Costs associated with proposals to increase the stringency of energy efficiency requirements for new homes and apartments in 2022 will outweigh the benefits involved, a new analysis has shown.

The Australian Building Codes Board (ABCB) has released a Consultation Regulation Impact Statement (Consultation RIS) regarding proposals to increase mandatory requirements for energy efficiency in Class 1 and Class 2 buildings in the 2022 update of the National Construction Code (NCC).

Prepared by ACIL Allen for the ABCB, the Consultation RIS aims to quantify the costs and benefits associated with the proposals.

It concludes that anticipated costs associated with the proposed changes – which would effectively require new homes to meet a 7-Star NatHERS rating – would exceed benefits by a factor of three to one and four to one under its two modelling scenarios (see below).

Overall, this would result in a net social and economic loss to households and society of $2.366 billion under one scenario or $1.795 billion under the second scenario (see below).

“The analysis of the proposed policy options for more stringent energy efficiency requirements for new dwellings in the NCC 2022 indicates (based on the best available data and assumptions) that there would be a net societal cost for both options – the costs are estimated to outweigh the benefits by a significant margin,” the report said.

“The capital costs associated with meeting the proposed energy efficiency requirements are estimated to be well in excess of the societal benefits that are largely derived from avoided resource costs in the energy sector (and which are estimated using wholesale energy costs and avoided network investment as a proxy).”

The Consultation RIS follows the recent release of the second stage of the public comment draft for the 2022 update of the NCC, which was released earlier this month.

In terms of energy efficiency, the updates contain amendments to increase the stringency of requirements for residential buildings (Class 1 buildings and Class 2 buildings as classified under the NCC).

In terms of the building’s fabric, the Code’s performance requirements have been updated to ensure that any new homes or apartments meet an energy performance level which is equivalent to 7 stars under the NatHERS energy rating system. Meanwhile, the Code’s deemed-to-satisfy (DTS) requirements have also been updated to ensure that any homes which are constructed using DTS meet this requirement.

This represents a one-star increase when compared with the current situation where dwellings are only required to achieve 6-star heating and cooling load limits.

The proposed 2022 edition of the Code also adopts a holistic approach when it comes to key household appliances as air-conditioning, hot water systems, lighting and swimming pool and spa pumps.

These must meet an overall ‘budget’ for energy use, which is determined on an overall basis across all of the relevant items.

The upgraded provisions for residential energy efficiency follow a 2019 agreement by the Building Ministers Forum (now called the Building Ministers Meeting) to adopt a Trajectory for Low Energy Buildings, which outlines a trajectory to improve the energy performance of Australia’s commercial and residential buildings in line with our commitment to address climate change.

At the time of that agreement, ministers decided that there would an increase in stringency requirements for commercial buildings in the 2019 update of the Code and for residential buildings (Class 1 and Class 2 buildings) in the 2022 update.

In its Consultation RIS, ACIL Allen Consulting has attempted to quantify the costs and benefits which are expected to be derived from the proposed changes.

Benefits, it says, will include:

• Cost savings associated with lower energy consumption and supply requirements.
• Lower carbon emissions.
• Health benefits associated with lower electricity and gas generation and use (and thus lower levels of air pollution).

By contrast, the main costs involve higher capital costs which will arise out of additional costs to construct new dwellings.

Other costs include those incurred by government to administer the proposed policy changes along with additional costs which will be incurred by industry but which cannot be directly passed on to consumers.

The costs and benefits are presented on a present value basis, which applies a discount rate to costs and benefits which are expected in the future in order to bring them back into present value terms.

When calculating the costs and benefits, the paper uses two different scenarios upon which to base its calculations – Option A and Option B (see page xi in link for a description of these).

It found that the likely costs of the proposed changes exceed the expected benefits under both scenarios (see table).

Moreover, it found that costs exceeded benefits across the board, including:

• For both individual households and for broader society
• For both Class 1 buildings (single-storey homes) and Class 2 buildings (multi-storey apartments); and
• Across almost all jurisdictions and climate zones.

It says that any scenario whereby benefits will exceed costs is unlikely.

“The breakeven analysis undertaken indicates that there would need to be a very significant increase in wholesale energy costs (more than three times) and/or a very significant reduction in the capital costs (a discount of around 70 to 80 per cent) for there to be an Australia-wide net societal benefit associated with the proposed policy options,” it says.

“Overall, the estimates presented in this RIS point towards the proposed changes to the NCC under both Option A and Option B imposing net costs across Australia.”

However, the report’s findings have been contested.

In a statement following its release, the Victorian Government slammed the paper’s findings, saying that the RIS ‘understates the health, climate and energy benefits of moving to 7-star building standards.’

“The National Construction Code 2022 Consultation Regulatory Impact Statement, released by the Australian Building Codes Board, fails to capture the benefits of moving to more efficient homes,” the Government said.

“The Trajectory for Low Energy Buildings agreed by all states and territories in February 2019 anticipated strengthened energy provisions in the NCC 2022, including an increase in building efficiency and stronger standards for fixed appliances such as heating, cooling and hot water.

“However, the Consultation RIS skews its assessment of these provisions with conservative inputs and assumptions. It focuses more on costs while understating the emissions reduction, energy bill savings and health and wellbeing benefits of efficient homes.”

Victorian Minister for Energy, Environment and Climate Change Lily D’Ambrosio said the state hoped that the proposed changes will be accepted by the Building Ministers Meeting and will be incorporated into the 2022 update of the Code.

Should this not happen, she said the state would go it alone and mandate energy 7-star energy efficiency for all new homes in Victoria.

Consultation on the NCC public comment draft (Stage 2) is open until October 17.