The Next Boom
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A surprise new hope for Australia’s economy?
The Next Boom
The Next Boom A surprise new hope for Australia’s economy? 2015 Research by the Future Business Council
Founding Supporters
About this publication: The Future Business Council (FBC) represents the next generation of business in Australia and is setting the vision for the next 50 years. We advocate reforms that will make Australia a more innovative, sustainable and resilient economy, and a global hub for future business. This publication was written by Tom Quinn, Executive Director, Future Business Council with the support from our Founding supporters.
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Please contact The Future Business Council at
[email protected] for further information...
Future Business Council 2015
Table of Contents Executive Summary ..........................................................................................................................................................................2 What the data shows ........................................................................................................................................................................2 The drivers ........................................................................................................................................................................................3 1. Consumer preference: changing values, changing demand...................................................................................................3 2. Government regulation: the great enabler and destroyer .......................................................................................................7 3. Environmental necessity: a force of nature............................................................................................................................12 Future projection .............................................................................................................................................................................15 Catching the next boom - Recommendations for Australia ..........................................................................................................16 Reform recommendations ..........................................................................................................................................................17 Acknowledgements ........................................................................................................................................................................20 Data sources ...................................................................................................................................................................................20 Sector Chapters ..............................................................................................................................................................................22 Transportation .............................................................................................................................................................................22 Energy .........................................................................................................................................................................................32 Appliances and products ............................................................................................................................................................39 Buildings ......................................................................................................................................................................................52 Materials & Primary Resources ..................................................................................................................................................58 Markets and investment .............................................................................................................................................................67 Food ............................................................................................................................................................................................76 Glossary ..........................................................................................................................................................................................83 Figures ............................................................................................................................................................................................83
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Bibliography ....................................................................................................................................................................................85
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Executive Summary Across Australia and around the world, demand for sustainable goods and services is booming. The Future Business Council has tracked the performance of leading sustainable goods and services since the turn of the century. We found compelling evidence that sustainability should not be seen as a cost, but a business opportunity. From solar panels to green buildings and sustainable agriculture, the results are striking and represent a significant new economic growth story. The next boom represents a major opportunity for businesses to become sector leaders in Australian and international markets. At the national level, there is a once in a lifetime chance for Australia to position itself among the world’s leading suppliers of sustainable goods and services, capturing a share of the trillions of dollars that will be invested to meet the explosion in demand. The rest of the world is not sitting idly by. Australia must do much more to develop new industries and support companies making the transition to more sustainable business models if it is to compete for a share of these fast-growing markets. The three main factors accelerating the global green business boom – changing consumer preferences, government regulation and environmental necessity – are likely to keep growing in the sectors we analysed. This presents a crucial opportunity for Australia to diversify its exports and decrease its reliance on the mining sector, particularly in light of receding mining investment and volatile commodity prices.
What the data shows 1. Boom times for green business: FBC found annual demand growth rates of 100 per cent or more across several sustainable products and services. 2. Sustainable options outperform the competition: For example, organic food sales have been growing at over 80 per cent a year, compared to just 6 per cent for food retail as a whole, and the Dow Jones Sustainability Australia Index has increased by 8.4 per cent a year on average, compared to 3.2 per cent in the All Ordinaries index. 3. Green labelling means go: Price sensitive and values driven consumers want trustworthy sustainable products – in several of the sectors we analysed trusted certification schemes were the key that unlocked massive consumer demand.
Governments have a key role to play in enabling sustainable business growth. Provided we get our policy settings right, Australia is in a good position to take advantage of the next boom. Local businesses can benefit from several elements that work in Australia’s favour, including:
a highly educated and innovative workforce advanced education and research facilities good levels of capital availability latent manufacturing potential access to abundant renewable resources proximity to Asia the increasing viability of long distance service provision due to advances in technology.
Australian participation in global booms has a mixed history. A strategic and confident approach is needed to ensure that Australia makes the most of the next one. The trends outlined in this report show that the sustainable business boom is not just on the way, but underway. Australia still has a
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chance to capture the benefits if it takes rapid action.
BOOMING DEMAND FOR SUSTAINABLE PRODUCTS AND SERVICES
Energy
Energy
Water
efficiency
efficiency
118%
26%
82%
165%
48.5%
growth in
increase in
of taps,
average
annual solar
fridge,
showers,
installations
freezer and
toilets sold
dishwasher
now 3 WELS
efficiency
or higher
11,797%
Transport
Resources
New
Buildings
Food
100%
116%
73%
of all
increase in
growth in
average
hybrid sales
plantations
climate
annual
growth in
growth
now FSC
bond
Green Star
Fairtrade
certified
issuance
certifications
sales
markets
expansion of wind capacity since 2000 *Growth figures cover arrange of dates, please refer to relevant chapter for details
The drivers Three primary drivers underpin the growth in demand for sustainable goods and services. Each sector is also influenced by a multitude of sub-drivers, but these three factors stand out as major influencers in the majority of data sets. The primary drivers are: 1) Changing consumer preference 2) Government regulation 3) Environmental necessity Our research has analysed the role of each in accelerating the growth in demand for sustainable goods and services. The influence of all three drivers is forecast to increase in strength over the coming decades, further expanding the market for sustainable goods and services and underpinning the sustainable demand boom.
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Consumer demand is changing and a growing number of values-driven and quality-focused consumers are selecting more sustainable products and services. This trend is especially pronounced
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1. Consumer preference: changing values, changing demand
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in product categories such as climate bonds, Green Star rated buildings, Fairtrade and other certified food products, FSC certified timber products, and star-rated whitegoods. In these product categories, consumer preference is the main driver of change, with little to no influence from the other drivers identified through our research. The issuance of green and climate bonds is a global trend, which is now taking the Australian investment market by storm. The introduction of domestic climate bonds lagged the international market, but as is clear from Figure 2, so far demand in Australia looks set to follow the explosive growth path seen in the rest of the world. (Note that 2015 is not yet over, so by the end of the year this growth is likely to be even more impressive). Figure 1: International issuance of green & climate bonds
2014
2012
2010
2008
2006
2004
2002
2000
40000 35000 30000 25000 20000 15000 10000 5000 0
International issuance of green & climate bonds (US$m)
FBC analysis based on data sourced from: Climate Bond Initiative
Figure 2: Australian green & climate bonds issuance
2015
2014
Australian green & climate bonds ($m)
2013
1400 1200 1000 800 600 400 200 0
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Green Star rated buildings have become the building of choice in Australia’s CBD property markets. Environmental responsibility, combined with the productivity benefits of greener building designs and higher property investment returns, is driving rapid expansion of demand for Green Star buildings, tracked via the total number of certifications depicted in Figure 3.
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FBC analysis based on data sourced from: Climate Bond Initiative
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Figure 3: Green Star total certifications
Green Star (Total # certifications))
1000 800 600 400 200
2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: GBCA
Changing consumer preferences and values are also driving rapid growth in the demand for socially and environmentally sustainable food, as seen in Figures 4 and 5. Figure 4: Certified organic food sales
Certified organic food sales ($m)
1400 1200 1000 800 600 400 200
2014
2012
2010
2008
2006
2004
2002
2000
0
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FBC analysis based on data sourced from: Biological Farmers of Australia, Organic Market Report
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Figure 5: Fairtrade certified product sales
Fairtrade certified product sales ($m.) 250 200 150 100 50 0
Fairtrade ANZ office
2000 2002 2004 2006 2008 2010 2012 2014
Mondelez becomes a Fairtrade licensee
FBC analysis based on data sourced from: Fairtrade Australia New Zealand annual reports
Mandatory performance labelling for whitegoods has improved market knowledge and facilitated consumer driven demand for better products. Consumers’ preference for higher-rated products has led to an increase in the average energy star rating of whitegoods on the market. Figure 6: Average energy star rating for whitegoods
Whitegood energy efficiency (Average Energy Star rating)
5 4 3
Refrigerator - average star rating
2
Freezer - average star rating 1
Dishwasher - average star rating 2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0 FBC analysis based on data sourced from: E3, Greening Whitegoods Report
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Increased demand for FSC certified timber (see Figure 7) can be ascribed to consumer demand for better paper choices and incentives for its use in the building industry.
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Figure 7: Percentage of Australian plantations FSC certified
Australian plantations FSC certified (%)
60% 50% 40% 30% 20% 10%
2014
2013
2012
2011
2010
2009
2008
2007
2006
0% FBC analysis based on data sourced from: FSC Annual reports; ABARES, Annual Wood Production
Key Finding A trusted certification or labelling scheme is critical to enable consumer-driven market change. Certification schemes – like Fairtrade, Green Star, WELS, Energy Star, FSC and Climate Bond Standard – can reduce consumer confusion and give customers the confidence that they are getting what they pay for. The value that customers place on trusted brands creates a unique opportunity for Australia to differentiate locally produced goods and meet the demand for trusted and credible products (see Catching The Next Boom for recommendations). Trusted labelling schemes provide the additional benefit of unlocking both latent demand for better, cleaner products from price sensitive consumers, such as for more energy efficient washing machines, and deliberate demand where consumers choose to purchase more sustainable products even if that comes at additional costs, such as with certified food products. Certification schemes are a response to consumer demand for improved market knowledge, and in some instances, government mandates and industry self-regulation. This is a global trend, with the number and type of certification schemes growing strongly. In the United States the number of ecolabelled food products and forestry products has grown at 20-30 per cent per year since the late 1990s and early 2000s.1 Comparable figures have not been collected for Australia, but the strong growth recorded for indicator products, like Fairtrade certified, suggests a similarly robust local market.
2. Government regulation: the great enabler and destroyer Government regulation in Australia and internationally has a significant impact on the local market for sustainable goods and services, both positive and negative. Our research demonstrates how government regulation and incentives can either be a force for rapid change and development of the clean economy, or – when deployed to impede these emerging trends – a destroyer of jobs, investment and opportunity. This is particularly notable in the carbon market and renewable energy sectors.
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1 Global Eco Label Monitor, World Resources Institute, p.3, 2010
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When applied constructively, government regulations, such as those that mandate higher energy performance for lighting products and whitegoods, are demand creators that have delivered significant change in these markets. Demand changes have been observed from the imposition of water
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restrictions during drought years, and in the energy sector through carbon pricing and renewable energy targets. The sale of compact fluorescent lighting, LEDs, rooftop solar (see Figure 9) and WELS-labelled products (see Figure 8) have all expanded immensely since 2000 due, in large part, to government policy. In each of these cases government action has delivered broader economic benefits and has helped to fix market failures in ways that often become self-sustaining over time. This is particularly notable in areas where high up-front costs deter consumer purchases that deliver longer-term savings. Often a nudge from government was all that was needed to shift the norm.
Figure 8: Percentage of taps > 3 star Water Efficiency Labelling and Standards (WELS) rating
Water efficiency of taps (% > 3 WELS)
90% 80% 70% 60% 50%
2012
2010
2008
2006
40%
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Figure 9: Cumulative capacity of solar energy installations
Total installation of solar energy (MW) 5000 4000 3000 2000 1000 2000 2002 2004 2006 2008 2010 2012 2014
0
FBC analysis based on data sourced from: Clean Energy Australia Report 2013
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Mandatory disclosure of product performance, from light bulbs to buildings to dishwashers, while not forcing product improvements directly, has improved market knowledge and enabled consumers to make informed choices and select more sustainable products.
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Figure 10: Total number of National Australian Built Environment Rating System (NABERS) certified buildings
NABERS certifications (# buildings) 2500 2000 1500 1000 500
2000 2002 2004 2006 2008 2010 2012 2014
0
FBC analysis based on data sourced from: NABERS annual reports
Figure 11: VEEC lighting certificates
VEEC lighting certificates generated (thousands)
2,500.00 2,000.00 1,500.00 1,000.00 500.00
2015
2014
2013
2012
2011
2010
2009
0.00
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FBC analsis on data sourced from Victorian Essential Services Commission
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Figure 12: Average energy efficiency improvement of whitegoods
Whitegood energy consumption change (%)
Total improvement (from 2001 to 2009)
5 2009
2008
2007
2006
2005
2004
2003
2002
2001
-5
2000
0 Fridge Energy %
-10 Freezer Energy %
-15 -20 -25 -30
MEPS 2005 introduced
Dishwasher Energy %
23% 33% 21%
FBC analysis based on data sourced from: E3, Greening Whitegoods Report
The inverse of this is that government regulation also has the potential to destroy jobs, businesses and industries delivering sustainable goods, whether through a lack of policy support or ongoing policy uncertainty or through actively regressive policies. The events of recent years have clearly demonstrated the power of government regulation to do harm as well as good to this century’s most promising growth industries. The removal of the price on carbon led to the collapse of the Australian carbon-trading sector and deliberate regulatory uncertainty for renewable energy projects has stifled investment in large-scale renewable energy projects, as demonstrated by Bloomberg New Energy Finance statistics which reveal an 88 per cent drop in large-scale clean energy investment in 2014 compared to 2013.2 Figure 13: New large-scale investment in clean energy - BNEF New large-scale investment in clean energy in Australia (AUD m)
contributes-significantly-decrease-australian-energy-consumption/
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2 http://about.bnef.com/press-releases/rebound-clean-energy-investment-2014-beats-expectations/, http://cleantechnica.com/2015/01/16/renewables-
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Our research suggests that the lack of emissions efficiency standards in Australia compared to other producer and export markets should be counted among the factors that led to the closure of the car industry in Australia. Locally produced vehicles didn’t have a strong incentive to innovate and improve fuel efficiency, and lost the capacity to compete internationally or meet local expectations.
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Figure 14: Average emissions intensity of new vehicles sold in Australia
2014
2012
2010
2008
2006
2002
2000
270 250 230 210 190 170 150
2004
Emissions intensity of new vehicles* (g CO2/km)
Source: BITRE, Fuel Consumption Trends; NTC Australia, Emissions Intensity for New Australian Light Vehicles * New passenger and light commercial vehicles
While car-makers suffered, among other factors, from Australia’s failure to introduce fuel efficiency regulations, other businesses have prospered from the introduction of smart regulations, such as water trading and efficiency policies. Spurred to innovate, Australian businesses are now competing internationally by exporting water-efficient products and know-how to major markets like California and Brazil. Australia’s economy is highly exposed to global economic changes. Government regulation, whether local or overseas, will often have strong flow-on effects for the local economy. The overall global trend is for governments to regulate markets when they fail to account for costly environmental side-effects (externalities). This has already been observed with the ongoing roll-out of national and regional carbon prices around the world. Figure 15: Number of climate policies introduced globally
Global climate policies (number of policies)
Other*
1600 1400 1200 1000 800 600 400 200 0
Renewable Energy Energy efficiency
2014
* Includes forestry (LULUCF and REDD+), waste and adaptation policies
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Other regulations are being adapted to boost the trade in more sustainable products, as observed in 2014 with Asia Pacific Economic Cooperation (APEC) commitment to free trade in environmental
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Source: HSBC Climate Change Centre of Excellence; IEA
2013
2012
2011
2010
2009
2008
2007
2006
2005
Climate Change
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goods.3 Regardless of government decisions made in Australia, government regulation in other countries will continue to increase the breadth and size of the export market for more sustainable products and services. But there is a risk that the lack of proactive national regulation will undermine Australia’s brand strength on sustainability and limit local businesses’ ability to compete in this growing market.
3. Environmental necessity: a force of nature Drought, resource shortages, climate change. Environmental necessity is a direct driver of change in a number of economically significant sectors. Compared to changing consumer preference and government regulation, fewer sectors have environmental necessity as a major driver, but its influence is pronounced, and likely to become more so over time. The impacts are easier to identify in specific sectors like agriculture, industrial production such as steel processing, as well as in the form of increasing insurance premiums due to damage from extreme weather events. The impact of environmental necessity is, to a certain degree, dependent on the duration of adverse environmental impacts. One example is the rapid increase in water use following the end of the Millennium Drought. The short-termism of resource efficiency improvements in these sectors suggests that further reforms are required to embed long-term structural change. Figure 16: Steel production water use per kilotonne
Steel production water use (ML/KT raw steel)
5.0
2012: Millenium Drought declared over
4.0 3.0 2.0 1.0
2014
2012
2010
2008
2006
2004
2002
2000
0.0
Papers/Leaders-Declarations/2012/2012_aelm/2012_aelm_annexC.aspx
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3 Annex C, APEC List of Environmental Goods, http://www.apec.org/Press/News-Releases/2014/0820_EG.aspx and http://www.apec.org/Meeting-
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FBC analysis based on data sourced from: Bluescope Steel Annual Reports
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Figure 17: Agricultural water use per ha
Agricultural water use (ML/irrigated ha)
5.0
2012: Millenium Drought declared over
4.5 4.0 3.5 3.0 2014
2012
2010
2008
2006
2004
2002
2000
2.5
FBC analysis based on data sourced from: ABS - 4618.0 - Water Use on Australian Farms
Demand for more sustainable goods and services due to environmental necessity is also likely to have an impact on the expanding market for higher-rated products under the Water Efficiency Labelling and Standards (WELS) scheme. Figure 18: Percentage of products sold rated 3 WELS or higher
Water efficiency of products (% sold 3 WELS rated or higher) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Taps > 3 WELS (%) Showers > 3 WELS (%) Toilets > 3 WELS (%)
2013
2012
2011
2010
2009
2008
2007
2006
Topload clothes washers > 3 WELS (%)
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Frontload clothes washers > 4.5 WELS (%)
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Resource scarcity, such as high or volatile oil prices and urban density growth, is another driver of increased demand for sustainable goods and services.
