Six things Australia could do with energy efficiency to catch up with the rest of the world

The budget measures announced by Labor represent a welcome turn in the federal government’s climate change policy. But, out of the $30.8 billion allocated, only 0.2 per cent is earmarked for energy efficiency. 

The budget measures don’t include all the existing state and federal government programs. But the current state and federal governments energy efficiency policies amount to chicken feed compared to renewables. Underspending on energy efficiency threatens Australia’s ability to hit greenhouse gas emissions.

• Climate Change Authority is back – and there’s more for climate and environment in the budget

International responses to climate change rank energy efficiency as equal to or more important than renewables

The International Renewable Energy Agency (IRENA) says energy efficiency and renewable energy are equally important, at 25 per cent of the global energy decarbonisation path, with electrification (much of which uses energy-efficient technologies) at 20 per cent.

The International Energy Agency (IEA) has looked at the least cost changes to worldwide energy systems needed to limit the extent of climate change by 2050. Renewables deliver 36 per cent of the emissions reductions. Energy efficiency contributes 44 per cent. 

The IEA also studied 18 countries that had achieved continuous decreases in GHG emissions from 2005-2015. They found that renewables and other lower GHG energy generation contributed about 47 per cent and energy efficiency contributed 36 per cent. 

In Europe and the US, energy efficiency is called the “first fuel” because it is the cheapest way to reduce emissions. 

Türkiye is spending billions on energy efficiency. Chile just introduced energy efficiency legislation that requires a 10 per cent efficiency improvement by 2030. But, for all political parties in Australia, the primary focus of their policies are renewables.

Energy efficiency doesn’t just cut emissions – it makes us better off

Energy efficiency is the “convenient truth” about climate change. The IEA explains that energy efficiency: 

• stimulates economic growth (the Howard government’s National Framework for Energy Efficiency showed this before the IEA)
• increases business profits and household disposable income by lowering costs
• creates more healthy buildings to live and work in
• reduces pollution
• puts downward pressure on energy prices
• helps improve government budget bottom lines by promoting economic growth

Upgrading our energy generation system to renewables won’t be cheap, but energy efficiency saves more than it costs. And it reduces the cost of upgrading the energy generation network because it reduces the amount of energy generation you need. 

Energy efficiency can solve immediate issues, like energy costs for low-income households [and renters – ed]

Governments focus on the energy price, but the cost (your bill) can be lowered if you use less – regardless of the price. 

Energy efficiency can help to reduce low-income households’ bills immediately, but changing the generation network to lower prices will take much longer. 

Low-income households don’t have the money to buy more efficient appliances or upgrade their home. And are more likely to rent an older home with poor efficiency that may not have a heater, so many often use plug-in electric heaters which are more expensive to run. 

If state and federal governments are serious about reducing the cost of living for low-income households, they will find a way to upgrade the inefficient structure of rental properties and install efficient appliances for low-income households. ASAP. 

We need a plan

There is a National Energy Productivity Plan (NEPP). But if you try to download it, the link doesn’t work. The most recent document on it was dated 2018. There is no implementation schedule and no reporting of progress. Furthermore, no overarching plan quantifies how the NEPP fits into an overall GHG emission reduction strategy. Our new government has proposed to develop a National Energy Performance Plan, which is great. But how long will that take before serious action occurs?

So, what should Australia be doing with energy efficiency?

1. Set a target

The IEA studies show that energy efficiency is critical to achieving GHG emissions reduction in both policy and practice. And they give us a benchmark: if energy policies don’t drive around a 40 per cent reduction in energy demand by 2050, they will unnecessarily add to the cost and difficulty of meeting the climate challenge. This target should be absolute, not energy intensity per GDP, like the old NEPP. And it needs to be developed considering local conditions.

2. Budget of billions coordinated across state and federal governments

Australian governments’ budgets for renewables have a billion dollars in front of them. Energy efficiency strategies will have about the same impact on GHG emissions, so they should be similarly funded. These strategies often deliver a rate of return on investment of 20 per cent. Australian households and businesses spend over $50 billion annually on electricity and gas. A well-planned strategy would deliver a net profit within a few years.

3. Do stuff that works

One policy that would be ideal is the now-defunct Energy Efficiency Opportunities (EEO) program. The Abbott government closed down this highly successful Howard government program. 

The Energy Efficiency Opportunities (EEO) program developed hundreds of real-world case studies showing that energy efficiency works for a diverse range of businesses, including farming and agriculture, food and beverage manufacturing, Mining and Buildings. It provided modest support to develop energy efficiency strategies and implement measures. It identified massive opportunities to save energy for minus $95 a tonne of reduced GHG emissions. That’s right, reducing greenhouse emissions didn’t add cost. It reduced costs. 

The EEO program was at one stage responsible for 40 per cent of the industrial energy savings achieved in the Australian economy. Yet there isn’t even a program to communicate the findings of the case studies. Far from clobbering the economy, reducing greenhouse gas emissions through energy efficiency helps to grow it. The government could do a lot worse than restarting this program and communicating the lessons learned.

4. Don’t nobble the policies using out-of-date policy evaluation

In Europe and North America, the future value of energy savings is 73 per cent more than in Australia for long-term efficiency improvements like building standards. It’s got nothing to do with the price of energy in other countries. It is because we use a discount rate that is out of step with the rest of the world. The Prime Minister’s department sets this rate. 

We know that energy efficiency doesn’t simply lower energy bills. It provides multiple benefits. But we never quantify these benefits when evaluating policy options. And they can dwarf the value of energy savings. In Europe and the US, they have analysis tools to assess this. Economists in Australia would love to be able to do the same analysis. These tools can be adapted for Australia. 

5. Make sure it works in the field

Energy efficiency policies are not all set and forget. People and systems use energy, and people do odd things, and systems can get unbalanced. So we must monitor the effectiveness of energy efficiency policies to ensure they are working as designed and allow us to tweak them when the real world gets in the way of a good plan.

6. Start now

While we must develop a plan, we can’t afford to wait till the ministerial launch to get going. There are dozens of good policies with a proven track record we can adapt from other countries. And policies from local experience like EEO and several of the existing NEPP policies that have not had sufficient action could be ramped up.