General policy statement
The overall purpose of this Bill is to continue to promote energy efficiency, energy conservation, and renewable energy in New Zealand by improving the effectiveness of the Energy Efficiency and Conservation Act 2000 (the Act). The Bill addresses the planned increase in product labelling and subsequent compliance needs, addresses the energy efficiency of buildings, including homes, and makes minor or technical improvements to the Act that have been identified over time.
Summary of key changes
Enabling regulations to rate homes and buildings for their energy efficiency and energy conservation
The New Zealand Energy Efficiency and Conservation Strategy sets out the objective of establishing a home energy rating scheme. A voluntary home energy rating scheme trial is being held in early 2008 along with the release of a public discussion document. The results of this trial and consultation will inform recommendations for a future home energy rating scheme. The Bill will create a power in the Act to implement a scheme through regulation in the future by extending the range of areas that section 36 of the Act can regulate.
The Bill will establish regulation-making powers to—
enable the rating of homes and buildings for their energy efficiency, including the energy efficiency of their construction, or their component systems, and their energy conservation:
prescribe the methods for the assessment and rating of buildings, accreditation of assessors, fees payable for assessments, and the publication of a building’s rating.
Disclosure of ratings through a home energy rating scheme is intended to improve owner and occupant knowledge of building energy efficiency, encouraging and motivating them to improve the energy efficiency of New Zealand’s house stock. It will also enable those seeking to buy or lease property to make informed decisions by providing them with reliable and consistent information.
Incorporating New Zealand and joint Australian/New Zealand Standards by reference
The term incorporation by reference is used to describe a technique that gives legal effect to provisions contained in a separate document without repeating those provisions in the text of the incorporating legislation.
The use of material incorporated by reference can be an efficient way of utilising already existing standards or guidelines and avoids the repetition of large volumes of technical material in legislation. When the Act was passed, it was intended that standards promulgated by Standards New Zealand could be incorporated by reference into regulations under section 37(1)(a) of the Act. This would mean that when a standard was updated, the update could take effect by notice in the New Zealand Gazette pursuant to section 37(3) and (4) of the Act.
The current provision does not make it clear that New Zealand Standards, including joint Australian/New Zealand Standards, may be incorporated into regulations by reference.
The Bill will also introduce more modern drafting of provisions. The current wording of section 37 of the Act is different to the more modern drafting of provisions authorising incorporation of material by reference. In particular, the more modern drafting clarifies that both national organisations as well as international organisations are included.
There are also a number of other technical matters that must be included with all modern provisions for material incorporated by reference to ensure the Legislative Advisory Committee guidelines and recommendations of the Regulations Review Committee are complied with. These matters relate to proof of material, expiry of material, and public access to material.
Access to New Zealand Customs Service information for products subject to, or proposed for, minimum energy performance standards or labelling
The Bill will enable the Energy Efficiency and Conservation Authority (EECA) to access and assess information collected by the New Zealand Customs Service (Customs) on products that are subject to, or proposed for, regulation under the Act. These include products that are subject to either minimum energy performance standards or labelling requirements or are the subject of investigation to determine if they should be subject to minimum energy performance standards or labelling.
The purpose of the amendment is to allow EECA to determine the quantity of a specified product type being imported into New Zealand to allow EECA to—
cross-reference sales data obtained by EECA and importation figures to improve monitoring and compliance of minimum energy performance standards (regulation 9 of the Energy Efficiency (Energy Using Products) Regulations 2002 allows for the collection of sales data by EECA):
gather information on the number of particular products entering the country so that EECA can accurately determine possible energy savings from a proposed minimum energy performance standards intervention and include this in any cost-benefit analysis.
Provision of Customs information needs to be specifically stated in the Act so that Customs can legally provide the information to EECA.
Establishment of infringement regime to strengthen enforcement provisions of Act
The Bill establishes an infringement regime and strengthens the enforcement provisions of the Act. This will provide another option for enforcement where the severity of alleged breaches of the regulations pursuant to the Act do not warrant prosecution. This ought to ensure greater compliance.