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Figure 19: Oil price and hybrid and electric vehicle sales in USA
Source: Argonne National Laboratory, light vehicle sales4 Spikes in the cost of iron have seen the recycled content of steel increase (the same trend is underway in China, opening up potential service export opportunities for Australian businesses with relevant expertise). In a world with a growing population and limited resources we should expect the prices of most commodities to rebound from their current slump at some point. We are probably entering a long-term era of high but volatile resource prices, which is likely to incentivise greater resource efficiency and sustainable innovation. Figure 20: Recycled content of raw steel production, Bluescope Australia
Recycled content of raw steel production (%)
2014
2012
2010
2008
2006
2004
2002
2000
35% 30% 25% 20% 15% 10% 5% 0%
4 Figure 5, http://www.anl.gov/energy-systems/project/light-duty-electric-drive-vehicles-monthly-sales-updates
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Environmental necessity will become a more important driver over the next few decades as the severity and frequency of natural disasters and extreme weather increases due to climate change, causing businesses and consumers to adapt by demanding products and services that address the problems. Already this can be seen in the viticulture sector where, due to continuing water shortages,
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FBC analysis based on data sourced from: Bluescope Steel Annual Reports
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most properties have now installed water efficient drip irrigation systems and other resilience-boosting systems. Insurance claims related to extreme weather are also likely to continue increasing, which in turn will affect insurance premiums. Figure 21: Annual disaster insurance claims, Australia
6000
Disaster Insurance Claims, Australia ($m.)
5000 4000
Disaster Insurance Cost (,000,000 $)
3000 2000 1000
2011
2009
2007
2005
2003
2001
0
Linear (Disaster Insurance Cost (,000,000 $))
Source: Insurance Council of Australia
Future projection The economy is on the cusp of a boom in demand for sustainable goods and services. The past 15 years have seen strong increases in demand for cleaner products as innovative and affordable goods entered the market and trusted sustainability certification schemes gained traction. The rise in consumer demand has been assisted by the catalysing effect of government policy, setting standards and providing support to open up new markets like the renewable energy industry and carbon trading markets. Finally, environmental pressures are placing a strain on the economy and society and creating a need for cleaner, lower impact business models. This is spurring innovation and creating a larger market for more efficient, lower-impact products and services. The boom in demand for sustainable products will be marked by rapid change in diverse sectors. We know that fundamental market shifts are on the way, but their arrival and speed can take even keen observers by surprise – as has been witnessed with the recent plummet in solar prices (see Figure 22) and subsequent boom in residential and commercial demand.
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Supporting wholesale shifts towards sustainable business models across the entire economy is the best way to enable local businesses to capture new opportunities.
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Figure 22: Cost of solar modules
Cost of solar modules ($US/Wp) Global silicon shortage
6 5 4 3 2 1
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
FBC analysis based on data sourced from: Renewable Energy World
Mass disruptions will occur across the economy as the next boom gains momentum. Australia will need to move fast to ensure the local economy and business community are prepared to capture the benefits. The overall economy-wide trend strongly suggests continued and rapid increases in demand for sustainable goods and services. An economy-wide response is therefore the best approach to position Australia to prosper from the next boom.
Catching the next boom - Recommendations for Australia The economics of the 21st century will be defined by the rapid growth in demand for sustainable products and services. The first 15 years have already been notable for the boom in more sustainable business models across the world. In the United States, the ‘green market’ is already outperforming 5 the overall economy and grew by over 40 per cent from 2004 to 2009. A parallel surge has been observed in Australia, as shown in this report. It is not yet clear, however, whether Australia is ready to capture the supply side as well as the demand side of this global economic transformation.
Australia has a once in a lifetime opportunity to not just catch the boom but lead it, however we need to implement the right incentives for business now.
5 Global Eco Label Monitor, World Resources Institute, p.3, 2010
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Government has a critical role to play in creating the right market conditions for the growth of innovative sustainable business in Australia. Regulatory inconsistency and policies that protect old
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Catching the boom will require a step change in Australia. Sustainable innovation was once seen as primarily a Corporate Social Responsibility (CSR) compliance consideration. No longer. In light of the clear trends here and overseas, it must now be seen for what it is – a growth opportunity and a magnet for investment.
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business models hamper innovation and new investment and will cost Australia the ability to prosper from the next boom. Positive policy reform is needed to incentivise the growth of more sustainable business and to support business attitude shifts if Australia is to seize this opportunity. It will be equally crucial to accelerate the transition of ideas from the lab to the production line, and to build an entrepreneurial start-up culture to ensure that good ideas are welcomed locally and are not lost to competing economies (see box 1: Australian Solar). Other nations are already preparing their economies and are investing heavily to seize the lead. Germany’s infrastructure bank has a five-year €100 billion green investment plan, Singapore has positioned itself as a global resource efficiency and sustainability leader, California is using a combination of aggressive targets, supportive policy and incentives to spur sustainable business growth, while Abu Dhabi has invested between US$18-22 billion in the sustainability incubator, Masdar City. Australia will be left behind without rapid investment in sustainable innovation and low impact business models of the future. Box 1: Australian Solar Australia has been one of the world’s leading developers of solar technology since the 1960s. Most recently, researchers at UNSW set a new record by achieving a solar conversion efficiency rate of 40 per cent. However Australia has not been able to convert technical innovation into a viable local production industry, with only one local solar panel manufacturer remaining, and has thus missed out on much of the economic benefit stemming from this enviable innovation record. “Global manufacturing of solar cells expanded 67% in 2004, and a further 45% in 2005, and 85% in 2008 - growth reminiscent of the electronics industry in the booming 1980s. What’s more, the industry further expanded by 55% in 2009 despite the Global Financial Crisis.” - UNSW6 A lack of government support to establish the fledgling industry as well as a high Australian dollar during the solar boom crippled the industry before it could achieve manufacturing scale. So despite training some of the world’s leading solar researchers, designers, and entrepreneurs, the vast majority have relocated overseas – including to other high-income countries like Germany and the USA – to commercialise businesses stemming from their solar innovations. Local support was lacking and Australia has lost a generation of our best and brightest in one of the star sectors of the new economy.
Reform recommendations The Future Business Council has consulted with its members to unearth positive suggestions for policy reform. The ideas that follow indicate the many avenues through which governments at all levels could help Australian businesses to make the most of the growth in demand for sustainable products and services. Further consultation would be required at the policy design stage to avoid duplication and ensure regulatory simplicity.
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6 UNSW handbook, http://www.handbook.unsw.edu.au/undergraduate/programs/2014/3642.html
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The following recommendations are the start of the conversation between the next generation of business leaders, policy makers and the broader community to create a reform blueprint for the future economy.
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1. Make “Made in Australia” the global mark of sustainability excellence Benefits:
Increased consumer confidence Expanded international market share Economic growth and job creation
Australia has a unique opportunity to make “Made in Australia” a global byword for sustainability excellence. This will position the national brand in preparation for booming demand for cleaner and better products and services, and could expand the market for Australian made and designed goods. The international branding of Australia is currently under-realised. Compared to nations such as Germany and Japan whose exports carry strong associations with quality and excellence, Australia’s exports – with some exceptions – lack a close association with a specific and universal attribute. We could build a stronger international reputation for the sustainability of Australian exports. Immediate benefits would be gained by sectors (and high performers within these sectors) that already exemplify sustainability excellence, such as in agriculture, commercial building, water efficiency and climate resilience. To secure a lasting competitive advantage the integrity of the branding must reflect reality. It must therefore be secured by a suite of interconnected reforms that assist business innovation, set standards and enhance consumer knowledge. Positioning “Made in Australia” as a trusted – and trustworthy – mark of sustainability excellence, will enable Australian business to better access and command premiums in the global market.
Supporting actions Trusted certification schemes accelerate demand growth and are a critical mechanism for improving consumer knowledge and building new markets for sustainable products. Government should: -
Promote trusted certification schemes to raise consumer knowledge and protect the integrity of established and verifiable marks; Introduce a weighting for certified products in government procurement processes; Provide incentives to support companies applying for certification relevant to their sector; Initiate the establishment of certification schemes in sectors that lack them such as in agriculture (sustainable farm certification), clothing and apparel, and housing rental markets.
2. Remove market barriers to new business models and lift product standards Benefits:
Less red tape for more sustainable business Improved efficiency and better products for consumers Boost to business confidence and clarity on future expectations
-
Remove artificial barriers to entry for new products and business models (such as arbitrary limitations on sharing economy businesses and grid connection barriers for renewable energy); Streamline the approval process for sustainable products and services (buildings, renewable energy, electrical products);
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The market for new sustainable products is being hampered by outdated regulations, high barriers to entry and distorting subsidies to established ‘old economy’ businesses. The Future Business Council recommendations include the following options:
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Phase out subsidies for unsustainable business models, such as new coal mines; Remove tax exemptions for fossil fuel consumption and extraction.
The introduction of clear standards is required to give business the confidence to invest in the development of innovative sustainable products that meet customer expectations, for example: -
Introduce particulate emissions standards for power stations and vehicles; Lift standards for water and energy efficiency products; Index existing standards to the level of the current best performing product on the market; Expand the list of mandated products covered by the Product Stewardship Act (coverage should extend to all electronic products and goods containing hazardous materials); Increase minimum standards in the building code.
Standards provide a minimum performance floor which, when combined with clearly signalled future improvement curves, incentivise innovation and new product development.
3. Introduce market mechanisms and boost investment in innovation, science and research Benefits:
Effective and efficient mechanism to drive economic development Boost Australian innovation and entrepreneurship Create new industries and jobs
When properly designed, market mechanisms can foster rapid, cost-effective business innovation and incentivise positive business practices. Placing a price on negative externalities enables business to factor the cost into their budgets and spurs enhanced product development. Options include: -
-
Placing a price on greenhouse gas emissions, whether in the form of an emissions trading scheme (such as by substantially lifting the Direct Action baselines), carbon price, or equivalent. Market design should be simple, fair, efficient and subject to independent oversight to give business confidence and remove regulatory uncertainty. Placing a price on recyclable waste materials to incentivise reuse and investment in better collection and sorting facilities; Expanding state based energy efficiency white certificate schemes; Extending tradeable water rights to urban water retailers (accompanied by a mandate to lower fixed costs while raising excess usage charges, ensuring ordinary consumers are no worse off);
Introducing new market mechanisms will support local firms to innovate, generating expertise and products that can then be exported.
-
Establish dedicated industrial research parks to foster stronger links between universities and industry, accelerate sustainability innovation, and capitalise on the benefits of clustering; Increase total investment in universities and research institutions; Increase the Research and Development tax incentive for verifiable clean tech initiatives; Invest in a future focus scholarship series to attract the best and brightest from around the world to study and work in new industrial research facilities; Invest in fee-for-access advanced manufacturing facilities to remove barriers to entry for new
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Increased investment in innovation, science and education is also critical to enable primary research and to progress early stage innovations through to commercial feasibility. There are several significant opportunities to boost innovation, science and research support in Australia. For example, governments could:
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businesses and product prototyping; Invest in new infrastructure, including grid access to renewable energy hot spots, advanced waste recycling and EV charging networks;
The Future Business Council has also developed a range of sector-specific recommendations that are outlined in the following chapters of the Next Boom. The Future Business Council will provide additional information and more detailed recommendations on each sector in future releases.
Acknowledgements This report was written by Tom Quinn, Executive Director of the Future Business Council with substantial contributions from Anton Griffith, Miriam Lyons and William Sandover. The Future Business Council would like to thank the following people for their expertise, assistance and time in developing this report. Astha Batra, Adam Beaumont, Tim Buckley, Sophie Ellis, Felicity Ford, Damien Griffante, Chris Hale, Rob Hyndman, Craig Irvine, Zac Jasper, Nathan Lim, Eleni Matheou, Ian McAuley, John O’Brien, Francis Pamminger, Matthew Rose, Neil Salisbury, Charlie Wood, Anna Young. We would also like to thank the wide range of companies and organisations that have published the primary data over the years that has enabled this cross-sector analysis to be undertaken. The Future Business Council would like to thank our members and the many external reviewers for their insights and assistance.
Data sources The Future Business Council has sourced data from a wide variety of public sources, annual reports, research reports, company reports representative of specific industries and of leading products and sectors indicative of longer term trends. Please see the bibliography and specific footnotes for more detailed information.
Disclaimer All rights reserved. No part of this publication may be reproduced or used in any way without acknowledgement to the Future Business Council.
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The Future Business Council has taken reasonable care in publishing the information contained in this publication but does not guarantee that the information is complete, accurate or current. In particular, the Future Business Council is not responsible for the accuracy of information that has been provided by other parties. The information in this publication is not intended to be used as the basis for making any investment decision and must not be relied upon as investment advice. To the maximum extent permitted by law, the Future Business Council disclaims all liability (including liability in negligence) to any person arising out of use or reliance on the information contained in this publication including for loss or damage which you or anyone else might suffer as a result of that use or reliance.
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Further Notes The Future Business Council has undertaken this research using a wide range of publicly available data from a variety of sources. We have found the collection of data on sustainable business trends to be inconsistent across sectors. As a result, some data sets are highly comprehensive (such as insurance), while others are either incomplete across time (such as organic food demand) or represent broad estimates. In some sectors, such as LED lighting, reliable data is virtually non-existent and therefore a trend line has not been established. Where incomplete and estimated data exists, the average percentage change has been interpolated. A more consistent and timely collection of data on key sustainable products and services across the economy would enable better analysis in future reports. The absence of indicator data sets across the whole of the economy, as determined by ABS industry categories, is a limiting factor for gaining as wide and accurate a perspective as possible. This is due to challenges in determining what constitutes a more sustainable approach in the services sector in particular (for example hospitals and education). While there is anecdotal evidence that sustainable demand is increasing within this sector (for hospital products, or sustainability-focused degrees for example), there is no consistent indicator that could be used with confidence to determine a sectorwide trend. The definition of environmentally sustainable goods and services has been purposefully been construed widely to capture the significant breadth in improvements across all product categories. Comparison analysis has been completed where possible on analogous data sets, or where this is not an option, on reasonably similar products. This report has not attempted a unified forecast due to the widespread uncertainty of mass-disruption innovation that makes accurate prediction both impossible and foolhardy. The Future Business Council disclaims any liability arising from the use of this report. The trend forecasts in this report cannot offer a specific guarantee of the future path as many uncertainties exist which will influence the development of the market. However, the research undertaken does provide clear indications of the trends described and we hope this report will provide a positive contribution to the debate about the future direction of Australia’s economy.
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The Future Business Council welcomes the opportunity to work with other organisations for future research in this space, especially to either produce complementary data sets for sectors not currently covered or more detailed analysis of the sectors where there is incomplete data.
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Sector Chapters The Future Business Council has undertaken sector-specific analysis to provide a more granular understanding of the factors driving the boom in demand for sustainable products and services. Each chapter provides a brief overview of the sector, the observed trends and causation, a forecast of whether the trend is likely to continue and reform recommendations to boost growth.
Transportation Data analysed: hybrid sales, electric sales, bike sales, public transport use, emissions efficiency, new vehicle sales At a glance
Hybrid car sales (units) Electric car sales (units) Bike sales (,000) Public transport trips (m.) New car sales (,000) Emissions intensity (g C02/km)
Av. % Growth 165.0 155.8 4.5 2.2 3.0
Total % change 23,798 954 62 32 44
Start 50.0 112.0 810.0 1,187.2 787.0
Yr ‘02 ‘10 ‘00 ‘00 ‘00
Latest 11,949 1,181 1,309 1,565 1,136
Yr ‘13 ‘14 ‘14 ‘13 ‘13
-2.4
-24
252.4
‘02
188
‘14
Demand for more sustainable forms of transport, such as electric and hybrid vehicles, car share, bicycles and public transport, has been increasingly significantly over the last decade. Annual sales growth of hybrid and electric vehicles has averaged 165 per cent and 156 per cent respectively since sales commenced. In the traditional car market, dramatic improvements have been recorded in emissions efficiency with new cars achieving an average efficiency of 188g CO2/km in 2014, a large improvement from 252.4 g CO2/km in 2002, although overseas markets have recorded even better results. Meanwhile, sales of bicycles have increased 62 per cent since 2000 and have outpaced car sales every year since. Public transport usage has also spiked, growing 32 per cent off a very high starting base and with infrastructure constraints restricting recent growth. The increase in demand for more sustainable transport products is being spurred by a range of factors including consumers’ preference for more sustainable vehicles, the availability of more sustainable products in the market, higher global oil prices, and increasing urban density. The factors behind these trends are likely to continue and strengthen over the coming decade, resulting in significant increases in demand for more sustainable transportation options. To analyse sustainable demand change in the transportation sector we have selected two products strongly representative of new low-impact transport, electric and hybrid vehicles, as well as traditional transportation such as bicycle purchases and public transport use. These are compared against the trend for new car purchases as well as improvements in vehicle emissions efficiency.
