Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 1

Lecture 1: Introduction Lecture Material Covers:

The objectives of this course are to give a broad appreciation of the topic of energy efficiency and why it is important; to provide examples of quantitative analysis of how EE can reduce energy use and emission of GHGs; to compare this to emissions reductions achieved using renewable energy; to place this in the context of emissions from fossil fuel-based energy supply; and to outline the importance of development of an entire energy services system, as opposed to focusing only on supply.

Reducing Australia's total energy consumption is desirable because:

(i) The extraction and processing of Australia's current major sources of energy (oil, coal, and gas) comes at an economic cost, and so reducing their use would lead to increased profitability and cost effectiveness.

(ii) These resources have a finite life, substitutes will have to be imported adding extra costs to any processes they are required for. As world reserves become scarcer these imported fuels will increase in price adding further to these costs. The corollary being that our own reserves will also become more valuable in the international marketplace and so it is important to conserve them as much as possible.

(iii) Extraction and use of these resources has negative environmental consequences such as water and air pollution, mining site degradation, and the production of greenhouse gases. Such consequences have the potential to be of even greater significance than those outlined in (i) and (ii) depending on their severity on the world ecosystem and global society.

(iv) because of these negative externalities environmental regulations such as emissions trading permits may make fossil fuels more expensive to use.

This course is divided into the following lectures.

Week Topic 1 Introduction and Overview 2 Relevant Economics, Residential and Commercial Energy Use,

Commercial energy management; HVAC; 3 Energy audits, design and rating tools, review of electric power and

power factor, transmission and distribution, distributed generation.

4 Consumer & Office Products, Water heating & Lighting 5 Industry: Furnaces, Boilers, Cogeneration, Combined cycle generation,

Distributed generation, Heat recovery 6 Production & distribution of process steam, Compressed air 7 Motor systems 8 Pumps and fans 9 Transport 10 Water efficiency 11 Energy Efficiency Policy 12 Exam preparation

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 2

Lecture 2: Overview of Energy Efficiency

Lecture Material Covers: Current and predicted energy use and related emission of greenhouse gases in Australia; Subdivision by sector. The potential of energy efficiency to reduce energy use, costs and greenhouse gas emissions.

Definitions of demand management, energy efficiency, energy intensity, and greenhouse gas intensity.

Assessable Learning Outcomes:

Knowledge of current and predicted patterns of energy use and consequent greenhouse emissions in Australia

Understand the need for reduced energy use to reduce emission of greenhouse gases Knowledge of the potential of energy efficiency to reduce greenhouse emissions in Australia Understand the meanings of the terms; energy efficiency, demand side management, energy

intensity, GHG intensity.

Contents:

1. The Need for Action 3 (a) Current situation Energy and Emissions 4 (b) Energy Use Predictions from ABARE 10 (c) Greenhouse Gas Predictions 11

2. The Potential of Energy Efficiency 13

3. Terms and Definitions 15

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Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 3

Resources: 1. ABS (2006) Year Book Australia, Australian Bureau of Statistics 2. AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office,

Canberra. 3. AGO (2007) Tracking to the Kyoto target: Australias greenhouse emissions trends 1990 to

2008/12 and 2020, Department of Climate Change, Canberra. 4. AG (2004) Securing Australias Energy Future, Australian Government, Canberra 5. AGO (2004) National Greenhouse Gas Inventory 2002: Energy, Stationary Sources and

Fugitive Emissions Fact Sheet, Australian Greenhouse Office, Canberra 6. ABARE (2003) Australian Energy: National and state projections to 2019-20, ABARE report

for the Ministerial Council on Energy, abareconomics 7. ABARE (2005) Australian Energy: National and state projections to 2029-30, ABARE report

for the Ministerial Council on Energy, abareconomics 8. BG (2003) Energy White Paper: Our energy future creating a low carbon economy, British

Government, United Kingdom 9. IPCC (2001) Climate Change 2001: Mitigation - Technical Summary, The Third