The amendments are intended to enable minor offences to be dealt with in a more cost-effective and timely manner. The Bill provides for infringement notices, often called instant fines, and contains the framework for an enforcement officer to serve an infringement notice on a person who is believed to have committed an infringement offence.
The Bill creates an infringement regime (in line with Legislation Advisory Committee guidelines), to include—
powers of entry for enforcement officers, including for inspection and to copy documents:
empowering provisions to make regulations specifying infringement offences:
empowering provisions to make regulations specifying infringement fees up to a maximum of $1,000.
The Energy Efficiency (Energy Using Products) Regulations 2002 currently provide for offences and fines not exceeding $10,000 for every person who contravenes the regulations. Under these existing provisions of the regulations, enforcement options are limited to letters of warning and prosecution by way of summary proceedings in the District Court. Prosecution is a very time-consuming and expensive process, and does not fit well with the operational nature of the regulations.
Like Australian regulators, EECA anticipates considerable growth in products subject to regulation. Currently 12 product classes are subject to minimum energy performance standards and 5 product classes are subject to mandatory energy performance labelling. It is planned that minimum energy performance standards or labelling interventions for an additional 17 product classes will be concluded by 2012.
The types of offences that will be dealt with by infringement offence notices are currently stated in the Energy Efficiency (Energy Using Products) Regulations 2002. These offences relate to minimum energy performance standards and labelling requirements and duties on manufacturers, importers, and persons dealing directly with consumers.
The implementation of the infringement offence regime will be supported by powers to enter, inspect business premises, and copy documents. The exercise of these powers will be limited to working hours and reasonable circumstances. EECA will be able to appoint enforcement officers to exercise these powers. Offences for obstructing officers exercising their duties will be included.
In order to ensure that the entry and inspection powers in the Bill are consistent with section 21 (protection against unreasonable search and seizure) of the New Zealand Bill of Rights Act 1990, the Bill will also provide for adequate safeguards against the unreasonable use of these powers.
Regulatory impact statement
In September 2007, Cabinet agreed to amend the Energy Efficiency and Conservation Act 2000 (the Act). A regulatory impact statement (RIS) was prepared for 2 policy proposals in the paper. The content of that RIS is contained below.
It is proposed that provisions within the Act be extended to include the power to make regulations to rate the energy efficiency of buildings. This would provide the Energy Efficiency and Conservation Authority (EECA) with the ability to implement a regulatory regime for the rating of houses’ energy efficiency, to be provided to home buyers, owners, and occupants. Such a measure would reduce information barriers to investment in home energy efficiency and conservation and lead to the greater energy efficiency of New Zealand houses in general. It would also allow for the rating of other buildings if warranted at a later date.
Enforcement options for breaches of regulations under the Act are currently limited to prosecution through the District Court, with penalties of conviction and a fine up to $10,000. Due to the high costs of litigation and the relatively minor nature of identified breaches, enforcement agencies have declined to impose this sanction, despite numerous detected breaches. With increasing numbers of products subject to minimum energy performance standards and labelling requirements, breaches are expected to rise over time.
It is proposed that a less costly and administratively burdensome penalty for non-compliance that is more appropriate for the level of offence be introduced to complement the existing penalty. It is proposed that this be in the form of an infringement offence regime. This would help to encourage greater compliance with the regulations and to secure energy efficiency benefits from current minimum energy performance standards and labelling regulations.
The Ministry for the Environment (MfE) administered the Act before 1 July 2008, when the Ministry of Economic Development took over administration of the Act. MfE confirmed that the principles of the government approved Code of Good Regulatory Practice and the regulatory impact analysis (RIA) requirements, including the consultation RIA requirements, were complied with. An RIS was prepared and MfE considered it to be adequate. A draft RIS was circulated with the Cabinet paper for departmental consultation.
