Australia dithers on energy while the world gets on with it

While in Australia we argue about keeping a 45-year-old coal fired power plant operational, removing renewable targets and changing the meaning of “clean” to include dirty, we seem to be drifting further away from the rest of the world.

Last week the European Parliament’s environment committee supported an increase of the energy efficiency target from 30 per cent to 40 per cent by 2030. These targets will be legally binding and operate across the EU.

Coming just a few weeks after the EU also supported an increase to their renewable energy targets. You can see the different trajectory on energy to our own federal government.

The current energy efficiency legislation in the EU obliges member states to save an equivalent of 1.5 per cent of energy sold to consumers every year. This is in part carried out by energy efficiency businesses selling their services to obligated energy companies via a system of white certificates, similar to the state-based energy efficiency schemes in Victoria, NSW, SA and the ACT.

The EU push to increase the energy efficiency target is in response to a review of the impact of energy efficiency policies economically, socially and on sectors (for example, health, industry, competitiveness).

The review, conducted largely by Cambridge Econometrics and EY, and completed in July 2017, cites the worldwide market for energy efficiency in 2015 at over US$24 billion (AU$30b) of which China has 55 per cent, the US 26 per cent and the EU 11 per cent. We are in the eight per cent “other” group.

It quoted that China was enjoying seven per cent growth and I would suggest India is also making a significant play into energy efficiency more recently. Japan reduced energy use dramatically over the past few years as they reacted to losing generation capacity following the Fukushima disaster.

The EU review modelled the impacts of setting energy efficiency targets at various levels from the current 27 per cent up to a more ambitious 40 per cent by 2030. It found that the potential benefits of improving energy efficiency included economic, social and environmental outcomes with each increase in the target. These were gains nett of the investment.

While GDP and employment increased, healthcare showed cost savings of up to €77 billion and emissions improved by over 40 per cent.

Importantly, 8.3 million Europeans would be removed from fuel poverty and unemployment decreased – all good news and all attributable to EU mandating energy efficiency from the highest level.

One outcome that should concern Australians in particular is that industrial competitiveness in the EU would further improve with potential long run benefits to firms from reduced energy costs.

Australian firms must compete whether it is in goods exported to the EU or against product imported from the EU. While we have had some success against tariffs and taxes by establishing free trade agreements, this illustrates that the EU are actively reducing the cost of production by incentivising energy efficiency. A reduction in energy cost per unit of output (energy productivity) for the Europeans only further magnifies a problem that Australian firms have been experiencing for many years. Our energy productivity languishes behind those of our competitors already, and while our National Energy Productivity Plan (NEPP) struggles for support by a conflicted government, the Europeans (and others) have a consensus and are moving forward.

While our guys ask in gruff voices for AGL and others to be nicer to consumers, to consider investing in more coal generation and to keep open old stinkers, our competitors are moving.

In contrast, our NEPP has a soft target of 30 per cent by 2030 but will struggle given the hodge-podge energy landscape. The big ticket items for the federally supported NEPP is NABERS Commercial Buildings Disclosure (CBD) and some tightening of performance standards.

NABERS CBD finally moved to include more of the commercial property market in July, but the vast majority of properties remains capable of not measuring or publishing energy use. The sooner all property is covered the better, and that includes housing at sale or lease.

There may be some good news on the horizon from the Australian Energy Regulator (AER) in the future as they look for submissions on demand management, which is another significant factor getting little attention. The management of demand to actively reduce energy use during peak times could fill the gap identified by the Australian Energy Market Operator (AEMO) in generation itself.

The announcement that we are facing a potential 1000 megawatt (peaking!) shortfall should have focused our best minds on avoiding the shortfall by reducing demand rather than scrabbling for old clunkers.

A reduction in demand via energy efficiency and demand management approaches will easily account for several Liddells while making our goods more competitive, moving people out of energy poverty and even reducing costs of healthcare.

Fortunately, some of the Australian states have ignored the federal governments inertia and installed successful energy efficiency schemes. These have certainly had an effect in reducing energy use by replacing millions of old inefficient lights, hot water systems and the like, but the scale and the breadth of these schemes is not adequate by themselves.

Good on Victoria, NSW, SA and the ACT but we need to double them, include more industrial processes and extend the schemes into Queensland, WA, NT and Tasmania. Now!

Unfortunately, the answer is for the states to go it alone until the feds can start playing the ball rather than the man.

Alas, we drift off while looking at much of the rest of the world moving with purpose.

Bruce Easton is chief executive of Ecovantage.

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