Assessment Report of Working Group III of the Intergovernmental Panel on Climate Change (IPCC), Geneva, Switzerland

10. NFEE (2003) Towards a National Framework for Energy Efficiency Issue and Challenges, Discussion Paper, Energy Efficiency and Greenhouse Working Group, Commonwealth of Australia, 2003

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 4

1. The Need for Action

(a) Current situation Energy and Emissions Australias net Greenhouse Gas Emissions for 2006 were 576 Mt CO2-e. Between 1990 and 2006, Australias greenhouse gas emissions (excluding land use, land use change and forestry) increased by 29%. If land use, land use change and forestry are included, emissions have increased by only 4.2%.1 Inclusion of land use, land use change and forestry was allowed under the Australia Clause. Australia pushed hard for this clause to be included in the Kyoto Protocol because our land use change and forestry emissions in 1990 were very high - effectively increasing our baseline. It is clear that the reductions that land use change and forestry can provide will soon run out (unless of course massive re-afforestation projects are carried out). Once this happens, emissions will steadily increase unless additional measures are taken. See Figures 1, 2 and 3.

Note that storage of carbon in forest sinks is not equivalent to storage of carbon as fossil fuels. Fossil fuels are the safest form of sequestration known, as the carbon has been slowly removed from the atmosphere many millions of years ago via growth of organic matter and formation of coal oil and natural gas. Fossil fuel usage per annum globally emits carbon that took millions of years to be sequestered as fossil fuels. Thus increasing carbon sequestration through land use change and forestry does not compensate for continued use of fossil fuels. Australias population has steadily increased by 12.5% between 1995 and 20052, (~ 1.3% per annum growth) and all the following should be seen in this context.

Figure 1 Net CO2-equivalent3 emissions by sector, 1990-2006

From AGO (2009)4

1 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra. 2 ABS (2006) Year Book Australia, Australian Bureau of Statistics. 3 See definitions at end of notes. 4 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 5

Stationary Energy: includes emissions from fuel combustion for energy in the following subsectorsEnergy Industries (includes fuel combustion in electricity generation, petroleum refining, gas production and distribution, and solid fuel manufacture), Manufacturing Industries and Construction, Other Sectors (residential, commercial and institutional, and agriculture, forestry and fishing) and Other (lubricants and military transport).

Transport: comprises road transport, civil aviation (domestic), navigation (domestic), and railways.

Fugitive emissions: comprises Net Solid Fuel emissions (associated with coal mining and handling), and emissions from Oil and Natural Gas production, processing and distribution. (i.e. extra emissions from these industries over and above those directly from energy production.)

Industrial Processes: comprises emissions that are a by-product of various production processes. For example, high temperature processing of calcium carbonate to produce quick-lime gives rise to CO2 emissions. Soda ash production and use, nitric acid production and ammonia production also produce GHGs.

Agricultural: mainly comprises emissions of CH4 from Enteric (or intestinal) Fermentation by livestock, N2O (nitrous oxide) from Agricultural Soils (the cultivation of agricultural soils, the use of nitrogen fertilisers on crops and improved pastures, and faecal and urine deposition from grazing animals onto pasture).

Other Agriculture: includes emissions from Rice Cultivation, Agricultural Soils, Prescribed Burning of Savannas and Field Burning of Agricultural Residues.

Land use change and forestry: comprises clearing of forests and establishment of plantations. Waste: predominantly CH4 generated from anaerobic decomposition of organic matter. Small amounts of CO2 and N2O are generated through the incineration of solvents and the decomposition of human wastes respectively.

Figure 2 Projected change in sectoral emissions 1990 to 2008/12 From AGO (2007)5; is for total CO2-equivalent emissions.