Energy efficiency rating of buildings
Status quo and problem
The residential sector in New Zealand consumes approximately 12% of the country’s energy usage or 34% of its electricity. Space heating and water heating consume 36% and 38% of household energy, respectively.
Despite this high proportion of energy usage, many houses in New Zealand are relatively energy inefficient in terms of water and space heating. The majority of the 1.5 million occupied houses in New Zealand do not have adequate insulation and are of low energy efficiency compared to what is achievable. The 2005 House Condition Survey found that less than 20% of the sample had underfloor insulation, and only 69% had the whole ceiling insulated. Only 63% of owner-occupied houses were reported to have adequate insulation in the ceiling, the most commonly insulated part of New Zealand houses, with an estimated 160 000 houses completely uninsulated. This has economic and health consequences, through households incurring additional costs to heat their houses and through houses being inadequately heated leading to occupant health problems.
Considerable economic benefits could accrue from better home energy efficiency. For example, owners of pre-1977 uninsulated houses will be able to identify cost-effective improvements such as draft stopping, hot water cylinder wraps, pipe lagging, water efficient shower heads, and energy-saving light bulbs. The estimated benefit of installing a full suite of such measures is $2.20 for every dollar spent on such improvements, including health and energy savings. A recent Wellington School of Medicine study has found that insulation positively affects people’s health. This research has found that families in insulated houses had fewer medical and hospital visits for respiratory conditions, and fewer days off work and school.
Currently, there is little information available to people without some specialist knowledge, either at time of purchase or during occupation, that could help them to improve houses’ energy efficiency. If energy efficiency information is available, potential home owners may be willing to pay a premium for more energy-efficient houses to reflect the expected future energy savings and other benefits this provides. That would provide an incentive to home builders and vendors to make houses more energy efficient. Existing home owners would also be able to use the information to assess the profitability of investing in energy efficiency measures, the effectiveness of which would otherwise be uncertain.
The problem is that some of these potential benefits of information on houses’ energy efficiency cannot be realised because there is no consistent and reliable energy rating framework in place.
The policy objective is to enable the provision of consistent, reliable, and comparable information on houses’ relative energy efficiency. This would better allow people to make informed decisions relating to their house’s energy efficiency, and the energy efficiency of prospective houses.
An alternative is to establish a public education or marketing campaign that could inform householders and prospective buyers or tenants of home energy efficiency issues. While this may be effective in enabling a rise in public awareness of home energy efficiency in general, it would not enable the provision of details of the energy efficiency of particular houses or advice on potential improvements for particular houses. It also would not ensure that the information received is consistent, reliable, and comparable. This would prevent those who may wish to invest in improvements, or in a house purchase, from making informed decisions about the house’s energy efficiency.
Another alternative is to regulate through alternative legislative vehicles. Empowering legislation for a home energy rating scheme could come in the form of stand-alone legislation. This is not a preferred option because it causes a separation from, and possible inconsistency with, the existing regulatory framework for energy efficiency contained within the Act. Having multiple sources of energy efficiency regulations would likely lead to confusion. Including these provisions within another existing legislative instrument, such as the Building Act 2004, is not preferred for the same reasons.
The preferred option is for amendments to the Act to allow for regulations to be made to rate buildings for their energy efficiency and conservation. It should be noted that this option would only create a regulation-making power. The detail of any regulations proposed under such a provision would be subject to a cost-benefit and regulatory impact analysis, and will be accompanied by a separate regulatory impact statement when considered by Cabinet.
While the intention behind this option is currently only to develop policy about an energy rating scheme for houses, the definition of buildings is preferred, as this is a more certain legal term, and it provides the opportunity for a future energy rating scheme for commercial buildings should that become policy.
The potential energy savings under a home energy rating scheme are large. Provision of information on houses’ energy efficiency at the point of sale would encourage investment in energy efficiency by home builders and vendors. Prospective buyers would be able to discriminate between houses based on their energy efficiency, and could incorporate expected future energy savings from more energy-efficient houses into their bid price, resulting in a premium being paid for more energy-efficient houses. House builders and vendors will then have an incentive to construct and sell houses that are more energy efficient.