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Demand has been increasing rapidly for electric and hybrid vehicles, with annual increases of 165 per cent and 156 per cent respectively. The Future Business Council regards electric and hybrid vehicles as leading indicators, as both are readily identified by consumers as a more sustainable product and are a good proxy for changing consumer preference.
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What do we observe?
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Figure 23: Annual hybrid vehicle sales
Hybrid vehicle sales (units)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
16000 14000 12000 10000 8000 6000 4000 2000 0
FBC analysis based on data sourced from: ABS, Census of
Figure 24: Annual electric vehicle sales
Electric vehicle sales (units)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1400 1200 1000 800 600 400 200 0
FBC analysis based on data sourced from: EV-Sales: Australia statistics
Relative to new car sales, this is a significant increase although the rise is recorded off a low base. New car sales by comparison have grown at a rate of 3 per cent per annum Figure 25: Annual new car sales
Car sales (,000 units) 1200 1000 800 600
An interesting, and less well-known aspect, of the new car sale figures is that substantial
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FBC analysis based on data sourced from: ABS, Sales of New Motor Vehicles, May 2015
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2012
2010
2008
2006
2004
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2000
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improvements in emissions efficiency are also being recorded in the traditional combustion engine car market. New passenger cars have recorded annual efficiency improvements of 2.4 per cent per 7 annum since the year 2000, with a steeper rise closer to 3.0 per cent annually after 2004.
Figure 26: Average emissions intensity of new vehicles sold in Australia
Emissions intensity of new vehicles* (g CO2/km)
2014
2012
2010
2008
2006
2004
2002
2000
270 250 230 210 190 170 150 Source: BITRE, Fuel Consumption Trends; NTC Australia, Emissions Intensity for New Australian Light Vehicles * New passenger and light commercial vehicles
Following a dip in the rate of cycling as a mode of transport in Australia in the early 1990s, cycling has rebounded and trips to work have increased in capital cities since 1996.8 Correspondingly, bike sales have increased as indicated by growth in bicycle imports of 62 per cent between 2000 and 2014, rising from 810,000 to 1,309,009 units.9 Figure 27: Annual bicycle sales
Bicycle sales (,000 units)
1500 1300 1100 900 700
2014
2012
2010
2008
2006
2004
2002
2000
500
FBC analysis based on data sourced from: Bicycle Industries Australia
9 BIA, 2010. Response to the Productivity Commission Inquiry into Economic Structure and Performance of the Australian Retail Industry. Bicycle Industry Australia Ltd.
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8 Loader, C. 2014. What does the census tell us about cycling to work? http://chartingtransport.com/category/mode-share/. Accessed 17 May 2015.
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7 BITRE, New passenger vehicle fuel consumption trends, 1979 to 2013, p.5, 2013
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Figure 28: Annual sales of bicycles and cars
Bicycle & car sales (,000 units) 1500 1300 1100
Bicycle Sales (,000 units)
900
New car sales (,000 units)
700 2014
2012
2010
2008
2006
2004
2002
2000
500 FBC analysis based on data sourced from: ABS, Sales of New Motor Vehicles, May 2015; BIA, Annual Reports
A resurgence in public transport use has also been recorded in Australia’s capital cities since the mid 1980s, with growth averaging 2.2 per cent since the turn of the century. The rate of growth has increased particularly since 2006, when it jumped to 3 per cent growth per annum off a high base and with physical limitations to recent growth due to under-investment in expanding public transport capacity.10
Figure 29: Public transportation usage
2012
2010
2006
2004
2002
2000
1600 1500 1400 1300 1200 1100 1000
2008
Public transport usage (m. passenger journeys)
FBC analysis based on data sourced from: BITRE, Public Transport Use in Australia's Capital Cities
Finally, the purchase of electric and hybrid vehicles, a new class of vehicles non-existent in the market at the turn of the century, has now grown to over 1 per cent of new vehicle sales (including 11 freight) in 2013.
What’s the cause? Growth in demand for hybrid and electric cars has been driven in large part by consumer demand. The early increase in particular was driven by those seeking to reduce their environmental impact. This includes corporate and government fleet purchasers as well as the “Prius generation” of
11 Based on 9314.0 Sales of New Motor Vehicles, Australia, Australian Bureau of Statistics 2015 and Sales, Federal Chamber of Automobile Industries 2015.
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(http://www.atrf11.unisa.edu.au/Assets/Papers/ATRF11_0030_final.pdf)
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10 Cosgrove, D. 2011. Long-term patterns of Australian public transport use. Australasian Transport Research Forum 2011 Proceedings
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conscious consumers. More recent increases have also been driven by higher customer satisfaction,12 more competitive offerings, and the normalisation of ownership. Surveys conducted by ABMARC in 2012 indicated that 22 per cent of Australian motorists would “definitely” consider a 13 hybrid for their next purchase. “hybrid vehicle owners reported the best experience with 88 per cent describing it as ‘great’! (this compared to petrol vehicle owners at only 29 per cent)”14 Similar increases are likely to be observed in the electric vehicle market as the ownership of and use of the vehicles becomes normalised, and as a greater variety of vehicles are brought to market. The entry of the Toyota Camry hybrid model in 2010 and the Mitsubishi PHEV Outlander electric vehicle in 2014, are two recent examples of new models rapidly and substantially increasing the size of the hybrid and electric market by meeting the needs of a wider range of consumers. However, the relative lack of infrastructure in Australia is an ongoing barrier to greater electric uptake. Figure 30: Electric vehicle sales (Mitsubishi PHEV Outlander marker)
Electric vehicle sales (units) Mitsubishi PHEV Outlander enters market
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1400 1200 1000 800 600 400 200 0
FBC analysis based on data sourced from: EV-Sales: Australia statistics
Figure 31: Annual electric vehicles sales (new entry markers)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
16000 14000 12000 10000 8000 6000 4000 2000 0
Hybrid vehicle sales (units) Toyota Camry Hybrid enters market Toyota Prius enters market
FBC analysis based on data sourced from: ABS, Census of
13 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 14 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012
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12 Nissan Leaf Survey, http://www.newsroom.nissan-europe.com/uk/en-gb/Media/Media.aspx?mediaid=127826, 2014
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Higher fuel prices are another factor increasing the uptake of electric and hybrid vehicles. Significantly
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lower fuel costs, (approximately $0.03 p/km according to analysis by the Victorian Department of Transport)15 are encouraging more consumers to shift to hybrid and electric models, a factor that is likely to further increase demand. 16
Fuel cost considerations are influencing demand for sustainable transport more broadly . Fuel costs are typically the greatest ongoing cost associated with vehicle ownership and high global prices have encouraged consumers to seek lower-cost alternatives. This is particularly noticeable in relation to public transport usage rates, but can also be seen in the demand for more efficient cars and bicycles. The combination of higher fuel costs with other cost of living expenses including mortgage repayments and food prices have been identified as key factors in the recent growth in public transport patronage.17 Figure 32: Public transportation usage and petrol prices
Public Transport Use & Petrol Prices (m. journeys & $/L) 1700 1600 1500 1400 1300 1200 1100 1000 900 800
1.6 1.5 1.4 1.3 1.2 1.1 1 0.9
Public Transport usage (,000,000 passenger journeys) National Petrol Price Average ($/L)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0.8 FBC analysis based on data sourced from: BITRE, Public Transport Use in Australia's Capital Cities, AIP Retail Price Data
While Australia does not have regulated fuel efficiency standards there is a requirement that Fuel Consumption Labels be displayed on all new cars sold. Standardised certification, in place since 2009,18 has provided consumers with reliable information and enabled demand for lower emissions vehicles to be realised. Since introduction, efficiency improvements have grown by 3 per cent annually, up from 2 per cent before standardised labelling. Additionally, a growing consumer preference for small vehicles has further improved the efficiency of the national fleet.19
15 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p2, 2013 16 BITRE, New passenger vehicle fuel consumption trends, 1979 to 2013, p.7, 2013 (SEE FIGURE 3 for trend)
18 Green Vehicle Guide, Australian Government, https://www.greenvehicleguide.gov.au/GVGPublicUI/Information.aspx?type=FuelConsumptionLabel, 2014. 19 BITRE, New passenger vehicle fuel consumption trends, 1979 to 2013, p.5, 2013
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17 Bureau of Infrastructure, Transport and Regional Economics, Public transport use in Australia’s capital cities: Modelling and forecasting Report 129, p.v,
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Figure 33: Average emissions intensity of new vehicles sold in Australia
Emissions intensity of new vehicles* (g CO2/km)
2014
2012
2010
2008
2006
2004
2002
2000
270 250 230 210 190 170 150 Source: BITRE, Fuel Consumption Trends; NTC Australia, Emissions Intensity for New Australian Light Vehicles * New passenger and light commercial vehicles
Advances in engine technology are a major factor in improved fleet fuel efficiency. The bulk of Australia’s vehicles are imported from Japan and the EU, which both have mandated fuel efficiency standards for vehicles. The fuel efficiency of Australia’s fleet is therefore benefiting somewhat from foreign fuel efficiency regulation.20 Demand for bicycles has increased substantially since the start of the millennium, but it is unclear if this has led to a commensurate increase in bicycle usage. Increased bike riding is closely dependent on local government initiatives to improve the quality and extent of cycling infrastructure. Most of the dramatic increases in cycling rates have been observed in inner city areas where governments have invested in cycling infrastructure.21 Changes to vehicle definitions and road laws have enabled the import and sale of new classes of electric bikes into Australia, and this is likely to spur future growth in the electric bicycle sector.22
Is this trend likely to continue? Why? The Future Business Council predicts that demand for more sustainable forms of transportation will continue growing rapidly. The availability, quality and affordability of hybrid and electric motor vehicles is projected to increase, especially with recent advances in battery technology and scales of production. International and local government policies, especially if Australian fuel efficiency and emissions standards are introduced, will propel the rising trend towards more fuel efficient vehicles, including hybrids and electric cars.23 “In 2020, the hybrid (including plug-in hybrid electric vehicle (PHEV)) will no longer be an ‘alternative’ vehicle type, but the vehicle of choice for a large 24 number of Australian motorists.” ABMARC The fuel efficiency targets for 2015 in Japan, the USA and European Union are significantly more advanced than Australia’s current fuel efficiency performance, and aggressive forward targets are also in place which will further improve performance in future years. 20 Vehicle fuel efficiency standards, Parliamentary Library Services, p.12 , 2013 21 Zander A., & Rissel,C., More cyclists? That depends on where you live, The Conversation, 2012, https://theconversation.com/more-cyclists-that-depends-
23 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 24 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012
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22 Bicycle Industry in Australia, 2011/12 Report, p.12, 2012
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on-where-you-live-11154
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Global Fuel Efficiency Standards (Personal Motor Vehicles)25 USA 2015 target 2020 target
EU
JAPAN
South Korea
Australia (actual)
139g CO2/km
130g CO2/km
139g CO2/km
140g CO2/km
NO STANDARD
88g CO2/km (2025)
95g CO2/km (2021)
115g CO2/km
97g CO2/km
NO STANDARD
ABMARC (an independent automotive sector consultancy) has forecast that hybrid and plug-in hybrid 26 electric vehicles will grow to 6.4 per cent of the new vehicle market by 2020. The pressures of high running costs plus the development of a critical mass of hybrid and electric vehicles will enhance further uptake due to the increased availability of infrastructure and the normalisation of ownership. In Japan electric vehicles already make up 9 per cent of all new vehicles and Japan’s vehicle fleet is on 27 target for 20 per cent EVs by 2020. Demand for bicycles and public transport is also projected to increase. Governments at the state and local levels have implemented programs to boost investment in cycling infrastructure which will result in greater usage in future years. Concerns about transportation costs are also making cycling a more attractive option for more of the population. Demand for electric bikes is likewise projected to increase due to technology improvements, price decreases and a greater availability of electric bike options.28 BITRE has projected that urban public transport demand will increase by about one third between 2010 and 2030, with implications for infrastructure provision and other policy.29 Price pressure, urban congestion and population growth all indicate that this trend is likely to continue. Additional investment in public transport infrastructure is likely to further increase patronage. Growth predictions range from an estimated 1.35 per cent per year for the next 20 years by BITRE for urban public transport,30 or a predicted 3.5 to 3.8 per cent per annum by authorities such as Public Transport Victoria.31 Population growth and urbanisation will see further growth in public transport use as public transport is responsible for the majority of commuter trips to and from CBD areas.32 Car ownership rates are also declining amongst the population which suggests that a greater proportion of the population will rely on public transport than previous generations. A potential limiting factor for public transport use, however, is a lack of capacity to absorb demand growth. If investment is not made to improve infrastructure and signalling and to boost rolling stock numbers, this could impose a critical limitation on future growth. 33
Finally, while oil prices are currently depressed, the long-term forecast is for higher prices which will encourage consumers to continue seeking out non-oil dependent transportation. 25 Personal motor vehicle emissions standards http://www.theicct.org/info-tools/global-passenger-vehicle-standards 26 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 27 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 28 Bicycle Industry in Australia, 2011/12 Report, p.15, 2012 29 BITRE, Public transport use in Australia’s capital cities: Report 129, p.vii, 2013
32 BITRE, Public transport use in Australia’s capital cities: Report 129, p.9, 2013 33 World Bank, Commodities Price Forecast, July 2015
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31 PTV, Metropolitan Demand Forecast Report, p. 32, 2012.
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30 BITRE, Public transport use in Australia’s capital cities: Report 129, p.5, 2013
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What policies or reforms would accelerate this trend? The trend towards more sustainable transport is strong, but there are some obvious steps that can and should be taken to speed the transition and provide local Australian businesses with the exposure and skills to deliver on growing demand. The first challenge is for Australia to catch up to other advanced economies’ transport capacity and performance. Australia is lagging behind comparable countries on transport indicators such as market share of electric and hybrid vehicles, fuel efficiency of the fleet, public transport and cycling usage. Recommended reforms include the following: Electric and hybrid vehicles ● ● ● ● ● ● ● ● ●
Invest in convenient charging infrastructure, particularly in inner city areas34 Simplify and fast-track planning approvals for EV charging infrastructure35 Provide tax credits for businesses installing electric vehicle charging equipment36 37, 38 Subsidise new electric vehicle purchases using proven international approaches 39 Exempt electric vehicles from rapid commuter lane requirements Discount vehicle registration fees for hybrid and electric vehicles Remove import duties and reduce the luxury car tax for new electric and hybrid vehicles40 Shift electricity billing to time of use tariffs41 Provide incentives to car makers to offer more of their product range in Australia
Fuel efficiency ● ● ●
Introduce a new vehicle emissions standard, with a target in the range of 60 to 80g Co2/km for 2025 In the interim, introduce rising medium-term targets for vehicles emissions and fuel standards42 Incentivise production of sustainable vehicle technologies that can be retrofitted onto older car models43
Cycling and public transport ● ● ●
Commit to resourcing the prioritised transport infrastructure recommendations of Infrastructure Australia Invest in expanded CBD public transport infrastructure, suburban rapid bus transit and more rolling stock to improve mobility and productivity Invest in expanded bicycle infrastructure built on the “8 to 80 principle” i.e. suitable and safe for the full range of riders, from 8-year-old kids to 80-year-old grandparents44
34 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 35 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p5, 2013 36 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p5, 2013 37 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 38 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p5, 2013 39 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p6, 2013 40 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p6, 2013
43 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012 44 http://www.8-80cities.org/
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42 ABMARC, ELECTRIC & HYBRID Vehicles Australia: An Automotive Perspective, 2012
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41 Energy Supply Association of Australia, Sparking an Electric Vehicle Debate in Australia,p6, 2013
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Energy Data analysed: solar, wind, solar hot water, fossil fuel electricity generation At a glance
Wind MW installed (annual) Wind MW installed (cumulative) Wind GWh generation (annual) Solar MW installed (annual) Solar MW installed (cumulative) Solar hot water units installed (annual) Solar hot water units (cumulative) Fossil Fuel GWh generation (annual)
Av. % Growth 512.7
Total % change
Start
Yr
Latest
Yr
2,476
22.0
‘00
655.0
‘14
NA
11,797
32.0
‘00
3,239.0
‘14
43.5
3,243
277.0
‘02
9,259.0
‘14
118.1
199,567
0.4
‘01
816.6
‘14
NA
999,054
0.4
‘01
4,086.5
‘14
23.4
462
10,685.0
‘01
60,000.0
‘14
NA
8,395
10,685.0
‘01 907,700.0
‘14
0.8
10
190,279.0
‘00 210,100.0
‘13
Demand for renewable energy systems has soared in Australia over the past decade. From being virtually non-existent in 2000, with the exception of the well-established hydro power schemes, there are now more than 7,000 Megawatts (MW) of wind and solar capacity installed today. Generation of wind power has increased by 43.5 per cent a year since 2000, the number of solar panels installed has increased at a rate of 118 per cent a year, and there are now more than 900,000 rooftop solar hot water systems installed across the nation. Meanwhile, annual growth in fossil fuel electricity generation over the same period tumbled to 0.8 per cent a year, and has been trending downwards by -2 per cent a year since its peak in 2010. The main factors driving the shift were initially government initiatives to increase the uptake of renewable energy, both small and large scale, as well as the introduction of a price on carbon emissions, combined with a consumer response to ever-higher electricity prices. More recently consumer demand has started to emerge as a driver in its own right especially in the residential rooftop solar market as system prices have dropped dramatically, even while subsidies and feed-in tariffs have been progressively wound down.
