Tax avoidance through energy efficiency

By putting greater effort into measuring and benchmarking energy use, many businesses could identify energy savings that could entirely offset the cost of the carbon tax.

Energy benchmarking has great value for business decision makers because it is the first step towards becoming more energy efficient. Energy benchmarking looks at your current energy usage. If you don’t know what energy you are using, you also have no idea how much is being wasted and what the possibilities are for savings. Having an energy benchmark is essential. It allows you to track the effectiveness of energy efficiency implementations.

 If you benchmark your current energy usage you can work out the impact of future tariff increases. This can be calculated in terms two future scenarios: The first is business as usual - in other words if you do nothing about energy efficiency and your energy use stays the same, what will the cost impact of tariff increases be on your energy bill? The second scenario is calculated for reduced energy use. In other words, how much can you save on future energy costs through energy efficiency measures? This can be calculated once an initial energy audit has been done and energy savings opportunities have been identified.   

What are the most Popular Benchmarking Methods?

At first glance energy benchmarking methods may seem confusing. Some only make comparisons between businesses in the same industry within Australia. Almost all use a star rating mechanism and each have their own criteria.  The problem comes in that often some criteria cannot be applied to your business which affects your overall rating. Industry comparisons may also give you a false sense of energy efficiency. You may be doing better than your industry counterparts, but that doesn’t necessarily mean you have unlocked all the energy efficiency potential in your business. In addition, criteria for some of Australia’s benchmarking systems are not always clearly defined, nor do they align with world best practice or cost effective energy efficiency principles.

The solution is for business decision makers to understand what makes up a good benchmarking system. Which of these methods can help deliver real cost savings for your business and add profits to your bottom line?

In 1987, the Bruntland Commission of the United Nations identified three sustainability criteria for effective benchmarking. The commission argued that an approach should think beyond  environmental impacts. Economic and social impacts are equally important for sustainability. If a benchmarking system does not consider material or implementation costs it is not economically sound. Similarly if social impacts are ignored it is not the most effective benchmarking method.    

Three Methods for Energy Benchmarking

IDEOLOGICAL BENCHMARK: Many businesses may be familiar with Australia’s Green Building Council’s Green Star System. This is an example of an ideological approach to energy benchmarking. This approach compares a facility’s energy use to what would be required to achieve an ideological “zero”. While the intention to reduce environmental impact of a business is good, unfortunately the implementation is fundamentally flawed. It seeks to pick winners and applies them to every sector. The benchmark does not take into consideration location of businesses, availability of resources and makes no references to cost. The benchmark therefore falls short of meeting the economic and social mandates.

STATISTICAL BENCHMARK: An example of a statistical approach to benchmarking is NABERS. (National Environmental Built Environmental Rating Scheme) This benchmarking system compares levels of energy efficiency for offices, hotels and retail outlets within their sectors. A benefit is that because it is industry specific it brings an element of competitiveness to energy efficiency. In the process it goes a long way to increasing energy awareness. If a business rates low compared to a competitor it serves as an incentive for them to improve their energy efficiency.   On the downside, however, the drawbacks are that the statistical benchmark is set as a local industry standard and not against world best practice. While you may compare favourably to your industry competitors that may not necessarily mean your business is energy efficient. You could still be far off a cost effective world best practice benchmark for energy efficiency. Ultimately this means you are not realising the profits you could be, from energy efficiency.   

COST EFFECTIVE BEST PRACTICE BENCHMARK: As the name implies, this benchmark looks at the world best practice for a particular facility and creates a benchmark accordingly. The benchmark takes into consideration a facility’s location, availability of energy supply, resources and investment for energy efficiency implementation. This is the only benchmarking method that takes into consideration all three of the Brundtland Commission’s criteria for sustainability: economic, social and environmental factors. An example is the EPA (United States Environmental Protection Agency). In Australia, Carbon Responseis based on cost effective best practice.

Why selecting the right Energy Benchmarking Method is so important

In order to be truly effective, energy efficiency initiatives need to be sustainable in the longer term.  Most importantly they need to translate into real cost savings that can be reflected as profits on the business bottom line. It is not enough to compare your business to others in your industry. You may achieve some energy savings but there is a strong likelihood you would only have scratched the surface in terms of potential energy saving opportunities.  Similarly, you can strive to achieve a “zero” rating in terms of environmental impacts, but at what economic cost? If the costs are too expensive, this will affect the company’s profitability and the initiatives will therefore not be sustainable.

Case Study – Copper Mine

A large copper mine engaged us for a review of their current $50 million per annum energy bill. According to benchmarking information this mine was not performing that great. But it didn’t help senior management take any actions to improve the situation. We applied the cost effective benchmark approach to this operation and found that some $20 million of energy expenditure could be reduced in under an 18 month payback. Knowing the lost value in their current energy practices, and having a path to achieve it. The mine is implementing our Energy Leadership Program and is systematically eliminating energy waste.

When evaluating energy benchmarking methods the questions to ask are: What will give me real results? How will I know that I am maximizing my company’s energy saving opportunities? Ideological or statistical benchmarking methods are only partially effective. The cost effective best practice model, however, provides a solid baseline for achieving real energy savings.  The interesting thing to note is that as electricity prices increase, the return on investments for energy efficiency initiatives increases. A cost effective benchmarking method is the best tool you can use to optimise your energy efficiency and make energy cost savings translate into business profits.

Francis Barram is the Managing Director of Energy, Profit through Energy Transformation.

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