With information on houses’ energy efficiency, existing home owners will be able to assess the economic case for investing in home energy efficiency measures. It will allow them to assess what improvements could be made and the likely energy savings from doing so, and empower them to implement those that are justified. Householders designing new houses will be able to use the rating scheme to optimise the energy efficiency of the building at the design stage, incorporating cost-effective features such as passive solar design and optimal levels of insulation.
Infringement offence regime
Status quo and problem
Currently, regulations pursuant to section 36 of the Act prescribe minimum energy performance standards and labelling of the energy efficiency of products and vehicles. People who breach these regulatory requirements commit an offence and are liable on summary conviction to a fine of up to $10,000.
The number of products subject to minimum energy performance standards and labelling requirements is set to increase dramatically. Currently, 12 product classes are subject to minimum energy performance standards and 5 product classes are subject to mandatory energy performance labelling. It is planned that minimum energy performance standards or labelling interventions for an additional 17 product classes will be in place by 2012. This rise in volume includes a Vehicle Fuel Economy Labelling Scheme. This scheme will require registered motor vehicle traders to display a fuel economy label on all motor vehicles at the point of sale. This will apply to around 3 200 traders, and more than 200 000 vehicle sales per year.
Compared to the 5 complaints that EECA investigated when the regulations were first launched in 2002, last year EECA investigated 78 suspected breaches, of which 64 breaches were identified. Given the rise in the number of standards, labelling requirements, and products to be covered, it is anticipated by EECA officials that there could be a parallel growth in the level of breaches.
These identified breaches were over a range of at least 5 730 product models that are subject to labelling requirements, and they probably represent only a small portion of total breaches. The large majority of the breaches identified are minor, inadvertent, or technical in nature (such as failing to register a product, or minor and technical departures from labelling specifications) and as such do not warrant the pursuit of a conviction through the courts. Instead, some other mechanism that signals an appropriate level of sanction for minor counts of non-compliance is seen as necessary to add credibility to the regulatory regime, with continuing availability of prosecution for serious or repeat offences.
EECA monitors compliance with the regulations on behalf of the Minister of Energy. Enforcement in instances of non-compliance is currently ineffective. Despite numerous clear breaches since the introduction of the regulations in 2002, EECA has mounted only 1 prosecution to date. This is because EECA has determined that the expense of court action, often expected to run into some thousands of dollars, is not justified given the low level of offending identified. This process is also very time-consuming and can be subject to considerable delay. Instead, EECA informally sends warning letters to those suspected of being in breach. These letters do not provide any formal sanction and are often ignored. This is problematic as the very low level of offences does not justify conviction, but the offences ought to be met with some level of appropriate sanction.
The problem is that there is currently no effective sanction being imposed for non-compliance with the regulations. The high cost and time delays of the only available sanction for breach (prosecution) impede enforcement agencies from taking action. Without sanctions being imposed the regulations can lack credibility, may not be complied with, and are likely to be less effective. This will put the energy efficiency benefits of the regulations at risk, with the possibility of a reversal of the gains achieved so far, at a considerable cost to New Zealand. EECA has estimated that the Minimum Energy Performance Standards programmes have saved 1.65 petajoules of energy at a value of $60 million as at March 2006. Energy savings from refrigeration appliances alone are estimated to have given benefits of $12 million.
The policy objective is to ensure compliance with minimum energy performance standards and labelling requirements. Sanctions need to be in place to deter non-compliance that can credibly be expected to be enforced and that are appropriate to the level of offending.
An alternative is to educate those for whom the regulations apply to encourage them to comply voluntarily. While this may have some limited effects on non-compliance, awareness of the regulations is already high, and it is considered unlikely that much current non-compliance would be deterred without compulsion. Another alternative to the status quo is to prosecute all instances of alleged breach. This would be likely to deter breaches. However, with expected litigation costs to both the enforcement agency and the alleged offender of approximately $10,000 each, the cost to all parties for the 64 alleged breaches of 2006 (which is likely to represent only a fraction of total breaches) would run to well over $1 million per annum. This is expected to rise significantly following introduction of new products into the specification and labelling framework.