5 AGO (2007) Tracking to the Kyoto target: Australias greenhouse emissions trends 1990 to 2008/12 and 2020, Department of Climate Change, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 6

0

50

100

150

200

250

300

350

StationaryEnergy

Transport FugitiveEmissions

IndustrialProcesses

Agriculture Land Use,Land UseChange &Forestry

Waste

Mt C

O 2 -

e

19902006

Figure 3 CO2-equivalent emissions by sector in 1990 and 2006 From AGO (2009)6

The Energy sector (Stationary, Transport and Fugitive) accounted for 70% (401 Mt) of total net emissions in 2006. From 1990 to 2006, Energy sector emissions increased by 40 %. The main contributors to this were Electricity Generation (34.4% of national emissions), and Transport (14.6%). Manufacturing Industries and Construction contributed another 8.2%.

Electricity generation emissions increased by 2.0% from 2005 to 2006, and by 53% from 1990 to 2006 (~3.1%/annum).

Figure 4 Stationary energy combustion emissions by subsector from 1990 to 2002 From AGO (2004) 7

6 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra. 7 AGO (2004) National Greenhouse Gas Inventory 2002: Energy, Stationary Sources and Fugitive Emissions Fact Sheet, Australian Greenhouse Office, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 7

Road transportation contributed 87.1%, and Passenger cars contributed 54%, of emissions from the Transport subsector. Transport emissions increased by 27.4% from 1990 to 2006. 8

Figure 5 Total CO2-equivalent emissions from Stationary Energy combustion by fuel, 1990-2006

From AGO (2009)9

Figure 6 Total Transport emissions, 1990-2006 From AGO (2009)10

8 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra. 9 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra. 10 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 8

Figure 7 Comparison of growth in transport emissions by subcategory, 1990-2006

From AGO (2009)11

Australia has abundant supplies of cheap coal and natural gas, and so electricity is very cheap by world standards (see Figure 8). This has led to relatively inefficient use of electricity. Australias energy intensity12 is amongst the highest in the industrialised world. Although it is decreasing, it is not doing so as fast as any other nation.

Figure 8 Comparison of industrial energy prices, 4th quarter 2002 From AG (2004)13

Energy efficiency improvements in Australia have occurred more slowly than in other nations. Over the period from 197374 to 200001, technical energy efficiency in Australia improved by 3 per cent. The International Energy Agency has found that Australias energy efficiency has improved at less than half the rate of other countries. 11 AGO (2009) National Greenhouse Gas Inventory 2006 , Australian Greenhouse Office, Canberra. 12 See definitions at end of notes. 13 AG (2004) Securing Australias Energy Future, Australian Government, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 9

Figure 9 Manufacturing energy intensity improvement, 1973-95 From AG (2004)14

Figure 10 Energy Intensity Ratio in top 20 OECD countries, 2000 From BG (2003)15

14 AG (2004) Securing Australias Energy Future, Australian Government, Canberra. 15 BG (2003) Energy White Paper: Our energy future creating a low carbon economy, British Government, United Kingdom.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 10

(b) Energy Use Predictions from ABARE out to 2029-3016 The following projections assume Business as Usual (BAU) and include the effects of existing policy measures such as MRET (Mandatory Renewable Energy Target), the NSW GGAS (Greenhouse Gas Abatement Scheme) and the QLD 13% Gas scheme. The impacts of the Kyoto Protocol, the NFEE (National Framework on Energy Efficiency), and other measures such as a possible Victorian equivalent to MRET have not been included. Nor has the impact of a price on carbon.

Total energy consumption will grow on average by 2.1% per year in the short term (to 2010) and 1.8% per year over the long term (to 2029-30), becoming 63% higher than in 2003.

Electricity generation in Australia using black and brown coal will grow on average by 1.9% and 1.2% respectively per year until 2029-30, becoming 62% and 37% higher than in 2003 respectively. Generation from natural gas is forecast to grow by 3.8% a year, becoming 164% higher in 2029-30 than in 2003.

Energy use in the residential sector, which accounts for 11.5% of total final energy use, is forecast to increase by around 1.7% a year, becoming 55% higher than in 2003.

Energy use in the commercial and services sector (which accounts for 8.8% of the total) is forecast to continue to grow relatively strongly, at 2.7% a year, becoming 101% higher than in 2003.

