Title: sub082 a3p

AUSTRALIAN PLANTATION PRODUCTS & PAPER INDUSTRY COUNCIL

ABN 40 005 904 898

Energy Efficiency Inquiry
Productivity Commission
Locked Bag 2
Collins Street East, Melbourne  VIC  8003
15 March 2005
Re:  Inquiry into Energy Efficiency

Summary
If a higher level of energy efficiency than achieved through normal business processes is desired, to realise other benefits, there should be some financial transfer from the receivers of those benefits to the party taking the action.
The mechanisms available to undertake this transfer include:
•	Acknowledgement of the extra benefits through financial and tax treatment such as accelerated depreciation rates.  
•	Availability of funds to undertake feasibility studies into energy efficiency projects.  
•	Ensure the scope of programs such as the Low-Emission Technology Development Fund include projects of all sizes and are available to assist in the viability of a wide range of energy efficiency projects.

A3P, the Australian Plantation Products and Paper Industry Council, welcomes the opportunity to provide input to the Productivity Commission’s Inquiry into Energy Efficiency.  The industry represented by A3P consists of a number of sectors with differing intensities of energy use.  The plantation growing sector is a relatively low intensity user of energy, the sawmilling sector is a moderately intensive energy user, while the reconstituted board and paper processing sectors are substantial energy users in absolute and energy intensity terms.  Many participants in the industry are also significant producers of energy from wood and processing residues.  The combined energy use of the industry is approximately 2.0% of the total Australian energy consumption of both gas and electricity.

The plantation products and paper industry produces and sells more than $12 billion of product each year. It employs 50 000 people in plantation operations, sawmills and paper manufacturing plants, mainly in rural and regional areas.  The industry produces 15 million tonnes of wood annually, and processes this wood into products including 3 million tonnes of paper and 3 million cubic metres of sawn timber.
The industry, particularly the paper and board sectors, is exposed to significant market competition from overseas production facilities.  Energy costs are a substantial proportion of the total production costs for paper (up to 20%) and reconstituted boards.  A key source of competitiveness for Australian production in both domestic and export markets is the supply of reliable, competitively priced energy.
As a result of these factors, government policy on energy issues such as pricing, the operation of energy markets and energy efficiency have a significant influence on the viability of domestic production and the attractiveness of further investment in Australia.
Energy Efficiency in the Plantation Products and Paper Industry
Clearly market and economic forces already provide a strong incentive for energy efficiency within the industry.  These forces have seen energy consumption in the paper sector reduce from 22.2 GJ per tonne of production in 1990 to 16.8 GJ per tonne of production in 2003, a 24 per cent improvement in energy efficiency.  These reductions have been achieved through machine upgrades, investment in new plant and process-based improvements.
Corporate Decision-Making
There are a number of key elements in most corporate decision-making processes that are relevant when considering if impediments exist to investment in energy-efficiency projects.
In any organization, there will be more theoretically ‘profitable’ projects available than there are funds for investment.  The criteria for selecting projects to fund will vary between companies but is likely to include three common elements:
•	An assessment of the rate of return on funds invested.  Obviously projects with higher or faster rates of return are more likely to be funded.
•	The level of risk associated with the project, including the probability of achieving lower rates of return or losing money.
•	The strategic importance of the project with respect to maintaining or expanding key markets, improving product quality or changing customer perception of the product.
Discussion of energy-efficiency projects often focuses on the first of these criteria and it is undoubtedly a crucial issue.  While many energy efficiency projects may be ‘profitable’, they may be less so than other potential investments available to the company.  However the second and third criteria may be more relevant in explaining why energy-efficiency projects may fail to get funded.
The level of risk in a project is obviously related to a variety of market and operational factors but will also be influenced by the expertise and background of those making the decisions.  It is possible that investment in energy-efficiency projects would be enhanced if there was an increased knowledge of energy issues in key decision-making roles and therefore less likelihood that such investments would be perceived as ‘risky’.
It is unlikely that energy efficiency projects, on their own, will lead to major strategic benefits such as improved product quality or the development of a new product.  In many instances, projects that are essen