Recommendations for Budget 2005
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National Energy Efficiency Strategy

Summary
Establish stable funding for the commercial and institutional retrofit program to realize the program objectives. Re-design the residential retrofit program as a permanent annual investment and strengthen delivery of the auditing portion by using community-based non-profits that deliver other educational programs. Enhance NRCan’s Office of Energy Efficiency capacity to update efficiency standards and codes for appliances, equipment, building components and buildings, and strengthen integration with other measures and departments.

Investment

• earmark an additional $100 million per year for a residential energy assessment and retrofit program that can meet the federal government’s targets
• establish stable funding for commercial and institutional retrofits until the federal target is achieved – a revolving fund of $250 million could meet this objective
• increase resources for NRCan’s Office of Energy Efficiency to comprehensively and systematically implement minimum energy efficiency standards and coordinate with other policy measures and departments

Benefits for Canadians

• improve opportunities for manufacturers to develop efficient products with significant market opportunities
• strengthen the competitiveness of the Canadian economy by increasing economic efficiency
• reduce electricity costs for businesses, institutions and individuals who in turn spend these savings in more productive parts of the economy
• leverage climate protection support from provinces with electricity demand-supply crunches
• reduce air pollution and human health impacts from reduced fossil fuel
  combustion
• create employment — investing in efficiency creates more jobs than investing in new supply
• contribute to Canada’s international commitment under the Kyoto Protocol

Background and Rationale
Canadians annually consume 6.19 tonnes of oil equivalent per capita, almost double the OECD average of 3.18, and five times the world average. Canada’s energy and carbon-intensive economy carries tremendous social costs. The Ontario Medical Association estimates that air pollution is responsible for in excess of $1 billion provincially in direct costs such as hospital room admissions and absenteeism and another $9 billion in indirect costs, such as mortality.
Improving the efficiency of the economy will strengthen competitiveness and create opportunities for industries manufacturing efficient products. Investing in efficiency creates jobs. Per unit of investment, efficiency creates five times as many jobs as investing in new supply.⁴⁵

Other countries around the world are integrating climate protection and industrial innovation strategies. The United Kingdom intends to achieve half of its Kyoto target and half its 60 per cent emission reduction target from energy efficiency improvements and has mapped out the industrial opportunities.⁴⁶ This proposal focuses on strengthening efficiency in the built environment and should be complemented by efforts in transportation and industrial sectors –elements of which are referenced in other budget proposals.

Buildings account for one quarter of Canada’s greenhouse gas emissions and represent a significant opportunity for reductions.⁴⁷ The federal energy assessment and retrofit programs for residential and commercial/institutional provide a solid foundation on which to achieve significant reductions in this area.
The current programs, however, are insufficiently robust to meet the Climate Change Plan for Canada’s goals. The $79.4 million committed in the 2003 budget could enable the retrofit of approximately 73,400 residential homes, about 0.9 percent of eligible households at $1000 per household, significantly short of the 20 per cent objective. Similar conclusions could be reached for the penetration of the commercial/institutional building program.

A permanent annual investment of $100 million into residential retrofits should be established until the Plan’s objectives are met. The auditing portion of the program should be strengthened by engaging community non-profits. The Green Communities program has demonstrated that this approach is effective in maximizing other climate and energy educational opportunities.

The commercial/institutional building program could be enhanced by increasing the target to 30 per cent improvements in efficiency for 20 per cent of buildings. The current 1.2 MT reduction estimate appears to be based on only 10 per cent improvements in performance, falling far short of the practical potential. More stable financing is required to realize this program, and a revolving fund, similar to the Toronto Atmospheric Fund, should be investigated as potentially more cost effective.

This proposal expands the federal government’s immensely popular building retrofit programs to meet the objectives of the Climate Change Plan for Canada of retrofitting 20 per cent of the residential and 20 per cent of the commercial/institutional building stock by 2010.

Investing in improving the efficiency of existing infrastructure is important. However, every day Canadians spend millions of dollars on equipment, appliances and infrastructure whose efficiency standards are obsolete.
Canada’s overall energy efficiency can be significantly augmented by ensuring that the next generation of capital investments is for the most energy efficient goods that can be practically brought to the market. This will involve more comprehensively updating minimum efficiency standards for appliances, office and industrial equipment, building components and urban infrastructure — everything from office, residential and street lighting to escalators to windows and doors — and building codes, themselves.