45 New Energy Outlook 2015 - Executive Summary, BNEF, p.4, 2015.
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The Future Business Council has analysed changing demand for more sustainable energy sources in this report by examining changes in the volumes of solar, wind and solar hot water systems installed since the turn of the century, as well as the annual generation of electricity from wind farms. This has
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Globally, the uptake of renewable energy is projected to continue its rapid rise. Bloomberg New Energy Finance has estimated that 56 per cent of the world’s power generating capacity will be from renewable sources by 2040.45 In Australia, despite recent market uncertainty stemming from aggressive anti-renewable actions at the federal level, the same drivers of growing consumer demand from both the household and investment sectors will see continued demand growth for renewables. This will likely be accelerated by supportive policies at the state and local government levels.
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been compared with changes in annual generation from brown coal, black coal and gas.
What do we observe? The total capacity of wind energy installed in Australia has expanded from 32MW in 2000 to 3,239MW in 2013. This is a phenomenal increase over a very short timeframe, representing a 10,000 per cent rise in installed capacity. Figure 34: Total installation of wind energy
Total installation of wind energy (MW)
2012
2010
2008
2006
2004
2002
2000
3500 3000 2500 2000 1500 1000 500 0
FBC analysis based on data sourced from: IEA Wind Annual Reports
The increase in solar installations is more well-known due to the widely publicised milestone of 1 million solar households. Installations have expanded at an annual rate of 118 per cent, rising from a base of 0.4MW in 2000 to 817.0MW in 2014. The demand has largely come from the residential rooftop sector although recent installations, such as the 102.0MW Nyngan solar installation, suggest that future growth will occur in both the large scale and distributed rooftop solar sectors. Figure 35: Total installation of solar energy
Total installation of solar energy (MW) 5000 4000 3000 2000 1000 2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: Clean Energy Australia Report 2013
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There has been a parallel rise in demand for solar hot water installations in the residential sector, representing an annual average increase of 23.4 per cent, or a total increase of 8,395.0 per cent for the entire period.
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Figure 36: Total installation of solar hot water units
1000
Total installation of solar hot water (,000 units)
800 600 400 200 2014
2012
2010
2008
2006
2004
2002
2000
0 FBC analysis based on data sourced from: Clean Energy Australia Report 2013
In contrast, while there was reasonable growth in demand for electricity generated from the brown coal, black coal and gas up until 2007, it has been tepid since and plunged into negative territory after 2010. Figure 37: Annual generation of energy from fossil fuels
Annual generation of electricity (coal and gas ,000 GWh)
2000 2002 2004 2006 2008 2010 2012 2014
230 220 210 200 190 180 170
FBC analysis based on data sourced from: BREE, Australian Energy Statistics 2014
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The difference in demand growth for renewable versus non-renewable electricity sources over the past 15 years is stark and unlikely to change. While the renewables sector is suffering from the shortterm impact of counterproductive policy decisions at the federal level, the fundamentals point to a much brighter future.
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Figure 38: Electricity production percentage change, by source
Electricity production percentage change (wind, solar & fossil fuels GWh)
Wind generation % growth Fossil Fuel % change Solar % growth 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
400 350 300 250 200 150 100 50 0 -50
FBC analysis based on data sourced from: Clean Energy Australia Report ; IEA Wind Annual Reports; BREE, Australian Energy Statistics 2014
What’s the cause? The increased demand for renewable energy has been led by a combination of state and national government regulation, significant technology improvements and more recently by consumer demand as prices have fallen for rooftop solar and solar hot water installations.
Figure 39: Cost of solar modules
Cost of solar modules ($US/Wp) Global silicon shortage
6 5
4 3 2 1
The introduction of the federal Mandatory Renewable Energy Target in 2001, and its subsequent
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FBC analysis based on data sourced from: Renewable Energy World
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2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
0
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expansions and extensions, has been critical in enabling the uptake of renewable energy. Various state schemes and feed-in tariffs for renewable energy have also increased demand and spurred rapid growth in installations throughout the years. Figure 40: Solar and wind energy growth (with markers)
Solar and wind growth (total MW) 4500 4000 3500 3000 2500 2000 1500 1000 500 0
MRET introduced
Expanded RET introduced Wind Installated MW (Cumulative)
2014
2012
2010
2008
2006
2004
2002
2000
Solar Installed MW (cumulative)
FBC analysis based on data sourced from: Clean Energy Australia
Demand for large-scale projects amongst financiers, a critical source of funds for projects, has been boosted through the confidence provided by project backing from the Clean Energy Finance Corporation (CEFC) and the Australian Renewable Energy Agency (ARENA). These agencies have also played a critical role in opening up investment in new cutting-edge renewable projects, like wave power (see Box 2: Tidal power), which otherwise struggle to secure early-stage funding.
Box 2: Tidal power A rising tide for renewable energy Australia is one of the leading countries in the world for the development and implementation of wave power projects. In 2015, the world’s first grid-connected wave project was launched in Western Australia, while in Victoria and South Australia cutting edge prototypes have been installed – prototypes capable of capturing and withstanding the forces of the powerful Southern Ocean.
46 ARENA Ocean Energy Projects, http://arena.gov.au/projects/ 47 Kobad Bhavnagri, BNEF, 2014 - http://reneweconomy.com.au/2014/oz-solar-seen-at-23gw-by-2030-driven-by-unstoppable-rooftop-pv-63033
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The rapid reduction in the price of solar panels has more than compensated for the removal of generous feed-in tariffs and other government subsidies - although the cavalier disregard for consistent and consultative policy development has done the sector no favours. The demand for 47 rooftop solar has now reached the point where it is effectively “unstoppable”, able to withstand
36
The key factor that has enabled this new industry to get off the ground has been the backing of programs such as the Emerging Renewables Program run by ARENA. This program has provided funding for research and projects that hold the promise of providing competitively-priced energy for Australia in the long term. It is critical to developing the industries of the future.46
The Next Boom
actions by government to discourage uptake.
Is this trend likely to continue? Why? Demand for renewable energy will continue its inexorable rise. Advanced production technology combined with economies of scale will deliver higher quality solar, wind and other renewable energy products at reduced costs – making their purchase more accessible and desirable. While there has been recent uncertainty in the industry due to federal government political campaigns, the longer-term trend is clear. Consumer demand will continue to drive the transition and government regulation and incentives will only determine whether the rate is faster or slightly slower. The number of solar power systems installed on homes and businesses across Australia is likely to reach 5 million by 2030.48 Further cost reductions, which are projected, will continue to spur demand 49, 50 for rooftop solar. 51
On the supply side, Australia has some of the best solar, wind and wave resources in the world and it is only a matter of time until these are more effectively utilised. Leaders in the Australian context are South Australia and the ACT which are demonstrating how renewables can already provide for total electricity needs to a large extent. South Australia is home to almost half of Australia’s wind capacity, and has set records by sourcing a third of all electricity from solar power 52 one day in December 2014, and an incredible 100 per cent of electricity needs from renewable sources for a whole working day in October 2014.53 The ACT meanwhile has set a target of 100 percent renewable energy by 2025 demonstrating along with South Australia the broader potential for Australia as a whole. The emergence of cost-effective electricity storage technology, like Tesla’s Powerwall or the recently launched local competitor WattGrid at the small scale and pumped hydro at the large scale, will create even greater demand for renewable energy as larger systems become a more viable investment and capable of dispatching constant power. Additionally, the continuing high cost of access to grid energy is likely to be a driver for consumers, particularly developers of new housing developments, and communities in rural and remote areas, to shift off-grid by installing substantial renewable energy capacity. On the large scale cost front, new wind capacity is already cost competitive with new coal stations, while large scale solar will become cost competitive with wind as soon as finance costs are brought down. The large coal power stations in Australia are increasingly at risk of becoming stranded assets, which will drive further investment into renewable energy. Furthermore, many of the coal generators are reaching the end of their lifespan and the capacity they leave will almost certainly be filled by new renewable projects. Bloomberg New Energy Finance has projected that renewable energy will account for 49 per cent of total capacity in Australia by 2030, and about 33 per cent by generation.54
48 http://reneweconomy.com.au/2014/oz-solar-seen-at-23gw-by-2030-driven-by-unstoppable-rooftop-pv-63033 49 Solar PV costs to fall another 25 per cent in three years, Renew Economy, Giles Parkinson,http://reneweconomy.com.au/2015/solar-pv-costs-to-fallanother-25-per-cent-in-three-years-32854, 2015. 50 Solar PV module costs for fall 40% by 2017, http://reneweconomy.com.au/2015/solar-grid-parity-world-2017 51 Australian Energy Resource Assessment, GeoScience Australia, p.21, 2014
53 http://reneweconomy.com.au/2014/south-australia-hits-100-renewables-for-a-whole-working-day-86069 54 http://reneweconomy.com.au/2014/oz-solar-seen-at-23gw-by-2030-driven-by-unstoppable-rooftop-pv-63033
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demand-66103
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52 The day rooftop solar met one third of South Australia’s demand, http://reneweconomy.com.au/2015/day-rooftop-solar-met-one-third-south-australias-
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What policies or reforms would accelerate this trend?
55 A number of reports point to the feasibility of this target. See, for example, Australian Energy Market Operator (AEMO) 2013, 100 Per Cent Renewable Study - Modelling Outcomes, Department of the Environment.
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55
Expand the Renewable Energy Target to 60% by 2030 Standardise and simplify grid connection and access regulations Incentivise the purchase of battery storage technology Incentivise the uptake of electric cars (see Transportation chapter) Streamline planning approvals for new large scale renewable energy projects Procure public-sector electricity from renewable sources Introduce a price on carbon dioxide emissions Introduce particulate emission standards for power stations Remove Section 7C from the Renewable Energy (Electricity) Act to enable state-based renewable targets Remove planning restrictions on the installation of solar panels on residential and commercial buildings Mandate the shaping of electricity tariffs to lower fixed costs and increase variable and excess usage charges.
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Appliances and products Data analysed: Lighting, dishwashers, taps, showers, toilets, clothes washers, dishwashers, fridges, & freezers. At a glance
Product
Av. % Growth
CFL Incandescent Fridge Energy Use Freezer Energy Use Dishwasher Energy Use VEEC lighting (,000) Taps Showers Toilets Top loaders Front loaders Dishwashers
12 -15 -2.7 -3.8 -2.5 61.5 5.4 1.5 17.5 33.7 192.9 41.9
Total % Start change 100 10 -88 78 -23 624 -33 554 -21 380 400,891 0.5 44 57% 11 84.8% 204 23% 236 14.9% 4,619 1.6% 589 12%
Yr.
Latest
Yr.
‘02 ‘02 ‘00 ‘00 ‘00 ‘10 ‘06 ‘06 ‘06 ‘06 ‘06 ‘06
20.0 9.0 480.0 373.0 301.0 2,181.0 82.0% 94.0% 70.0% 50.0% 75.5% 82.7%
‘13 ‘13 ‘09 ‘09 ‘09 ‘15 ‘13 ‘13 ‘13 ‘13 ‘13 ‘13
Demand for more efficient and sustainable appliances and products has boomed since the turn of the century in Australia. The emergence of trusted certification schemes has been the central factor enabling consumers to compare the energy and water efficiency of products with confidence. The result has been a sustained preference for more sustainable products. The energy efficiency of new freezers has improved by 3.8 per cent annually since 2000 with similar improvements recorded for refrigerators and dishwashers. Figure 41: Whitegood energy consumption change
Whitegood energy consumption change (%) 5 0 2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-10
Freezer Energy %
-15 -20
Dishwasher Energy %
-25
23% 33% 21%
FBC analysis based on data sourced from: E3, Greening Whitegoods Report
Consumers are also demanding more water efficient products. In 2006, only 23 per cent of toilets sold performed at 3 star WELS or better (WELS is the Water Efficiency Labelling and Standards used to rate the water efficiency of products in Australia). By 2007, the proportion sold performing at 3 stars or higher had surged to 70 per cent. Even greater demand for efficient goods was recorded in the frontloading washing machine market. In 2007, just 1.6 per cent performed at 4.5 WELS or above. Six
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-30
Fridge Energy %
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-5
Total improvement (from 2001 to 2009)
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years later, that figure was 75.5 per cent: an average 10.6 per cent improvement every year. Government regulation has played a role in increasing the market for sustainable goods. The introduction of mandatory water and energy efficiency labelling led a decisive shift by improving consumer knowledge. In the energy efficient product space, the introduction of Greenhouse and Energy Minimum Standards (GEMS) in 2012 and mandatory Minimum Energy Performance Standards (MEPS) in 2007 have substantially shifted the market, none more so than in the lighting sector. The introduction of MEPS resulted in a fundamental move away from incandescent lighting in favour of compact fluorescent and more recently LED alternatives. The incandescent market peaked in 2006 with imports of 91 million globes: eight years later, imports have collapsed to just 9 million as the majority could not meet the new standards, opening up the market for more sustainable products. Environmental concerns have been another driver. Water shortages during the mid-2000s and recent rises in energy prices have spurred consumers to seek out more sustainable products where alternatives exist. Figure 42: Percentage of water products > 3 WELS
Water efficiency of products (% > 3 WELS*) 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
Taps > 3 WELS (%) Showers > 3 WELS (%)
Toilets > 3 WELS (%)
2013
2012
2011
2010
2009
2008
2007
2006
Topload clothes washers > 3 WELS (%)
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Frontload clothes washers > 4.5 WELS (%) Dishwashers > 3 WELS (%)
* Frontload dishwashers = % > 4.5 WELS
The Future Business Council has analysed changing demand for more energy efficient domestic appliances and products in this report by examining shifts in the sales volumes of lighting products, the average energy efficiency of refrigerators, freezers, and dishwashers. Demand for water efficient products was determined by assessing the WELS ratings of taps, shower fittings, toilets, clothes washers, and dishwashers sold in Australia.
What do we observe?
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There has been almost total structural change in the lighting markets over the past decade. The market for incandescent lighting has collapsed, replaced almost entirely by more sustainable products such as Compact Fluorescent Lighting (CFLs) and LED products.
40
Lighting
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Figure 43: Imports of incandescent lights
Imports of incandescent lights (m. units) 100 80 60 40 20 2000 2002 2004 2006 2008 2010 2012 2014
0 FBC analysis based on data sourced from: Department of Industry, Residential Lighting Overview Report
Figure 44: Imports of Compact Fluorescent Lights
Imports Compact Fluoresecent Lights (m. units)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
40 35 30 25 20 15 10 5 0
FBC analysis based on data sourced from: Department of Industry, Residential Lighting Overview Report
The trend was initially driven by consumer demand for a more efficient and longer lasting product, and then subsequently supercharged by government regulation mandating minimum efficiency standards as well as state-based white certificate schemes56 which have particularly increased the uptake of LEDs.
