse gas emissionsfrom the stationary and transport energysectors and over the next decade agreater understanding will emerge as towhich energy technologies demonstratethe most promise and viability in reducinggreenhouse gas emissions.

The objective for the Victorian Governmentmust be to ensure that necessary andtimely reductions in emissions from theenergy sector are achieved. The challengewill be to accomplish this at the leasteconomic and social cost, and in thecontext of a rapidly growing population.

For further information

For information on climate change,greenhouse gas emissions monitoring,and the Carbon Pollution ReductionScheme, see the CommonwealthDepartment of Climate Change http://www.climatechange.gov.au/

For information on Victoria’s climatechange mitigation and adaptationstrategies, and projected impacts ondifferent geographical areas of Victoria,see http://www.dse.vic.gov.au/dse/index.htm or http://www.climatechange.vic.gov.au/summit/index.html

For information on Victoria’s resourcesand energy sector, see the Department ofPrimary Industries http://www.dpi.vic.gov.au/dpi/index.htm

For information on resource use andenergy consumption, see the AustralianBureau of Agricultural and ResourceEconomics http://www.abareconomics.com/

For information on public transport androads, see the Victorian Department ofTransport http://www.doi.vic.gov.au/

For information on international energy

issues, see the International EnergyAgency http://www.iea.org/