NRCan’s Office of Energy Efficiency has a well-respected program in advancing energy efficiency through standards and market transformation. However, the breadth of opportunities are not fully exploited because of insufficient resources and inadequate political support. The Climate Change Plan for Canada’s target of 1.6 MT worth of reductions from standards for equipment and appliances far underestimates the potential.

California’s comprehensive program to update appliance and building regulations has – by itself – reduced utility bills of Californians by at least $15.8 billion since 1978, and by 2011 residents will save an additional $43 billion in energy costs.⁴⁸

There are numerous products whose standards could be improved. High efficiency furnaces can convert up to 97 per cent of a fuel’s energy into space heat, but furnaces with efficiencies of 78-80 per cent are still on the market in Canada.⁴⁹ The efficiency of traffic lights, standby power of electronic equipment, and commercial freezers can be improved by 90 per cent, 75 per cent and 50 per cent respectively.⁵⁰

Greater political will and more resources are required to enable the Office of Energy Efficiency to significantly augment its work in improving standards and advancing market transformation. There is a particular need to integrate regulations with other policy instruments to maximize impact. For example, a minimum standard can phase out inefficient refrigerators, a social marketing program and a GST rebate can incent consumers to purchase a refrigerator significantly above the new standard to drive market penetration of the next innovative technology, and a capital cost allowance can incent manufacturers to invest in assembly line technology to meet the upcoming standard. Currently these policy tools aren’t fully integrated, compromising the synergies, and in turn slowing market transformation.

By demonstrating leadership in efficiency, it will be easier for the federal government to engage provinces in promoting demand side management, particularly jurisdictions facing electricity insecurity. Provinces can be encouraged specifically to advance building standards. Current technology allows construction of commercial buildings with 50 per cent or more improvements in efficiency with no increased economic cost.

Recommendations

• establish stable funding for the existing commercial and institutional retrofit program and improve program efficacy for the 20 per cent of targeted buildings by increasing the efficiency improvement to 30 per cent from 10 per cent
• extend the residential retrofit program to a permanent annual investment to successfully meet the federal goal of 20 per cent of current housing stock and strengthen delivery of the energy assessment portion by using community-based groups delivering rich educational programs
• enhance NRCan’s Office of Energy Efficiency capacity to comprehensively update efficiency standards and codes for appliances, equipment, building components, and buildings and strengthen integration with social marketing, taxation, industrial innovation programs which includes coordination with other departments

Alternative and Complementary Policies
There are numerous policies that could reinforce a commitment to energy efficiency. Tax policy is used to advance industrial goals, but has not been fully taken advantage of to advance efficiency. The federal government encourages the construction of inferior energy standard homes by offering a GST rebate for all new homes. And while buyers of new homes are eligible for a GST rebate, homeowners investing in energy efficient renovations do not. The following are some tax changes that would be helpful for individuals:⁵¹

• shift the GST rebate for all new homes exclusively to premium energy efficiency homes, e.g. R 2000, LEAD silver or equivalent standard homes
• amend the Excise Tax Act to enable purchasing recognized efficiency products, e.g. appliances 30 per cent above the minimum standard, to qualify for GST rebates
• amend Class 43.1 of the Income Tax Regulations to make investments in community energy systems eligible for the accelerated capital cost allowance

• offer incentives to Canadian companies shifting to manufacturing high-efficiency products, e.g. capital cost allowances for assembly line investments for premium efficiency productsA source of revenue for advancing efficiency is the $1 billion of proceeds from the Petro-Canada sale earmarked for “sustainable development technologies.” There is a risk this fund could be depleted by expensive technological fixes, e.g. clean coal or carbon capture, squeezing out practical efficiency technologies that can be deployed today with greater co-benefits.

Proceeds from the Petro-Canada sale should be placed in a trust from which proceeds would be invested in sustainable energy deployment and subject to strict criteria that includes cost-effectiveness, contribution to reducing carbon dependence, immediate and long-term contributions to reducing GHG emissions and air pollution.

When integrated with other policy instruments, social marketing can significantly influence consumer demand, and in turn accelerate market transformation:

• Integrate the “one tonne challenge” with targeted incentives and disincentives, and targeted programs to drive demand for premium efficiency products that will become the next minimum standard.

Contact
Alex Boston
David Suzuki Foundation
604-732-4228

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