(GGAS) in NSW. 57 https://www.veet.vic.gov.au/Public/ActivitiesPostcodeSearch.aspx
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56 White certificate schemes such as the Victorian Energy Efficiency Target scheme (VEET) and the now closed Greenhouse Gas Reduction Scheme
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Similar uptake for LEDs is reported although there is a lack of reliable data. From the data that does exist however, similar trends can be assumed. In Victoria for instance, millions of Victorian Energy Efficiency Certificates (VEECs) have been generated for LED lighting projects through the Victorian Energy Efficiency Target (VEET) scheme alone.57
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Figure 45: Lighting VEECs generated in Victoria
VEEC lighting certificates generated (thousands)
2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00
2009 2010 2011 2012 2013 2014 2015 FBC analsis on data sourced from Victorian Essential Services Commission
Consumer appliances The past decade has seen significant improvements in both the water and energy efficiency of household white goods and fittings. The increase in demand has been driven by a combination of improved consumer knowledge, enabled by efficiency star labelling schemes, government mandated performance standards for some products, and a variety of incentive schemes. Demand for more energy efficiency is increasing annually for all whitegood products.58 Figure 46: Average Energy Star rating of whitegoods
Average star rating of whitegoods (Energy Star) 5 4 3
Average refrigerator star rating
2
Freezer Average star rating
1 2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Dishwasher Average star rating
FBC analysis based on data sourced from: E3, Greening Whitegoods Report
59 Greening Whitegood Report, Equipment Energy Efficiency Committee, p.3, 2010
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58 Greening Whitegood Report, Equipment Energy Efficiency Committee, p.3, 2010
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The energy of household refrigerators is one example, with a combination of efficiency labelling and mandated performance delivering average energy efficiency improvements of 3.9 per cent every year.59 The boom in demand for more sustainable products is remarkable. For comparison, in 2003, 88 per cent of refrigerators sold did not pass 2005 Minimum Energy Performance (MEPS) levels, yet by 2009 that figure had fallen to 0.3 per cent of models.
The Next Boom
Figure 47: Average refrigerator energy consumption
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Average refrigerator energy consumption (kWh/pa) 300 400 500 600 700 FBC analysis based on data sourced from: E3, Greening Whitegoods Report 60
Freezer energy efficiency has been climbing by 2.8 per cent per annum.
Figure 48: Average freezer energy consumption
2008
2006
2004
2002
2000
Average freezer energy consumption (kWh/pa)
300 350
400 450 500 550 600 FBC analysis based on data sourced from: E3, Greening Whitegoods Report
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60 Greening Whitegood Report, Equipment Energy Efficiency Committee, p.4, 2010
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The energy and water use of dishwashers meanwhile has declined by 3.1 per cent and 4.3 per cent respectively per annum.
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Figure 49: Average dishwasher energy consumption
2008 2009
2007
2006
2004 2005
2003
2002
2000 2001
Average dishwasher energy consumption (kWh/pa)
200 250 300 350 400 FBC analysis based on data sourced from: E3, Greening Whitegoods Report
Figure 50: Percentage of dishwashers > 3 WELS
Water efficiency of dishwashers (% > 3 WELS)
100% 80% 60% 40% 20%
2013
2012
2011
2010
2009
2008
2007
0%
Source: Department of Environment, Evaluation of WELS scheme
Water efficiency in general is improving although some products are starting to hit natural limits of efficiency. Since 1993, clothes washers have recorded an average 3.9 per cent decrease in water consumption per annum. Figure 51: Percentage of topload clothes washers > 3 WELS
Water efficiency of topload clothes washers (% > 3 WELS)
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FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
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2013
2012
2011
2010
2009
2008
2007
60% 50% 40% 30% 20% 10% 0%
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Figure 52: Percentage of frontload clothes washers > 4.5 WELS
Water efficiency of frontload clothes washers (% > 4.5 WELS) 100% 80% 60% 40% 20% 2013
2012
2011
2010
2009
2008
2007
0% FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
There has been consistent movement across all product categories of appliances, fixtures and fittings toward more efficient products61. The water efficiency of toilets as measured by WELS in particular has increased significantly, improving from a 2006 base of 23 per cent performing at WELS level 3 or higher, to 70 per cent in 2013. This is particularly notable as Australia has mandated the efficiency of toilets since the1980s, meaning the improvement is off an already high base by global standards. 62 Taps have also improved noticeably, from 57 per cent above WELS 3 in 2006, to 82 per cent in 2013. Figure 53: Percentage of toilets > 3 WELS
2013
2012
2011
2010
2009
2007
2006
80% 70% 60% 50% 40% 30% 20% 10% 0%
2008
Water efficiency of toilets (% > 3 WELS)
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
62 Evaluation of the Environmental Effects of the WELS Scheme, Institute of Sustainable Futures, Australian Commonwealth Government Department of the Environment, p.24, 2015.
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Environment, p.iv, 2015.
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61 Evaluation of the Environmental Effects of the WELS Scheme, Institute of Sustainable Futures, Australian Commonwealth Government Department of the
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Figure 54: Percentage of showers > 3 WELS
Water efficiency of showers (% > 3 WELS)
95% 90% 85% 80% 75%
2013
2012
2011
2010
2009
2008
2007
2006
70%
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Figure 55: Percentage of dishwashers > 3 WELS
Water efficiency of dishwashers (%> 3 WELS) 100%
80% 60% 40% 20% 2013
2012
2011
2010
2009
2008
2007
0%
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Figure 56: Percentage of taps > 3 WELS
90%
Water efficiency of taps (%> 3 WELS)
80% 70% 60% 50% 2006 2007 2008 2009 2010 2011 2012 2013
40%
Lighting Performance Thresholds The phase in of mandatory minimum energy performance thresholds commencing in 2007 and
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What’s the cause?
46
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
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finalised in 2009, resulted in two substantial shifts in the incandescent import market. Incandescent light imports have fallen by 62 per cent from the early 2000s to 2013.63 The primary driver of lighting 64 purchase behaviour is now energy efficiency. Figure 57: Imports of CFL and incandescent lights (MEPS phase-in)
Annual imports CFL and incandescent lights (m. units) 100 90 80 70 60 50 40 30 20 10 0
MEPS phase-in period CFL imports (,000,000 units)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Incandescent imports (,000,000 units)
Linear (CFL imports (,000,000 units))
FBC analysis based on data sourced from: Department of Industry, Residential Lighting Overview Report
Energy Rating Labels and Consumer Demand The requirement65 for products to display Energy Rating Labels has improved consumer knowledge and enabled demand to increase for more sustainable and efficient goods. The labels have also made performance of products visible on the supply side, encouraging producers to improve the performance of their products. Minimum Energy Performance Standards (MEPS)
64 Residential Lighting Overview Report, Department of Industry, p.6, 2014 65 Greening Whitegood Report, Equipment Energy Efficiency Committee, p.1, 2010
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63 Residential Lighting Overview Report, Department of Industry, p.5, 2014
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Refrigerators and freezers were mandated to achieve minimum energy performance standards in 1999. The regulations were subsequently tightened in 2007 and 2010, increasing the supply of more sustainable options. The most significant falls in energy consumption occurred firstly with the introduction of MEPS in late 1999 (at the start of our analysis period) and secondly with the more stringent MEPS levels in 2005.
The Next Boom
Figure 58: Energy efficiency of refrigerators and freezers
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Refrigerator and Freezer performance (kWh/pa)
250 300 350 400 450 500 550 600 650 700
Average refrigerator energy use (kWh/pa) Average freezer energy use (kWh/pa)
MEPS 2005 update FBC analysis based on data sourced from: E3, Greening Whitegoods Report
Australia was one of the first countries in the world to announce regulations aimed at eliminating inefficient incandescent lamps from its market. In February 2007 a minimum energy performance standard (MEPS) program was developed for incandescent, halogen and compact fluorescent lamps. A staged implementation saw initial import restrictions on regular incandescent house light globes. Further restrictions were implemented in 2009 with GLS tungsten filament and extra-low voltage halogen non-reflector lamps subjected to “point of sale” MEPS.66 Water Efficiency Labelling and Standards (WELS) and consumer demand The introduction of easy-to-understand information on the water efficiency of products has been critical to enabling consumer demand to drive the supply of more water-efficient options. Voluntary water efficiency labels were first introduced in 1988 and became mandatory for most waterusing products in 2006 through the commencement of the WELS Scheme. The implementation of WELS also resulted in minimum efficiency standards for a range of products, as well as providing consumers with trusted information on the water performance of products. It is now a reference point for much urban water policy in Australia.67, 68
Environment, p.iv, 2015. 68 For full list of efficiency programs see pp.11-16
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67 Evaluation of the Environmental Effects of the WELS Scheme, Institute of Sustainable Futures, Australian Commonwealth Government Department of the
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66 Residential Lighting Overview Report, Department of Industry, p.10, 2014
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Figure 59: Percentage of water products > 3 WELS
Water efficiency of products (% > 3 WELS*) 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
Taps > 3 WELS (%) Showers > 3 WELS (%) Toilets > 3 WELS (%)
2013
2012
2011
2010
2009
2008
2007
2006
Topload clothes washers > 3 WELS (%)
FBC analysis based on data sourced from: Department of Environment, Evaluation of WELS scheme
Frontload clothes washers > 4.5 WELS (%) Dishwashers > 3 WELS (%)
* Frontload dishwashers = % > 4.5 WELS
Consumer demand has also been a critical driver, as seen by the increase in demand for products performing above the mandated minimum standards.69 Drought, Water Restrictions and Consumer Awareness Mandatory standards were introduced in response to the millennium drought, a direct reaction to environmental necessity. The exact relationship is challenging to pin down, however the inextricable links between drought, rising public awareness, incentives from water retailers and enforced water restrictions has increased demand for more water-efficient products. A combination of environmental necessity (from drought and water restrictions), consumer demand (from improved knowledge) and regulations (minimum standards and usage restrictions) have led the increase in demand for more sustainable water-using products.
Is this trend likely to continue/change? Why? Energy Efficiency Significant improvements in lighting energy are predicted by many experts. The quality and price competitiveness of LEDs should improve as mass-market production commences and expectations of energy performance will probably continue to rise.70 McKinsey projects that LEDs will make up 63 per cent of the lighting market in 202071 Technological improvements and innovation in response to greater demand and regulations are also enabling the mass production of affordable and high quality energy-efficient products. Energy efficiency labelling schemes, based on past performance, are likely to drive continued demand for more sustainable products with consumers consistently having a purchase bias towards higher performing models as average performance improves. The extension of labelling to a wider range of products plus the introduction and lifting of mandated
70 Residential Lighting Overview Report, Department of Industry, p.7, 2014 71 Lighting the way: Perspectives on the global lighting market - McKinsey
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Environment, Figures 4-4, 4-5, pp.31-32, 2015.
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69 Evaluation of the Environmental Effects of the WELS Scheme, Institute of Sustainable Futures, Australian Commonwealth Government Department of the
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minimum standards will ensure the trend continues. Additionally, the rapid growth of the green building industry (see the Buildings Chapter) is delivering a wave of change right through the supply chain and is a key factor underpinning increased demand for better and more affordable energy efficient appliances. Increasing prices for electricity will continue to enhance consumer demand for more efficient appliances. In the medium term the inevitable introduction of carbon prices, both in Australia and abroad, will create additional market pressure for the design and production of energy efficient products.
Water Efficiency The trend towards more efficient products is expected to continue for all products with a few exceptions (such as dishwashers). As with energy efficiency labelling, past performance suggests that water efficiency labelling schemes will drive continued demand for more sustainable products, with consumers having a purchase bias towards higher performing models as average performance improves. Mandated minimum performance is also likely to be lifted further. In recent years, additional products like clothes washing machines (2011) and flow controllers (2013) have had minimum standards introduced, and performance standards are also likely to be further tightened as the manufacturers have proven their capacity to innovate and deliver affordable, high-quality and water efficient products. The return of El Ninõ weather conditions,72 with the increase in water shortages and drought conditions is likely to increase consumer awareness once again and boost demand for more sustainable products. Growing populations in metropolitan areas will place increased demand on water supplies, providing another driver for more efficient products, whether through consumer demand or government and water authority incentive schemes. Dishwasher water efficiency however is unlikely to improve much further as it is understood to be approaching natural limits and efficiency gains are expected to level off.73 If technological innovations enable further improvements however, this trend is likely to continue given the evident consumer demand for more sustainable products.
What policies or reforms would accelerate this trend? Improving consumer knowledge and lifting minimum standards will continue to drive increased demand. Forecasting future efficiency expectations will provide business with the confidence to innovate and invest in new efficient products and claim a share of this growing segment. Energy efficiency
72 The 2015 El Nino is here, Bureau of Meteorology, https://theconversation.com/bom-were-calling-it-the-2015-el-nino-is-here-41598, 2015 73 Greening Whitegoods Report, Equipment Energy Efficiency Committee, p.48, 2010 74
A good model for this reform is Germany’s ‘Best Available technology’ legislation. See OECD (2012), Environmental
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Extend Mandatory Energy Performance Standards (MEPS) to all small appliances; Lift existing MEPS levels to international best practice; Explore introducing continual improvement targets for MEPS, with the minimum standard to be lifted every two years to the average performance of the top quintile of products;74
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Provide incentives for early retirement of inefficient appliances;75 Introduce a minimum efficiency upgrade standard triggered when a commercial building undergoes refurbishment.
Water
Performance Reviews: Germany.
75 Commercial Building Emission Reduction Opportunities, Climate Works, 2010 76 Evaluation of the Environmental Effects of the WELS Scheme, Institute of Sustainable Futures, Australian Commonwealth Government Department of the Environment, p.7, 2015.
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Expand Water Efficiency and Labelling Standards to all water using products; Introduce WELS minimum performance standards to non-covered products, for example dishwashers;76 Use best practice today as benchmark for lifting minimum standard in future years; Introduce Tradable Water Rights to urban water markets to improve efficiency and value; Place Environmental Contribution Levy on water utilities to provide a market signal for greater water efficiency; Introduce higher WELS specifications into building codes, regulations and building rating systems.
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Buildings Data analysed: Green Star, NABERS, NatHERS At a glance
Av. % Growth NA 116.1 69.4 94.6
Green star (cumulative) Green star (annual) NABERS # rated & certified NABERS # > 4.5 Stars NABERS % of viable building stock NABERS % water rated of total building stock NatHERS
Total % change Start 79,500 1 14,900 1 7,490 30 22,633 4
Yr. ‘04 ‘04 ‘00 ‘00
Latest 796 150 2,277 682
Yr. ‘14 ‘14 ‘14 ‘14
29.6
NA
3%
‘00
77%
‘14
43.4
NA
6%
‘06
46%
‘14
12.0
131
29%
‘02
66%
‘10
The building sector has displayed a strong shift towards sustainable demand since the turn of the century, with rapid shifts recorded in the commercial and residential sectors. The building sector creates significant flow-on demand for sustainable goods and services, making it an important indicator of broader demand throughout the rest of the economy. The construction of Green Star certified buildings, for example, has ballooned from none in 2003 to almost 800 in 2014, comprising a rapidly growing share of total CBD office space. Demand for higher performing buildings is also increasing. The number of buildings certified through the NABERS energy rating scheme has recorded annual average growth of 69.4 per cent. NABERS energy ratings have now been achieved for 77 per cent of the total applicable building stock and NABERS water ratings for 46 per cent. Figure 60: Percentage of rateable building stock certified with NABERS Energy & Water
Percentage of building stock rated (NABERS Energy & Water)
100% 80%
NABERS % energy rated of total viable building stock
60% 40% 20% 2014
2012
2010
2008
2006
2004
2002
2000
0%
NABERS % water rated of total building stock
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On the residential front, complete data sets are lacking, however academic studies indicate that the percentage of new dwellings that exceed 5 star NatHERS (Nationwide House Energy Rating
52
FBC analysis based on data sourced from: NABERS annual reports
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Scheme), expanded from 29 per cent in 2002 to 66 per cent in 2010 and has likely risen further since then due to the introduction of higher standards in most states. The increase in demand is being driven by a combination of consumer preference (especially in the commercial building sector where the broader benefits of green buildings are now well understood), and by government regulation through improvements to Section J of the building code and the lifting of NatHERS by state governments and Commercial Building Disclosure (CBD) standards by the Federal government. The dynamics driving both consumer preference and government regulation are likely to strengthen over the coming decades, resulting in ongoing growth in the market for more sustainable buildings in Australia. Additional factors, such as increasing electricity prices, growing pressure on limited water supplies and the health and productivity benefits of green building designs, will further accentuate this trend. The Future Business Council has examined the uptake of Green Star, NABERS and NatHERS building certifications as leading indicators of shifts in demand for more sustainable buildings.
