Appendix B to RIS 2009-03 - Australian Building Codes Board

Appendix B to RIS 2009-03 - Australian Building Codes Board

consideration have broadly similar quality characteristics. However, exceptions should

be acknowledged and the value of quality changes should be assessed where feasible.

Social cost of hot water

The social cost of hot water is the sum of costs incurred by all members of the

community to supply hot water to a particular user. Social cost need not be the same as

the private cost and may be significantly different in the presence of external costs and

benefits or imperfect competition in the supply of relevant goods and services.

External costs and benefits

Up to now the main external cost associated with the selection of a water heater has

been its contribution to greenhouse emissions. One important external benefit has been

the potential to positively influence the direction and pace of technological change and

learning and thereby reduce future costs, including the benefits of ‘scaling up’ and

producing on a larger scale . However, these effects are no longer external now that

government has implemented measures designed to internalise them and so bring

private costs into alignment with social costs.

• The greenhouse externality is internalised in this RIS by assuming that the CPRS

will impose an appropriate carbon price on energy users;

• The technological externality is internalised in this RIS by assuming that the market

value of RECs reflects the beneficial technological effects of expanding the market

for renewable technologies, and that at the majority of this value is passed on to

buyers, rather than captured as higher profits by suppliers.

Supply of energy network services

Individual energy users should be able to look to their tariff schedules to calculate the

value of energy savings. However, electricity and gas tariffs include charges to recover

the cost of energy networks, that is, the costs of the poles, wires, transformers, pipes and

pumps that transmit and distribute energy from generators to users. These charges are

regulated and network regulators may increase network charges, or reduce them by less,

in response to measures that reduce the amount of energy that the networks carry. They

would do this if the networks cannot otherwise cover their costs, which are relatively

fixed, as their revenue falls.

A considerable amount of information would be needed to calculate any upward

pressures on network charges, which are paid by the broader community, and offset

them against estimated value of energy savings. It would be necessary to take into

account projections of network demand that allow for effects of the entire portfolio of

energy efficiency and greenhouse gas abatement policies, not just those covered in this


It would also be important to allow for the load profile (ie daily and seasonal variation)

of the energy savings. Positive feedback effects are greater where the energy savings do

little to reduce peak loads on energy networks, reducing the revenue to networks but

leaving their costs relatively unchanged. Conversely, the effects are smaller where the

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