Aggregate energy intensity has been decreasing by 1.1% per year in the 1990s, and is forecast to decrease by 1.1% per year until 2030. In this case, 25% less energy would be needed to produce a dollar of output in 2030 than in 2003.

Transport energy use is predicted to increase by 1.9% per year until 2030, becoming 63% higher than in 2003. Road freight is predicted to increase by 2.3% per year, and the passenger car sector is predicted to increase by 1.1% per year.

Energy consumption in manufacturing is forecast to increase by 1.7% a year by 2029-30.

Figure 11 Final energy consumption, by sector

From ABARE (2005)17, (PJ = petajoules = 1015 J)

16 ABARE (2005) Australian Energy: National and state projections to 2029-30, ABARE report for the Ministerial Council on Energy, abareconomics. 17 ABARE (2005) Australian Energy: National and state projections to 2029-30, ABARE report for the Ministerial Council on Energy, abareconomics.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 11

Figure 12 Natural gas consumption, by end use sector

From ABARE (2003)18

Figure 13 Australian energy production, by fuel

From ABARE (2003)19

(c) Greenhouse Gas Projections Given the BAU predicted rate of growth in energy use, and the increased use of fossil fuels to meet this demand, it is clear that Australian energy-related GHG emissions will increase significantly. Stationary Energy emissions (approximately 70% electricity generation) are projected to grow by about 12.0% between 2000 and 2010, which would result in a 46% increase compared to 1990. Transport emissions (where over half of emissions are from cars) are projected to be 18 ABARE (2003) Australian Energy: National and state projections to 2019-20, ABARE report for the Ministerial Council on Energy, abareconomics. 19 ABARE (2003) Australian Energy: National and state projections to 2019-20, ABARE report for the Ministerial Council on Energy, abareconomics.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 12

53% higher in 2010 than they were in 1990. By 2020, Stationary Energy and Transport emissions are projected to increase by 70% and 78% respectively, compared to 1990. These projections include the impact of all current government policies to promote renewable energy, energy efficiency and sustainable transport, and correspond to the With measures best estimate in Figure 14 and Figure 15. BAU (Business As Usual) assumes no government measures. 20

Figure 14 Stationary energy emissions projections From AGO (2007)

Figure 15 Transport emissions projections From AGO (2007)

20 AGO (2007) Tracking to the Kyoto target: Australias greenhouse emissions trends 1990 to 2008/12 and 2020, Department of Climate Change, Canberra.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 13

2. The Potential of Energy Efficiency

No regrets options to reduce energy use and greenhouse gas emissions are those that can be taken at either zero or negative cost. They usually revolve around energy efficiency measures that reduce energy consumption and so save on energy costs, and are the cheapest, fastest, safest and simplest means to reduce energy-related impacts.

The British government is aiming to cut its carbon dioxide emissions by 60% from 1997 levels by about 2050, and by 20% by 2010. It expects more than half these emissions reductions to come from energy efficiency improvements.21 Similarly, the IPCC found that energy efficiency options are responsible for more than half of the total emission reduction potential of buildings, transport, and industry sectors.22

Already Britain has decoupled economic growth from energy use and carbon emissions. Overall energy consumption in the UK has risen by around 15% since 1970, while the economy has doubled. Over the last 30 years the economys energy intensity - the ratio of energy consumption to GDP - has improved by around 1.8% each year.

Figure 16 British GDP, primary energy consumption and emissions From BG (2003)23

In Australia, technical analysis and economic modelling, undertaken as part of the development of the National Framework on Energy Efficiency,24 found that energy consumption in the manufacturing, commercial and residential sectors could be reduced by 2030% with the adoption of current commercially available technologies with an average payback of four years.25

Two scenarios were developed from this modelling, (i) a low energy-efficiency improvement scenariocurrent commercially available technologies with an average four-year payback; and (ii) a high energy-efficiency improvement scenarioexisting or developing technologies potentially available within the study timeframe with an average eight-year payback period.