What do we observe? The commercial building sector has been fundamentally transformed since the turn of the century. Demand for sustainable buildings has exploded, as indicated by statistics on the uptake of Green Star, NABERS and NatHERS certifications. In 2000, only 3 per cent of certifiable buildings were rated through the NABERS Energy scheme, yet by 2014 the percentage had ballooned to an incredible 77 per cent. What’s more, there has been rapid growth in the number achieving high NABERS Energy ratings. The number of buildings achieving ratings of 4.5 stars or higher has grown exponentially, expanding from 4 in 2000 to 682 in 2014. Figure 61: Annual NABERS certification volumes
NABERS certification volumes (# buildings certified) 2500 2000 1500 1000 500 2014
2012
2010
2008
2006
2004
2002
2000
0
Page
53
FBC analysis based on data sourced from: NABERS annual reports
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Figure 62: Annual number of 4.5 Star or higher NABERS certified buildings
Annual growth in efficient buildings (> 4.5 Stars NABERS)
2012
2009
2006
2003
2000
800 700 600 500 400 300 200 100 0
FBC analysis based on data sourced from: NABERS annual reports
Green Star has experienced similarly booming growth that shows no signs of slowing down. The first Green Star building was certified in 2004 and certifications have grown rapidly since then. By 2014, there were 796 Green Star certified buildings in Australia comprising eighteen per cent of total CBD office space.77 The rate of certifications has grown by an average of 116 per cent annually, with a record-setting 150 buildings certified in 2014 – the most ever certified in a single year. Figure 63: Total number of Green Star certifications
Green Star (total certifications)
1000 800 600 400 200
2014
2012
2010
2008
2006
2004
2002
2000
0
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77 Evolution 2012, Green Building Council of Australia, p.13, 2013
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FBC analysis based on data sourced from: GBCA
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Figure 64: Annual number of Green Star certifications
2014
2012
2010
2006
2004
2002
2000
160 140 120 100 80 60 40 20 0
2008
Green Star (annual certifications)
FBC analysis based on data sourced from: GBCA
The residential sector has also recorded rapid increases in demand for more sustainable housing as measured by the NatHERS certification scheme. In 9 years the percentage of dwellings achieving 5 star NatHERS or higher grew from 29 per cent to 66 per cent, according to an analysis by the CSIRO. Figure 65: Percentage of residential dwellings > 5 star NatHERS
New dwellings > 5 star NatHERS (%)
2012
2010
2008
2006
2004
2002
2000
80% 70% 60% 50% 40% 30% 20% 10% 0%
FBC analysis based on data sourced from: NatHERS Energy Efficiency Evaluation
What’s the cause?
While government commitments to either build or occupy Green Star rated buildings have contributed to the growing pool of demand, the main factor behind the increase is overall changes in consumer
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Green Star, as a voluntary rating tool, typifies the rapid changes in consumer preference driving the transition. Demand for Green Star rated buildings first took off throughout the commercial building sector, followed more recently by demand growth in the high-density residential and public building sectors.
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The uptake of sustainable buildings has largely been consumer driven, particularly in the commercial building sector. Government regulation and incentives have also been contributing factors.
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preferences due to the productivity benefits and lower environmental impacts of greener building designs. The increase in demand for NABERS certification on the other hand has been due to a combination of both regulation and changing consumer demand. The introduction of mandatory disclosure at the end of 2010, which required all commercial buildings with a net lettable floor area greater than 2000 m 2 to disclose its NABERS rating when leased or sold, greatly increased the number of buildings certified. Figure 66: NABERS certification volumes (with marker)
NABERS certification volume (annual certifications) Mandatory disclosure introduced
2500 2000 1500 1000 500
2014
2012
2010
2008
2006
2004
2002
2000
0 FBC analysis based on data sourced from: NABERS annual reports
The number of buildings achieving higher levels of NABERS certification has also continued to grow, suggesting a consumer-driven component as well. Figure 67: Percentage of NABERS certifications > 4.5 Stars
50%
4.5 Stars NABERS (% of total ratings)
40% 30% 20%
10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0%
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A factor driving increased consumer demand for NABERS rated buildings, aside from mandatory disclosure, is the fact that they provide stronger investment returns than the average buildings stock. The Green Property Index produced by the Property Council and IPD (a company that collates property market data) suggested that buildings with high NABERS ratings delivered investment returns of 10.5 per cent compared to returns of 7.5 per cent for buildings with lower NABERS Energy
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FBC analysis based on data sourced from: NABERS
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ratings.
78
In the residential sector the specific factors are harder to identify due to the lack of centralised and comprehensive data sets. Consumer preference for more sustainable residential properties is likely to be a factor as well as minimum standards set by state government building authorities.
Is this trend likely to continue/change? Why? Demand for more sustainable buildings will almost certainly continue to rise. Consumer demand is a core driver and is gathering momentum as an ever larger component of the building sector becomes more sustainable. Productivity benefits, the normalisation of greener building design and construction techniques, as well as cost reductions will combine to maintain demand from owners and builders to deliver more sustainable buildings. Analysis by Climate Works suggests that improving the energy efficiency of Australia’s commercial buildings would save the national economy $2.3 billion per year.79 The size of this market incentive alone is likely to ensure that demand for more sustainable buildings rises further. Given the success in the commercial building sector, it is likely that this trend will also expand to encompass all building types as the benefits are more widely known. Government regulation has progressively been tightened over the years to lift minimum building performance standards. This shift is also highly likely to continue, although it will be less uniform due to the variation between different state government policies.
What policies or reforms would accelerate this trend?
Enable accelerated depreciation of new energy efficient plant and equipment (like cooling and heating systems, and elevator services); Introduce incentive program for the installation of more energy efficient equipment; Mandate disclosure of equipment efficiency at time of purchase; Introduce building performance-based rates weighting; Lift residential building standards and NatHERS rating validation; Introduce NatHERS disclosure for all residential properties when sold or rented80; Change mandatory disclosure to cover the rating of whole buildings and expand to a net lettable area of 500 m 2; Mandate performance upgrades of non-residential buildings at refurbishment; Introduce energy efficiency targets and reporting for public buildings; Provide incentives for efficiency upgrades of commercial building level (such as the 1200 Buildings program), that encourage improvements outside of the normal retrofit cycle Provide equivalent upgrade incentive programs appropriate for residential properties.
80
UK Energy Performance certificates offer a potential model. http://www.energysavingtrust.org.uk/domestic/energy-performance-certificates
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79 Energy Efficiency, Climate Works, http://www.climateworksaustralia.org/sectors/energy-efficiency, 2015
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78 Australia’s Energy Productivity Opportunity v1.3, Australian Alliance to Save Energy, p.19, 2014.
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Materials & Primary Resources Data analysed: FSC Certified and total plantations, steel production, agricultural water use, recycling rates, waste, biofuel production At a glance
-0.2 -2.8 17.3 1.1
Total % change -4 -43 313 6
4.7
36
Av. % Growth Steel (Co2/t) Steel ( Water ML/kT) Steel (recycled content) Agri water use Agri value to water ratio ($/ML) Recycling rates Waste generation Mobile phones FSC timber (Ha) Plantations timber (Ha) Vineyard drip irrigation (%) Biofuel production
NA - data gaps -2.3 12.2 12.4 2.0 NA - data gaps 19.5
Start
Yr.
Latest
Yr.
2.2 4.0 8.0 4.4
‘06 ‘01 ‘03 ‘03
2.1 2.3 33.0 4.7
‘14 ‘14 ‘14 ‘13
896
‘03
1,214.0
‘13
29 21% -9 22% 157 391,074 95 500,000 24 1,627,827 45 62 95 3.4
‘06 ‘06 ‘05 ‘07 ‘01 ‘07 ‘08
27.0% 20.0% 1,003,562.0 976,926.0 2,012,507.0 90.0 6.6
‘10 ‘10 ‘14 ‘14 ‘14 ‘14 ‘12
Demand for more sustainable resources and production techniques has steadily increased since the start of the century. The Future Business Council’s research has shown a trend towards more efficient processes and reduced environmental impacts spanning a wide range of sectors from forestry, to steel production, waste and biofuel production. The production of Forest Stewardship Council (FSC) certified timber for example has boomed since its introduction in 2006. Today, 48.5 per cent of plantation forests are now FSC certified. Figure 68: Percentage of Australian timber plantations FSC certified
2014
2013
2012
2011
2010
2009
2007
2006
60% 50% 40% 30% 20% 10% 0%
2008
Australian plantations FSC Certified (%)
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Environmental factors are the key driver in our resources analysis, although government regulation and consumer preference also play a role (most notably in growing demand for FSC products). Water availability in particular is closely linked to improvements in water efficiency in both steel production and agriculture. At the peak of the millennium drought water efficiency improved substantially: the amount of water used to produce a kilotonne of steel dropped from 4 Megalitres (ML) down to 1.6 ML
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FBC analysis based on data sourced from: FSC Annual reports; ABARES, Annual Wood Production
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– a 60 per cent reduction. Similar improvements were recorded in the value to water-use ratio of irrigated agriculture. Since the end of the drought, water use has increased again in both sectors, although some efficiency improvements have been maintained. Figure 69: Agricultural water use per ha (with marker)
Agricultural water use (ML/irrigated ha) Millenium
5.0
Drought declared over
4.5 4.0 3.5 3.0 2014
2012
2010
2008
2006
2004
2002
2000
2.5
FBC analysis based on data sourced from: ABS - 4618.0 - Water Use on Australian Farms
Recycling levels have also climbed over the period, with particularly rapid growth recorded in the phone recycling sector. The recycled content of steel has also increased – the direct driver for this was most likely record iron ore prices which created an incentive to find alternative raw materials. In recent years, biofuel production has also increased and may represent the early edge of a boom in non-fossil fuel sources. Government regulation, such as the price on carbon and water restrictions, has also been a driver of increased demand for more sustainable resource management. The Future Business Council has analysed the growth in FSC plantations and supply chain certificates, steel inputs, water use in agriculture, recycling and waste generation rates and biofuel production as indicators of demand for more sustainable resource management in this report. In future editions we aim to expand the number of resource categories analysed as more data becomes available. The emergence of new resource sectors, like biofuels, is still in its early stages but one to watch given the potential scale of the end market.
What do we observe?
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During the drought years water efficiency in the irrigated agriculture sector substantially improved the economic return on a given volume of water use. From a base of $896 value per ML used in 2003 it reached a high of $1959/ in 2008, but has since dropped to $1214 per ML used in 2013.
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Figure 70: Agricultural water use to value ratios
Agriculture value:water ratio ($/ML)
2500 2000 1500 1000
2014
2012
2010
2008
2006
2004
2002
2000
500
FBC analysis based on data sourced from: ABS - 4618.0 & 4610.0
Box 3: Viticulture Irrigation Efficiency Environmental necessity, especially water shortages, are driving technological innovation and increased demand for sustainable approaches across Australia. The wine industry represents a microcosm of this shift, with rapid changes in the approaches and technologies in use. The installation of drip irrigation systems ballooned in response to the drought. In 2007, 62 per cent had already been converted, and by 2014, the number exceeded 90 percent. This represents a fundamental shift in the method of wine production as a direct response to environmental challenges.
2014
2012
2010
2008
2006
2004
2000
2002
Vineyards using drip irrigation (%)
100 90 80 70 60 50 40
Source: WFA
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The steel industry also improved water efficiency substantially during the drought but has been better at maintaining these efficiencies since the drought broke. Carbon intensity has fallen and the recycled content of steel has risen. CO2 intensity per tonne fell from 2.2 in 2006 to 2.12 in 2014. The recycled content rose from 8 per cent in 2003 to 33 per cent in 2014.
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Figure 71: Water use for steel production
Steel production water use (ML/kT Raw Steel)
5.0 4.0 3.0 2.0 1.0
2014
2012
2010
2008
2006
2004
2002
2000
0.0
FBC analysis based on data sourced from: Bluescope Steel Annual Reports
Figure 72: Carbon emissions from steel production
Steel production carbon emissions (tonnes CO2/p tonne steel) 2.6 2.5 2.4 2.3 2.2 2.1 2
FBC analysis based on data sourced from: Bluescope Steel Annual Reports
Figure 73: Recycled contact of raw steel
Recycled content of raw steel production (%)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
35% 30% 25% 20% 15% 10% 5% 0%
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Demand for recycling services has lifted over the past decade, while the amount of waste directed to landfill has fallen. In 2006, 21.4 million tonnes of recycling was processed; this had increased to 27.3 million tonnes in 2010 – the most recent year when figures were available. Over the same time period,
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FBC analysis based on data sourced from: Bluescope Steel Annual Reports
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general waste fell from 21.5 million tonnes to 19.5 million tonnes. Figure 74: Recycling and general waste generation
Recycling & general waste generation (m. tonnes)
Recycling volumes (m. of tonnes Australia)
29 27 25 23 21 19 17 15 2000 2002 2004 2006 2008 2010 2012 2014
General waste volumes - non recycled (m. of tonnes Australia)
FBC analysis based on data sourced from: Department of Environment, Waste generation and resource recovery in Australia
Rapid increases in demand for specific recycling services, like Mobile Muster, have also been observed. The program collected 1,003,562 phones in 2014, almost triple the number collected 9 years earlier (391,074 handsets in 2005).81 Figure 75: Mobile phone recycling
Mobile phone recycling (,000 units) 1,200 1,000 800 600 400 200 2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0
FBC analysis based on data sourced from: Mobile Muster
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81 Annual Report, Mobile Muster, p.19, 2014
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The demand for, and production of, Forest Stewardship Council (FSC) certified timber products has boomed since the scheme was introduced to Australia. At the turn of the century there was no FSC certified timber under production in Australia; by 2014 growth had exploded to almost 1 million hectares under management.
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Figure 76: Growth of FSC plantations relative to total plantation area
FSC plantations and total Australian plantations (,000 ha) 2500 2000 FSC certified forest area (,000 hectares)
1500 1000
Australian Timber Plantation Area (,000 ha)
500 2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: FSC Annual Reports; ABARES, Annual Wood Production
On average, 60,000 hectares of new FSC plantation are being certified each year in Australia. By comparison, the total plantation area only increased by 6,700 hectares annually over a similar time frame. The biofuel market in Australia is also growing rapidly, with production expanding by 95 per cent between 2008 and 2012. Figure 77: Annual biofuel production
Biofuel production (,000 barrels/day)
2014
2013
2012
2011
2010
2009
2008
8 7 6 5 4 3 2 1 0
FBC analysis based on data sourced from: U.S. Energy Information Adminstration
What’s the cause?
The factors driving increased recycling rates and stable waste generation are varied due to different
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The reduction of CO2 generated per tonne of steel produced is probably a response to the price on carbon, a government regulation. The increase in the recycled component, while representing a consistent trend, is likely to have been influenced by record global prices for iron ore.
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Industrial and agricultural water efficiency is influenced primarily by environmental necessity. The agriculture irrigation sector and the steelmaking industry realised substantial water efficiency improvements during drought years, but have increased water use again since then.
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state policies and initiatives. Generally however the introduction of higher landfill levies and the setting 82 of state resource recovery targets have helped boost demand for recycling services. The increased cost of landfill and changing social attitudes are likely to be the primary force behind increased rates of recycling. The Mobile Muster program has been successful due to growing consumer demand. This has been the result of sustained market outreach and consumer engagement as demonstrated by 82 per cent 83 of consumers being aware of mobile phone recycling options. In the forestry sector, FSC has boomed since it became available in the Australian market. The initial increase observed in the issuing of chain of custody certificates was directly linked to the sale of FSC certified paper products in 2005 combined with growing awareness amongst architects 84 and builders of FSC certified building products. The subsequent recognition of FSC timber in the Green Star rating system in 2007 created an incentive for the construction industry to purchase FSC certified products and spurred a significant increase in chain of custody certificates, from 36 in 2007 to 150 in 2008. Figure 78: FSC chain of custody certificates
FSC chain of custody certificates (units)
400 300 200 100
2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: FSC Annual reports
In the plantation sector, FSC has rapidly gained acceptance as can be seen in Figure 79. However the majority of Australia’s timber comes from native forests and this is where governments have lagged behind the forestry market shift.
83 Annual Report, Mobile Muster, p.6, 2014 84 Report to Members, FSC Australia, p.1, 2007.
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82 Waste Generation and Resource Recovery in Australia, Blue Environment, table 16, 2014.
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Government agencies control the majority of forests yet not a single native forest has been FSC certified, so this segment has had no impact on FSC demand growth. Consumer awareness and the availability of certified products have therefore been central to the increase in demand.
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Figure 79: Percentage of plantations FSC certified
Australian plantations FSC Certified (%)
60% 50% 40% 30% 20% 10%
2014
2013
2012
2011
2010
2009
2008
2007
2006
0% FBC analysis based on data sourced from: FSC Annual reports; ABARES, Annual Wood Production
Finally, the production of biofuel as a new resource is growing. Production doubled from 3,400 barrels a day in 2008 to 7,000 barrels a day in four years. While this trend is in its infancy and is only sustainable if it does not supplant cropland or drive deforestation, investment is increasing in promising step change technologies such as algae fuel production, supported by bodies like ARENA as well as substantial international investment. Figure 80: Production of biofuels in the USA
USA biofuels production (m. gallons) 2000 1500 1000 500
2014
2012
2010
2008
2006
2004
2002
2000
0 FBC analysis based on data sourced from: USA National Biodiesel Board
Is this trend likely to continue? Why? 85
The return of El Ninõ weather conditions and the increased likelihood of drought will ensure that the water efficiency trend continues in the agriculture and steel producing sectors.
