Less is more Opinion Article

Oct 11, 2010 - 8:00am

By Will McGoldrick, Policy & Research Manager, The Climate Institute

When it comes to energy efficiency, Australia is sitting near the bottom of the industrialised country pack. This is costing Australian households and businesses billions of dollars a year and undermining our nation’s ability to compete in a global low-pollution economy.

The final report of the Prime Minister’s Task Group on Energy Efficiency – released last Friday – provides a blueprint for delivering a step change in energy efficiency to put Australia at the forefront of OECD countries.

But energy efficiency is about more than just securing Australia’s future competitiveness in a low-pollution global economy. Strong energy efficiency policies will pay dividends for Australian families through lower energy bills.

Studies estimate that Australian households could cut their energy use by over a third through relatively minor efficiency improvements, while improvements in commercial buildings could deliver savings valued at $1.4 billion a year. Meanwhile, companies’ own estimates suggest that Australia’s top 200 energy users are sitting on potential annual savings of $650 million, with a payback period of less than two years.

The obvious question, then, is: If we have billions of dollars in energy savings sitting under our noses, why aren’t we doing everything we can to cash in on the energy efficiency prize? According to the Prime Minister’s Task Group – and a view widely supported among economists – there are a number of ‘market failures’ that act as barriers to improvements in energy efficiency. Even though energy efficiency improvements often make financial sense, for one reason or another households and business are failing to act.

Correcting these market failures requires government interventions, but as the Task Group makes clear, there is no silver bullet. Instead, there is a call for a multi-pronged approach, summarised in 45 separate recommendations. To achieve the 30 per cent improvement in energy efficiency advocated by the Task Group, the government needs to adopt the full package of measures.

The report also makes clear that energy efficiency is just part of the climate and pollution policy jigsaw, which must also include a price-tag on pollution. Energy efficiency can make the job of cutting pollution cheaper and easier, but a price-tag on pollution is key to ensuring Australia meets its pollution reduction targets of up to 25 percent off 2000 levels by 2020.

Many of the Task Group’s recommendations involve significant regulatory reforms, which will take time to deliver results. This doesn’t mean they aren’t important, but the government shouldn’t lose sight of more immediate opportunities to deliver step change savings to Australian households and businesses.    

With this in mind, the Task Group has recommended the establishment of a National Energy Savings Initiative, as one of the foundation policy measures. This would involve creating an obligation on certain players, such as energy retailers, to achieve a specified level of energy savings each year. Energy savings obligation schemes are already in place in NSW, Victoria and South Australia, and have been implemented in a number of other countries, including the UK, France and Italy.

While the Task Group stops short of outlining the details of the Energy Savings Initiative, the approach adopted in the state schemes has been to place the obligation on energy retailers. In order to meet their energy savings target, retailers are required to invest in energy efficiency upgrades for their customers. In other words, rather than simply selling households and businesses energy, the retailers are required to help their customers and businesses save energy.    

Under the proposed Energy Savings Initiative the cost of investing in energy efficiency improvements would be passed onto the energy consumers. However, this cost would be spread across the economy and would be far outweighed by the savings achieved. According to the modeling carried out for the Task Group, the Energy Savings Initiative could deliver up to $296 a year in savings for all households and save up to $12 billion through deferred investment in energy infrastructure.

With cost of living pressures front-of-mind for many Australians, these estimates of the financial savings available from energy efficiency should be music to politicians’ ears. It makes sense for the government to move quickly to implement the Task Group’s recommendations, so that these savings can start flowing sooner rather than later, and the industries and jobs needed to meet Australia’s low-pollution economic challenge can be scaled up immediately.

Further delays on energy efficiency will simply add further financial pressure to Australian households and continue to undermine Australia’s international competitiveness in the emerging global low-pollution economy.

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