As shown in their Figure 4 (below), significant energy efficiency improvement potential is available across all sectors of the economy. If this energy efficiency improvement potential is applied to the 20002001 stationary energy use, the potential annual energy savings are as shown in their Figure 5 (next page). The low numbers represent 50% penetration, and the medium numbers represent 100% penetration, of the low energy efficiency improvement potential (all those measures with an average four-year payback). The high numbers represent 50% penetration of the high energy-efficiency improvement scenario.

21 British Government (2003) Energy White Paper: Our energy future creating a low carbon economy, British Government, United Kingdom. 22 IPCC (2001) Climate Change 2001: Mitigation - Technical Summary, The Third Assessment Report of Working Group III of the Intergovernmental Panel on Climate Change (IPCC), Geneva, Switzerland. 23 BG (2003) Energy White Paper: Our energy future creating a low carbon economy, British Government, United Kingdom. 24 For more detail on the NFEE see Lectures 21 & 22. 25 NFEE (2003) Towards a National Framework for Energy Efficiency Issue and Challenges, Discussion Paper, Energy Efficiency and Greenhouse Working Group, Commonwealth of Australia.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 14

Economic modelling showed that significant economic benefits would be delivered with only 50% penetration of the low energy efficiency improvement scenario over a 12 year period (excluding the electricity supply sector).

The modelling results show that in year 12 after the energy efficiency improvement has commenced, enhanced energy efficiency delivers the following economic benefits:

Real GDP would be $1.8 billion higher (+0.2%). Employment would increase by around 9000 (+0.1%). A 9% reduction in stationary final energy consumption (-213 PJ). A 9% reduction in greenhouse emissions from the stationary energy sector (-32MT). Their Figure 6 (below) shows the incremental impact of improved energy efficiency on GDP. Accessing these benefits would require an investment in energy efficiency over the 12 years of approximately $12.4 billion (NPV terms) generating lifecycle energy savings of approximately $26.9 billion (NPV terms). Overall these measures would achieve a 26% internal rate of return on investment which is very high, especially for non-core activities of a business.

Lecture Notes: Managing Energy Efficiency SOLA5057 GSOE9017 A/Prof Alistair Sproul & Dr Rob Passey 15

3. Terms and Definitions Energy Efficiency: A reduction in the use of energy for a given output, so if output increases so may energy use. Energy efficiency is most effective when it results in energy conservation.

Energy Conservation: A reduction in the absolute amount of energy used. Demand side management: DSM is not necessarily the same as energy efficiency. It includes all activities that occur on the demand side of the energy system and change the energy demand profile. This includes not only reduced use of energy (energy efficiency), but also actions that change when energy is required. Often the emphasis is on reducing costs, not reducing energy use. For example, one measure to reduce peaks in air conditioning demand is to use base-load electricity overnight to freeze water or some other liquid. This is used the next day to provide cooling. Because the processes used to cool the liquid are not 100% efficient, and because insulation is not perfect, more energy is needed overall. Another form of demand-side management is to move load from times of peak prices to times of off-peak prices. While this saves on costs, often the generation used to meet peak demand (gas-fired) has a lower GHG intensity than the generation used to meet baseload (coal-fired), and so moving from peak to baseload increases emissions.

Energy Intensity: This relates to the amount of energy needed to produce a certain amount of output. For example, MJ/$GDP, or MJ/$ value-added for a particular sector. A change in energy intensity within a sector may be caused by: A change in structure (change in the mix of activities), or A change in the market value of products of the sector, or A change in the technical efficiency of energy use Emissions intensity: Emissions intensity relates to the amount of greenhouse gases released per unit of output. For example, tonnes of CO2-equivalent per $GDP.

CO2-equivalent (CO2-e): Converts the global warming potential of one or more greenhouse gases into the equivalent amount of carbon dioxide. For example since methane has 23 times the global warming potential of carbon dioxide, 3 tonnes of methane would be 69 tonnes CO2-e.