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85 The 2015 El Nino is here, Bureau of Meteorology, https://theconversation.com/bom-were-calling-it-the-2015-el-nino-is-here-41598, 2015
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Government incentives for recycling, rising prices for landfill, and changing social attitudes towards waste will see the trend towards recycling and away from waste continue. The waste recovery rates of countries like Germany indicate the additional potential that could be realised. While Australia recovers around 60 per cent of resources from the waste stream – a reasonable result by international standards – Germany achieves recovery rates greater than 90 per cent, demonstrating the untapped
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potential and room for future growth.
86
While there is no current government mandated carbon price in Australia, a growing number of companies are factoring in internal carbon prices which will continue to incentivise improved carbon efficiencies in production. At a national level, a return to a carbon price is inevitable at some point. In the FSC product market there is substantial scope for increased production of FSC certified timber products in Australia, as well as increased demand for such products. Consumer demand, as the primary driver, shows no signs of weakening, and if anything this is likely to increase as consumer awareness grows and the scope and availability of FSC certified products expands to meet the need. Initiatives from any one of the state government forestry agencies to adopt or encourage FSC certification within eligible logging coupes could have a substantial impact on both supply in terms of hectares of FSC-certified plantation, as well as consumer demand by increasing the availability and visibility of sustainable FSC certified products. Demand for biofuels will continue increasing as the world shifts from fossil fuel sources to low carbon alternatives. Global demand alongside increased investment and the potential for significant technological breakthroughs may succeed in driving rapid reductions in production costs.
What policies or reforms would accelerate this trend? Water & Agriculture
Provide stable long-term funding to enable regional Natural Resource Management (NRM) bodies to coordinate regional land and water plans; Extend tradeable water rights across the entire water market (including urban retailers) with environment-responsive pricing; Expand incentive programs for the installation of water-efficient infrastructure by agriculture and industry; Introduce a broad-based equitable land tax to fund programs to restore degraded land; 87 Provide support for the establishment of a sustainable farm certification scheme ; Establish an Australian Environmental Accounts system to measure environmental assets, along the lines recommended by the Wentworth Group of Concerned Scientists; Resource the Australian Bureau of Statistics (ABS) to coordinate the Australian Environmental Accounts system, and restore funding to the ABS ‘Measures of Australia’s Progress’.
Carbon, Waste & Recycling
86 Waste Generational and Resource Recovery in Australia, Blue Environment, p.18, 2014 87 Blueprint-for-a-Healthy-Environment-and-a-Productive-Economy-November, Wentworth Group, p.3, 2014
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Place a price on carbon emissions; Provide government investment and regulatory support for advanced recycling facilities (e.g. toxic materials and e-waste); Invest in organic waste collection and processing facilities; Prohibit the disposal of unsorted waste in landfill; Set internationally leading waste recovery targets for future years; Expand the list of mandated products covered by Product Stewardship Act to include all products containing hazardous materials; Introduce a voluntary Environmental Product Declaration (EPD) standard for Australia; Reinstate the Australian Government Energy Efficiency Opportunities (EEO) program (discontinued in 2014).
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Forestry
FSC certify eligible state-managed forests; Promote benefits of FSC timber products to improve community knowledge; Specify the use of FSC timber and fibre in government contracts and supply chains.
Markets and investment Data analysed: Green bonds, sustainable investment, DJSI Australia, carbon farming, divestment, insurance At a glance
DJSI All Ords Climate Bonds ($m) Int. climate Bonds ($m) Carbon farming Disaster Insurance General Insurance Sustainability themed investment
Av. % Growth 8.4 3.2 100 202.0 150.3 172.5 0.7
Total % change 105 68 100 7,218 150.3 2,097 4
Start
Yr.
Latest
Yr.
1,172 3,198 600 500 1,750,179 64 751
‘05 ‘00 ‘14 ‘07 ‘13 ‘00 ‘05
2,402 5,368 1,200 36,590 4,380,473 1,406 779
‘15 ‘14 ‘15 ‘14 ‘15 ‘13 ‘13
29.4
384
1,671
‘07
8,094
‘14
The growth in demand for sustainable goods and services has opened up new market opportunities. The establishment of the Dow Jones Sustainability Index, expanding sustainability themed investments, the all-too-brief opening of the Australian carbon market, and the issuance of green and climate bonds is the early edge of a trend that is expected to rapidly expand in coming decades. Since the launch of the Dow Jones Sustainability Australia Index, the index has increased by 8.4 per cent per annum on average compared to 3.2 per cent growth in the All Ordinaries index over the same period. While lagging the international trend, climate bonds made an Australian debut in 2014 with the first issuances all highly oversubscribed, an indicator of substantial unmet investor demand for sustainable investment products. The same dynamic is at play in the growth of specific sustainability themed investments which have increased in volume by 30 per cent annually since 2007, with more than $8 billion of assets now under management.
88 Oliver Yates, https://bluenotes.anz.com/posts/2015/07/australias-budding-green-bonds/
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Similarly, there has been a noticeable shift away from exposure to carbon intensive, less sustainable industries, as evidenced by the growing divestment movement which research from the University of
67
“the investment dollar is swinging towards the cleaner end of investment options” – Oliver Yates, CEO of the Clean Energy 88 Finance Corporation
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Oxford suggests is the fastest-growing divestment movement in history.
Changing consumer preference is not the only factor driving market change and investment shifts. The rapid increase in extreme weather events is substantially changing the dynamics of the insurance industry. The value of disaster insurance claims has increased by 172 per cent on average annually since the year 2000, compared to increases of just 0.7 per cent for general insurance claims. To analyse sustainable demand change in the investor and new markets space we have selected the Dow Jones Sustainability Australia Index, issuance of green and climate bonds, sustainability themed investment trends, the annual sale of Australian Carbon Credit Units, as well as disaster insurance claims. These have been compared against international trends, the all ordinaries index as well as general insurance claims.
What do we observe? The Green and Climate Bond market has just commenced in Australia, but is already showing signs of following global trends. In 2014 A$600 million was issued in the Australian market and that figure 90, 91 has already been doubled in 2015 with the year not yet over. Figure 81: International issuance of green and climate bonds
2014
2012
2010
2008
2006
2004
2002
2000
40000 35000 30000 25000 20000 15000 10000 5000 0
International issuance of green & climate bonds (US$)
FBC analysis based on data sourced from: Climate Bond Initiative
There are clear signals that demand from investors is increasing substantially for green investments and climate bonds. The first bond issued by NAB in 2014 was originally intended as a $150 million 92 bond, however upon release, it was doubled in size to $300 million due to overwhelming demand. The most recent green bond, ANZ’s $600 million issue, set a new size record for Australian issued 93 green bonds, and was still 125 per cent oversubscribed.
89 Stranded assets and the fossil fuel divestment campaign: what does divestment mean for the valuation of fossil fuel assets?, Smith School, University of Oxford, 2013.
92 http://cr.nab.com.au/what-we-do/nab-climate-bond 93 http://www.thefifthestate.com.au/business/investment-deals/anzs-green-bond-tops-the-kanga-charts-hello-brookfield-place-in-perth/74327
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91 Climate Bonds Initiative, http://www.climatebonds.net/cbi/pub/data/bonds, August 2015.
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90 FINSIA, https://finsia.com/news/news-article/2015/05/24/anz-to-launch-its-first-green-bond, 2015.
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Figure 82: Australian issuance of green and climate bonds
Green/Climate bonds ($m)
1400 1200 1000 800 600 400 200
2015
2013
2014
0
FBC analyse based on data sourced from: Climate Bond Initiative
Growing investor demand for exposure to more sustainable companies is also observed in the performance of the Dow Jones Sustainability Australia Index. The index has increased in value from 1172 points in 2005, to a 2015 average of 2402 points in the year to May. Since 2006, DJSI Australia has outperformed the All Ordinaries 500 Index every year. Figure 83: Dow Jones Sustainability Index Australia
Dow Jones Sustainability Index Australia (index value)
2500 2000 1500 1000
2014
2012
2010
2008
2006
2004
2002
2000
500
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FBC analysis based on data sourced from: Robecosam DJSI Australia Data
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Figure 84: Dow Jones Sustainability Index and All Ordinaries performance
DJSI Aust. vs All Ordinaries 500 (% change) 30 20
10
DJSI % growth 2015
2014
2013
2012
2011
2010
2009
2008
2007
-10
2006
0
% All Ordinaries (500) annual average
-20 -30 Investment in sustainability themed assets has also grown rapidly, driven primarily by consumer demand as well as the higher performance of responsible investments and growing awareness amongst investors about their responsibilities in relation to environmental impacts.94 The value of sustainable themed assets under management increased 34 per cent between 2013 and 2014, building on a strong trend throughout the 2000s. Figure 85: Sustainability themed investment in Australia
Sustainability Themed Investment Assets Under Management ($m) 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2007
2008
2009
2010
2011
2012
2013
2014
2015
FBC analysis based on data sourced from: Responsible Investment Association Australiasia Benchmark reports
95 State of the Australia Carbon Market 2013, Carbon Market Institute, p.5, 2013.
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94 Responsible Investment Association Australasia, Benchmark Report Australia, p.4, 2015.
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The carbon farming sector is another new sustainability-focused market recording rapid early growth. The second year of operations saw more than 4.3 million carbon credits issued, 2.5 times more than 2013. Performance so far in 2015 suggests that record will be broken again. The total value of the Australian carbon market in 2013 was valued at $6.58 billion.95 However, this has likely dropped substantially in subsequent years due to the removal of the price on carbon.
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Figure 86: Issuance of Australian Carbon Credit Units
Australian Carbon Credit Units (,000 issued) 5000 4000 3000 2000 1000 2015
2014
2013
2012
0 FBC analysis based on data sourced from: Clean Energy Regulator
New markets are emerging in other areas but currently lack meaningful data to determine likely trends. The Federal Government has created a Biodiversity Fund96 for example, which effectively creates a new market for enhancing biodiversity, and other initiatives such as conservation land banks are providing similar services. Another trend affecting this space is the divestment movement. An estimated $450 million has shifted in the banking sector away from banks that invest in fossil fuels.97 In the superannuation sector there is anecdotal evidence that similar shifts are also occurring due to customer concerns about fossil fuel investments but also due to the reduced volatility and better performance of fossil-fuel-free investment funds.98 The insurance sector is seeing negative impacts from shifting environmental trends – in this case as a direct result of the changing environment and in particular the rise in extreme weather events. Specifically, demand for extreme weather insurance payouts is sky rocketing. The cost of disasters over the past 15 years has increased from an average of $188 million a year between 2000-2004 to an incredible $1,809 million per year from 2010-2014 (the full cost is likely to be higher given incomplete statistics for 2014).99 A notable ‘spike’ year also exists just outside the examined range (the damaging and costly Sydney hail storm event in 1999), which was also a high outlier relative to every other year in the 1990s.100
96 http://www.environment.gov.au/cleanenergyfuture/biodiversity-fund/ 97 350.org Australia figures, 2015
disaster-statistics, 2015 100 The impact of Climate Change on Insurance against Catastrophes, Insurance Australia Group, figure 2, p.2, 2002
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99 Historical Disaster Statistics, Insurance Council of Australia, http://www.insurancecouncil.com.au/industry-statistics-data/disaster-statistics/historical-
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98 Fossil Fuel Free ESG Investing: Recent Australian Performance, Thomson Reuters for Future Super, 2015.
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Figure 87: Annual disaster insurance payouts
2011
2009
2007
2005
2001
6000 5000 4000 3000 2000 1000 0
2003
Disaster insurance payouts ($m.)
Source: Insurance Council of Australia
In comparison, there has been little noticeable change in general insurance payouts. Figure 88: Annual general insurance payouts
General insurance* payouts ($m)
2012
2010
2008
2006
2004
2002
2000
900 850 800 750 700 650
FBC analysis based on data sourced from: APRA *bodily injury, property damage, other general losses)
What’s the cause? Demand from investors101 has been the leading cause of increased uptake of climate and green bonds. A wide range of investors are seeking trusted investment products that increase exposure to green and climate investment products. “Australian and global institutional investors [are] seeking investment products that offer financial returns combined with environmental or societal benefits.” Clean Energy Finance Corporation chief executive Oliver Yates102
in-australian-clean-energy-financing-market.aspx 102 http://www.eco-business.com/news/nab-launches-first-aussie-green-bond-were-money-now/
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101 Oliver Yates, http://www.cleanenergyfinancecorp.com.au/media/releases-and-announcements/files/successful-green-bond-issuance-marks-new-stage-
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The introduction of the Climate Bonds Standard, a certification scheme, is likely to further improve consumer trust and will release latent demand for this product type as the availability of certified products expands.
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Meanwhile, the growth of sustainability themed investment has been driven by investor demand underpinned by an increase in awareness of the role environmental issues play in assessing the long term value and performance of investments. Demand is increasing from institutional investors as well 103 as members of the public. The emergence of carbon markets, aside from the voluntary carbon market, was driven almost entirely by Federal Government legislation, and previously by State Government programs, notably the NSW Greenhouse Gas Abatement Program. The requirement for liable entities to purchase carbon credits to cover their emissions under the national Carbon Price Scheme significantly boosted the size of the market. The subsequent repeal of the Carbon Price Scheme and the introduction of the Emissions Reduction Fund caused much upheaval in the carbon trading markets and it is unclear whether the new auction system will cause further demand growth. State based legislation may compensate for a proportion of the loss of trade, but is unlikely to match the scale of federal measures. On a more positive note, DJSI Australia has outperformed the All Ordinaries consistently. This is probably due to the increased ability for firms to make money by implementing sustainable business models that address longer-term trends. DJSI firms are accordingly more prepared and resilient in the face of economic shifts that have negatively impacted growth in the wider market. On the insurance front the higher incidence of extreme weather due to climate change is the primary driver of increased demand for disaster insurance payouts. Weather–related events now constitute 87 per cent of disaster insurance economic losses in Australia.104 Figure 89: General and disaster insurance comparison
General insurance vs disaster insurance payouts ($m)
6000
Disaster Insurance Cost (,000,000 $)
5000 4000
General insurance claims (,000,000 $)
3000 2000 1000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
FBC analysis based on data sourced from:
Is this trend likely to continue? Why?
104 The impact of Climate Change on Insurance against Catastrophes, Insurance Australia Group, p.2, 2002
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103 Responsible Investment Association Australasia, Benchmark Report Australia, p.6, 2015.
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Demand for green and climate bonds is set to rise rapidly and should surpass $3 billion in total in 2016. The global trend is quite clear and high consumer interest in local bonds suggests there is a large pool of unmet demand. Green and climate bonds are providing opportunities for investors to diversify and balance risk, an important consideration in Australia’s relatively small market.
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Figure 90: International issuance of green and climate bonds
International issuance of green & climate bonds (US$)
40000 30000 20000 10000
2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: Climate Bond Initiative
Global investors have embraced green bonds, with the market growing from US$11bn in 2013 to an expected US$100 billion in new bonds to be issued in 2015. 105 Research by Robert Eccles from the Harvard Business School has shown that firms classified as High Sustainability outperform competitors due to their long-term vision, clear purpose, stronger employee engagement and better relationships with stakeholders.106 Following this theory, DJSI Australia as well as sustainability themed investments should be well positioned to out-compete the regular indexes as well as investments that are not taking environmental impacts into consideration. Due to government policy instability, the outlook for the carbon markets for the next few years is a turbulent one. The longer-term forecast, however, suggests strong growth as the number of countries with carbon trading schemes grows, carbon tariffs are imposed on exports and an international carbon trading market is established. Demand for extreme weather insurance payouts will continue rising rapidly. Extreme weather events are likely to become more frequent and intense due to “locked in” future warming from emissions to date, combined with the ongoing production of greenhouse gas emissions.107 The magnitude of climate change impacts guarantees that increased demands will be placed on insurers. For example, a 1⁰C mean temperature increase is estimated to change the incidence of once in 300 year temperature events to once in every 10 years.108 “[IAG’s] experience shows that a 25% increase in peak wind gust strength can generate a 6.5-fold increase in building claims.”109 Unfortunately, warming above 1⁰C is likely given that most global climate negotiations are focused on a 2⁰C target.
105 http://www.cleanenergyfinancecorp.com.au/media/releases-and-announcements/files/successful-green-bond-issuance-marks-new-stage-in-australianclean-energy-financing-market.aspx
108 The impact of Climate Change on Insurance against Catastrophes, Insurance Australia Group, p.5, 2002 109 The impact of Climate Change on Insurance against Catastrophes, Insurance Australia Group, p.3-4, 2002
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107 The impact of Climate Change on Insurance against Catastrophes, Insurance Australia Group, p.1, 2002
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106 The Impact of Corporate Sustainability on Organizational Process and Performance, Robert G. Eccles, and George Serafeim, 2011.