It is proposed that a new sanction for non-compliance with the regulations be imposed in the form of an infringement offence regime incorporating infringement notices that come with an instant fine. These notices will be issued by enforcement officers appointed by EECA, and fines are expected to be set at between $500 and $1,000 per offence. Enforcement officers will have specifically prescribed powers of entry, search, and seizure to enable them to detect instances of non-compliance and gather evidence. There will also be penalties for obstructing enforcement officers from performing their duties. In all instances those issued with infringement notices will have the ability to appeal to the District Court.
Under this proposal there is unlikely to be any change in the time and expense taken to inspect products for compliance over and above what already takes place, and the proposed powers of entry, search, and seizure will enable more efficient investigation of suspected breaches. Although enforcement will be considerably more cost-effective than previously, a slight increase in enforcement costs will occur, as some administrative costs in issuing infringement notices will be necessary. This is still considerably cheaper, however, than the alternative of prosecuting the offenders who would be issued infringement notices under this proposal.
This proposal will promote compliance with the regulations by presenting a more credible threat of sanction for non-compliance than currently, with enhanced means of detection. Increased compliance will result in greater effectiveness of the regulations made under the Act. Therefore, the major benefit of this proposal will be energy efficiency savings associated with the energy efficiency regulations being followed.
These benefits will outweigh the relatively low costs of administering an infringement offence regime. There is large potential in New Zealand for improved energy efficiency to benefit society, and the energy efficiency regulations are one way to help realise this potential. Ensuring compliance is, therefore, likely to be of considerable benefit. Compliance with these already well-established regulations is already required and it will remain an offence to be in breach of them. Establishing an infringement offence regime will act to improve compliance as part of a suite of enforcement measures.
Two policy proposals for which RIS not prepared
The reasons for not providing an RIS for the remaining 2 policy proposals are as follows:
Provisions for updating New Zealand Standards that are incorporated by reference are intended to rectify an error in section 37 of the Act and, though more detailed than the original section 37, are essentially of a minor mechanical nature. This fits within an exemption to the requirements for an RIS.
Access to New Zealand Customs Service data is an arrangement between two arms of government and ought not to impact on the public. This fits within an exemption to the requirements for an RIS.
Implementation and review
The proposed changes will be implemented through the Energy Efficiency and Conservation Amendment Bill 2008. If implemented, proposed legislative amendments for the future creation of regulations under the Act are expected to be reviewed periodically as appropriate, but it is not considered necessary to have a review of the regulation-making powers proposed (except as part of a full review of the Act at some future date). There will be widespread notification of the infringement offence regime. Changes will be gazetted and advertised in newspapers and in EECA publications, and importers will be contacted directly to inform them of the changes.
It is anticipated that in the first year after implementation, EECA will review its monitoring and compliance activities relating to energy efficiency standards and labelling, and will consider what changes, if any, are needed as a result of this amendment.
The following government departments and agencies have been consulted on, or informed of, the various policies contained in the Energy Efficiency and Conservation Amendment Bill 2008: the Department of the Prime Minister and Cabinet, Ministry of Economic Development, Ministry of Justice, Ministry of Consumer Affairs, New Zealand Customs Service, Department of Building and Housing, Energy Efficiency and Conservation Authority, Commerce Commission, and Office of the Privacy Commissioner.
Public consultation on any regulations that result from proposed regulation-making powers will be required. However, no public consultation is required on the enabling legislative amendment itself before it is introduced to Parliament.
There was widespread industry consultation for the development of the energy efficiency standards and energy efficiency labelling requirements that are currently in place. While no consultation has been undertaken for the proposed change in penalty for non-compliance, affected industry participants will be contacted directly to ensure full understanding of the change if the amendment is passed.