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What policies or reforms would accelerate this trend?
Increase renewable energy target to expand supply of sustainable investments; Use climate bonds to finance climate adaptation initiatives and sustainable infrastructure; Introduce a price on carbon; Set a long-term emissions reduction target.
Insurance-specific changes While it does indicate how environmental factors are one of the drivers of rapid change in consumer demands, this trend is one that policy makers should work to discourage. The following changes would mitigate damage and costs from climate change related events. Improve public awareness in vulnerable areas (flooding, heatwaves); Upgrade planning schemes to factor in likely future flood areas; Upgrade and enforce building code for more extreme weather; Price carbon and lobby for stringent global controls; Expand funding for the Bureau of Meteorology to produce open source models on predicted impacts to inform policy and consumer decisions.
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Food Data group to be analysed: Organic and Fairtrade At a glance
Organic food sales ($m) Organic farmland (,000 ha) Fairtrade sales ($) Fairtrade licensed companies Food Retail ($m)
Av. % Growth 80.9
Total % change 809
Start Yr. 190.0 ‘00
Latest 1,728
Yr. ‘14
33.6
269
6,150.0 ‘02
22,690,
‘14
73.3
15,767
1.5 ‘04
238
‘13
12.4
116
115.0 ‘06
248
‘13
5.9
109
52,111.0 ‘00
109,036
‘13
Demand for more sustainable sources of food is rapidly increasing. Sales of trusted indicator foods, such as those labelled Fairtrade or Certified Organic, have been growing at annual average rates of 73 to 80 per cent, compared to annual average increases of just 6 per cent for food retail as a whole. The market for Fairtrade goods alone has ballooned from $1.5 million worth of sales in 2004, to $238 million in 2013. Figure 91: Fairtrade versus retail food sales growth
350
Growth of Fairtrade and retail food sales (%)
250 150
Fairtrade % growth
50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Food retail % growth -50
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FBC analysis based on data sourced from: Fairtrade Australia New Zealand annual reports; ABS, 8501.01
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Figure 92: Retail food annual growth
Food retail growth (%)
50
40 30 20 10
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: ABS, 8501.01
Sales of Certified Organic productions meanwhile have grown to $1.73 billion worth of retail value in 2014 from a base of $190 million in 2000. Organic land under cultivation has also doubled over this period. The increase in demand for sustainable food is being driven by consumer preference and has become possible due to the establishment of known and trusted certification schemes. This factor is likely to continue and strengthen as consumer knowledge increases and more trusted certifications emerge that cover a greater variety of food products. To analyse demand change in the food sector we have selected two of the most recognised brand marks that indicate consumer preference for more sustainable and ethical products, certified organic and Fairtrade. Data for sales volumes of Marine Stewardship Council certified products was not available, however international trends in the uptake of these products has been assessed. These are compared against the trend in retail food sales.
What do we observe?
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Consumer demand for organic and Fairtrade certified food has expanded rapidly since 2000. The retail value of organic food has grown from $190 million in 2000 to over $1.7 billion in 2014 – an annual increase of 80 per cent on average.
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Figure 93: Sales of Certified Organic food
Sales of organic food ($m.)
2000
1500 1000 500
2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: Biological Farmers of Australia, Organic Market Report
Sales of Fairtrade certified products have boomed too, increasing from a base of $1.5 million in 2004 to $238 million less than 10 years later. Figure 94: Sales of Fairtrade certified products
Fairtrade certified product sales ($m.)
2000 2002 2004 2006 2008 2010 2012 2014
250 200 150 100 50 0
FBC analysis based on data sourced from: Fairtrade Australia New Zealand annual reports
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A parallel increase has been observed in the number of Fairtrade licensed companies.
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Figure 95: Number of Fairtrade licensed companies
Fairtrade licensed companies (units)
300 250 200 150 100 50
2014
2012
2010
2008
2006
2004
2002
2000
0
FBC analysis based on data sourced from: Fairtrade Australia New Zealand annual reports
The supply of local organic produce is also increasing, with certified organic land covering more than 22 million hectares in 2014, up from 6 million in 2002. The majority of the area certified in Australia is rangeland, however, which makes meaningful analysis of changes that may be occurring in the horticulture, viticulture and smaller agricultural holdings difficult to assess. Figure 96: Area of Certified Organic farmland
Certified organic farmland (,000 ha)
25000 20000 15000 10000 5000
2014
2012
2010
2008
2006
2004
2002
2000
0 FBC analysis based on data sourced from: Biological Farmers of Australia, Organic Market Report
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While local statistics are currently unavailable for Marine Stewardship Council (MSC) certified products, the international product profile is likely to be reflected in the Australian growth curve, representing strong uptake in demand for products with a trusted certification.
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Figure 97: Quantity of MSC certified products, worldwide
Source: Marine Stewardship Council There is also strong anecdotal evidence on increasing consumer demand for more sustainable and ethical products, including from major consumers such as Coles which has shifted to cage-free Coles branded eggs, and McDonalds which is switching completely to cage-free eggs from 2017 in Australia. The Future Business Council will seek to incorporate further data in future reports as it becomes available.
What’s the cause?
111 Organic Market Report 2012, Biological Farmers of Australia, p.81, 2012.
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110 Annual Report 2012-13, Fairtrade Australia New Zealand, p.2, 2013.
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Consumer demand is the primary driver of increased demand for more sustainable and ethical food products. The emergence of trusted certification schemes, like Fairtrade,110 Certified Organic, and MSC allow consumers to trust in the products they buy and improve market knowledge, enabling demand to boom.111 The increase in demand also stems from the involvement of major producers and manufacturers in trusted certification schemes. For example, the significant jump in Fairtrade certified sales in 2010 stemmed from the decision of Mondelez (Cadbury) to become a Fairtrade licensee.
The Next Boom
Figure 98: Fairtrade sales – impact of Mondelez licensing
Fairtrade certified product sales ($m.) 250 200 150
Fairtrade ANZ office opens
100 50
Mondelez becomes a Fairtrade licensee
2000 2002 2004 2006 2008 2010 2012 2014
0
FBC analysis based on data sourced from: Fairtrade Australia New Zealand annual reports
The area of Certified Organic land under cultivation is probably a response to the growing market for organic products in Australia and internationally, as well as the desire of farmers to produce a certified product that aligns with their values. Increased consumer awareness of certified products and trust in what the certification conveys are the two critical factors which have enabled such rapid increases in consumer demand.
Is this trend likely to continue? Why? The explosion in organic certified land indicates that the supply of organic produce will continue to grow and increase the total retail value of organic food in Australia. Demand for Fairtrade certified products is growing strongly and the range of certified products is increasing. In just two years, the number of products available almost doubled, increasing from 1689 Fairtrade certified products in 2011, to 2528 products in 2013. The number of Fairtrade licenced companies has also continued to expand. Growth is projected to continue in the organic market, but at slightly slower rates. Expectations are for growth of 10 to 15 per cent annually112 with most market growth expected to come from more mainstream consumers.113
113 Organic Market Report 2012, Biological Farmers of Australia, p.15, 2012. 114 MSC Annual Report 2013-14, Marine Stewardship Council, p.3, 2014.
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112 Organic Market Report 2012, Biological Farmers of Australia, p.14, 2012.
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The emergence of additional trusted certification schemes, such as Marine Stewardship Council 114 (MSC) certification, which now covers 10.5 per cent of wild caught fish, further improves market knowledge and enables consumers to push demand for sustainable food products higher.
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Figure 99: Global number of MSC fisheries Global increase in MSC fisheries (units)
Source: Marine Stewardship Council
What policies or reforms would accelerate this trend?
115 Blueprint-for-a-Healthy-Environment-and-a-Productive-Economy-November, Wentworth Group, p.3, 2014
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Apply a preference weighting to Fairtrade/sustainable/ethical products in government purchases; Implement and enforce standards that meet community expectations, particularly in relation to free range poultry, egg and pork production; Provide incentives to assist farmers through the 3 year transition to certified organic status; Expand investment in research into large scale, low impact farm production techniques; Promote organic Australian-made produce as meeting the highest sustainability and health standards; Promote trusted certifications in food categories where consumer knowledge is low; Establish a sustainable farm certification scheme with product chain-of-custody from farm to shop. 115
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Glossary ABMARC APEC BITRE CBD Climate/Green Bonds DJSI E3 Program FSC GBCA GEMS Green Star MEPS MSC NABERS NatHERS VEEC VEET WELS White Certificate
(ABMARC is an independent automotive sector consultancy) Asia Pacific Economic Cooperation Bureau of Infrastructure, Transport and Regional Economics Commercial Building Disclosure program Bonds issued to fund climate change adaptation and mitigation activites Dow Jones Sustainability Index Equipment Energy Efficiency Program Forest Stewardship Council Green Building Council of Australia Greenhouse and Energy Minimum Standards Green Building Council of Australia’s voluntary building rating system Minimum Energy Performance Standards Marine Stewardship Council National Australian Built Environment Rating System Nationwide House Energy Rating Scheme Victorian Energy Efficiency Certificate – generated as part of the VEET scheme Victorian Energy Efficiency Target scheme Water Efficiency Labelling and Standards A certificate for energy savings
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Figure 1: International issuance of green & climate bonds.................................................................................................................4 Figure 2: Australian green & climate bonds issuance.........................................................................................................................4 Figure 3: Green Star total certifications ...............................................................................................................................................5 Figure 4: Certified organic food sales ..................................................................................................................................................5 Figure 5: Fairtrade certified product sales ...........................................................................................................................................6 Figure 6: Average energy star rating for whitegoods ..........................................................................................................................6 Figure 7: Percentage of Australian plantations FSC certified .............................................................................................................7 Figure 8: Percentage of taps > 3 star Water Efficiency Labelling and Standards (WELS) rating .....................................................8 Figure 9: Cumulative capacity of solar energy installations................................................................................................................8 Figure 10: Total number of National Australian Built Environment Rating System (NABERS) certified buildings ...........................9 Figure 11: VEEC lighting certificates ...................................................................................................................................................9 Figure 12: Average energy efficiency improvement of whitegoods..................................................................................................10 Figure 13: New large-scale investment in clean energy - BNEF ......................................................................................................10 Figure 14: Average emissions intensity of new vehicles sold in Australia .......................................................................................11 Figure 15: Number of climate policies introduced globally ...............................................................................................................11 Figure 16: Steel production water use per kilotonne ........................................................................................................................12 Figure 17: Agricultural water use per ha ...........................................................................................................................................13 Figure 18: Percentage of products sold rated 3 WELS or higher .....................................................................................................13 Figure 19: Oil price and hybrid and electric vehicle sales in USA ....................................................................................................14 Figure 20: Recycled content of raw steel production, Bluescope Australia .....................................................................................14 Figure 21: Annual disaster insurance claims, Australia ....................................................................................................................15 Figure 22: Cost of solar modules .......................................................................................................................................................16 Figure 23: Annual hybrid vehicle sales ..............................................................................................................................................23 Figure 24: Annual electric vehicle sales ............................................................................................................................................23 Figure 25: Annual new car sales .......................................................................................................................................................23 Figure 26: Average emissions intensity of new vehicles sold in Australia .......................................................................................24 Figure 27: Annual bicycle sales .........................................................................................................................................................24 Figure 28: Annual sales of bicycles and cars ....................................................................................................................................25 Figure 29: Public transportation usage ..............................................................................................................................................25 Figure 30: Electric vehicle sales (Mitsubishi PHEV Outlander marker) ...........................................................................................26 Figure 31: Annual electric vehicles sales (new entry markers) ........................................................................................................26 Figure 32: Public transportation usage and petrol prices .................................................................................................................27 Figure 33: Average emissions intensity of new vehicles sold in Australia .......................................................................................28 Figure 34: Total installation of wind energy .......................................................................................................................................33
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Figures
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Figure 35: Total installation of solar energy ......................................................................................................................................33 Figure 36: Total installation of solar hot water units .........................................................................................................................34 Figure 37: Annual generation of energy from fossil fuels .................................................................................................................34 Figure 38: Electricity production percentage change, by source......................................................................................................35 Figure 39: Cost of solar modules .......................................................................................................................................................35 Figure 40: Solar and wind energy growth (with markers) .................................................................................................................36 Figure 41: Whitegood energy consumption change .........................................................................................................................39 Figure 42: Percentage of water products > 3 WELS ........................................................................................................................40 Figure 43: Imports of incandescent lights..........................................................................................................................................41 Figure 44: Imports of Compact Fluorescent Lights ...........................................................................................................................41 Figure 45: Lighting VEECs generated in Victoria..............................................................................................................................42 Figure 46: Average Energy Star rating of whitegoods ......................................................................................................................42 Figure 47: Average refrigerator energy consumption .......................................................................................................................43 Figure 48: Average freezer energy consumption ..............................................................................................................................43 Figure 49: Average dishwasher energy consumption.......................................................................................................................44 Figure 50: Percentage of dishwashers > 3 WELS ............................................................................................................................44 Figure 51: Percentage of topload clothes washers > 3 WELS .........................................................................................................44 Figure 52: Percentage of frontload clothes washers > 4.5 WELS....................................................................................................45 Figure 53: Percentage of toilets > 3 WELS .......................................................................................................................................45 Figure 54: Percentage of showers > 3 WELS ...................................................................................................................................46 Figure 55: Percentage of dishwashers > 3 WELS ............................................................................................................................46 Figure 56: Percentage of taps > 3 WELS ..........................................................................................................................................46 Figure 57: Imports of CFL and incandescent lights (MEPS phase-in) .............................................................................................47 Figure 58: Energy efficiency of refrigerators and freezers................................................................................................................48 Figure 60: Percentage of water products > 3 WELS ........................................................................................................................49 Figure 61: Percentage of rateable building stock certified with NABERS Energy & Water.............................................................52 Figure 62: Annual NABERS certification volumes ............................................................................................................................53 Figure 63: Annual number of 4.5 Star or higher NABERS certified buildings ..................................................................................54 Figure 64: Total number of Green Star certifications ........................................................................................................................54 Figure 65: Annual number of Green Star certifications.....................................................................................................................55 Figure 66: Percentage of residential dwellings > 5 star NatHERS ...................................................................................................55 Figure 67: NABERS certification volumes (with marker) .................................................................................................................56 Figure 68: Percentage of NABERS certifications > 4.5 Stars...........................................................................................................56 Figure 69: Percentage of Australian timber plantations FSC certified .............................................................................................58 Figure 70: Agricultural water use per ha (with marker) .....................................................................................................................59 Figure 71: Agricultural water use to value ratios ...............................................................................................................................60 Figure 72: Water use for steel production .........................................................................................................................................61 Figure 73: Carbon emissions from steel production .........................................................................................................................61 Figure 74: Recycled contact of raw steel ..........................................................................................................................................61 Figure 75: Recycling and general waste generation .........................................................................................................................62 Figure 76: Mobile phone recycling .....................................................................................................................................................62 Figure 77: Growth of FSC plantations relative to total plantation area ............................................................................................63 Figure 78: Annual biofuel production .................................................................................................................................................63 Figure 79: FSC chain of custody certificates.....................................................................................................................................64 Figure 80: Percentage of plantations FSC certified ..........................................................................................................................65 Figure 81: Production of biofuels in the USA ....................................................................................................................................65 Figure 82: International issuance of green and climate bonds .........................................................................................................68 Figure 83: Australian issuance of green and climate bonds .............................................................................................................69 Figure 84: Dow Jones Sustainability Index Australia ........................................................................................................................69 Figure 85: Dow Jones Sustainability Index and All Ordinaries performance ...................................................................................70 Figure 86: Sustainability themed investment in Australia .................................................................................................................70 Figure 87: Issuance of Australian Carbon Credit Units.....................................................................................................................71 Figure 88: Annual disaster insurance payouts ..................................................................................................................................72 Figure 89: Annual general insurance payouts...................................................................................................................................72 Figure 90: General and disaster insurance comparison ...................................................................................................................73 Figure 91: International issuance of green and climate bonds .........................................................................................................74 Figure 92: Fairtrade versus retail food sales growth .........................................................................................................................76 Figure 93: Retail food annual growth.................................................................................................................................................77 Figure 94: Sales of Certified Organic food ........................................................................................................................................78 Figure 95: Sales of Fairtrade certified products ................................................................................................................................78 Figure 96: Number of Fairtrade licensed companies ........................................................................................................................79 Figure 97: Area of Certified Organic farmland ..................................................................................................................................79 Figure 98: Quantity of MSC certified products, worldwide................................................................................................................80 Figure 99: Fairtrade sales – impact of Mondelez licensing ..............................................................................................................81 Figure 100: Global number of MSC fisheries ....................................................................................................................................82
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http://www.ibtimes.com/singapore-green-southeast-asian-city-state-uses-environmental-sustainability-lure-business-1511842
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