PM’s Task Group on Energy Efficiency

02 Dec 2010Archived News Climate Change Matters

This report presents a summary of the report of the Prime Minister’s Task Group on Energy Efficiency (the report). As the recommendations are to be considered over the next few months by the Government, and decisions will be taken later on measures to be implemented, this is not a detailed evaluation of the report.

Report Highlights

  • A 30% national energy efficiency target
  • Nationally-consistent "energy savings initiative" or white certificates scheme is the major financial incentive proposed
  • A carbon price is essential to the achievement of a step-change
  • National Strategy on Energy Efficiency (NSEE) and a range of sector-focused measures to complement recommendations and/or be transition measures to a carbon price
  • Action and innovation to be underpinned by stronger governance, cultural change and improved information and data

Australia's energy efficiency performance

Australia has significant gaps in energy policy when compared with other OECD countries, and has tended to target a minimum performance improvement than focus on the achievement of best practice.

Irrespective of factors such as Australia's energy intensive industries, structures, and economic growth, we have a higher energy intensity and lower energy efficiency compared with many other OECD countries and our rate of improvement in this aspect lags behind.

Australia has fully implemented less than 20% of the International Energy Agency's (IEA) 25 key energy efficiency recommendations, which cover utilities, lighting, transport, buildings, appliances, industry and cross-sectoral measures. Australia has implemented more than other countries on appliance standards but far behind other countries in transport, for example.

This leaves Australia lagging much of the world in energy performance, notwithstanding the 38 Mt CO2-e the more than 200 current measures will deliver in 2020, underpinned by $4bn in Government commitments.

Australia's current carbon reduction targets

The IEA has previously stated that energy efficiency measures would be expected to deliver over half of the global abatement effort to reach 450 ppm CO2-e concentration levels. This global view is supported by analysis from ABARE in relation to Australia's required efforts.

With targets of either 5% or 25% below 2000 levels by 2020 (contingent on broader international action, the absolute abatement challenge facing Australia is between 140 and 250 MtCO2-e pa by 2020. To put this into context, 50% of the 25% abatement target (125 Mt CO2-e) is approximately the total greenhouse gas emissions of Victoria in 2008/09.

Rationale for action to improve energy efficiency

Contributions to Australia's current low level of performance on energy efficiency include low energy prices and a range of barriers - information, skills, externalities, regulatory and planning practices.

These barriers must be overcome if a step-change in energy efficiency is to be realised.

Within the report of the Prime Minister's Task Group on Energy Efficiency (the report), four complementary rationales for enhancing Australia’s energy efficiency are articulated; benefits to the climate, economy, community and social and energy security.

With electricity prices rising (due to such costs as $42bn in planned electricity network investment), and trends towards cost-reflective pricing, energy efficiency is a rational option, notwithstanding other benefits.

It is reasonably assured that a carbon price in some form will be introduced in Australia, and will mature over time. According to the report (Chapter 1, p23) an explicit carbon price is "by far the most important element in a vision of step-change in Australia’s energy efficiency improvement."

A carbon price introduction will not remove all non-price barriers therefore some measures are seen as complementary while other measures may be transitional until a carbon price is established.

Recommended measures to improve Australia’s energy efficiency

The cornerstone foundation measure flagged to bring about a step-change to Australia’s energy efficiency is a national energy savings initiative, which would place obligations on energy retailers to constrain customers’ demand. The view is that these market participants are in a position to aggregate economic and non-economic energy efficiency opportunities in business and homes and to profitably exploit these opportunities.

This measure, supported by other sector-focused measures, would be the main near and mid-term actions driving energy efficiency achievement towards a foundation measure recommendation of a 30% target improvement in primary energy intensity from 2010 to 2020.

This is underpinned by three further foundation measures, enhanced governance arrangements for energy efficiency, improving data capture and analysis systems that can better support innovation, and the building of an energy efficient culture in Australia.

A 30% improvement in Australia’s primary energy intensity from 2010 to 2020 would reduce energy use per person by 16% over this period, and would be a 14% improvement compared with the BAU expected energy intensity level. Another expression of this is that current per-annum change in energy intensity of 1.7% pa (mainly structural effect) would rise to 3.5% per annum, with the increase coming mainly from energy efficiency.

Such a target compares with international objectives:

  • 20% by 2020 in the EU
  • 20% on 2005 by 2010 in China (on track), rising to 40-45% by 2020
  • 40% on 2007 levels by 2020 in Russia
  • APEC regional goal of 25% energy intensity reduction on 2005 levels by 2030

Energy savings initiative

A single nationally-consistent white certificates scheme (energy savings initiative) would replace the three existing State-based schemes, reduce transaction costs and provide consistency in coverage, rules and pricing.

International precedents exist, including in the UK (CERT, 185 Mt CO2-e savings obligation on energy suppliers in 2008-2011) and France (54 TWh savings obligation on energy retailers in 2006-2009, aimed at non-EU ETS sectors) among others.

Illustrative modelling on the national Australian scheme suggests a 7% reduction in growth for electricity and gas in 2020 compared with expected BAU and forecast $12bn savings by 2040 in energy infrastructure expenditure through reduced peak demand.

This initiative is presented as helping to overcome a range of barriers to energy efficiency and a range of design elements are presented, ranging from a basic to a more ambitious approach. The report highlights the potential for sub-obligations (or exclusions) to be considered and included, but is not explicit about sectors of the economy where this might apply.

In terms of timing, the report outlines an indicative pathway, which considers a July 2012 commencement date following consultation and drafting of relevant legislation. Options and principles for State scheme transitional arrangements and a phase-down strategy, aligned with a carbon price phase-in, are also outlined.

Key supporting measures

Other possible measures targeting specific sectors could include:

  • Expand EEO to include generators, distributors and major brown / greenfield projects,
  • A range of transport initiatives,
  • Target zero-carbon buildings,
  • Remove energy market barriers,
  • Expand and streamline MEPS / HEPS,
  • Develop energy efficient hubs, and
  • Examine the role of ESCOs.

A key intent of the measures recommended is that they build on measures in the NSEE, addressing gaps in this strategy while providing added focus on innovation and ways to achieve step-change rather than a general focus on minimum performance.

What is not included?

While targets are expressed in per cent terms at the level of impacts relative to BAU, little quantification of this is provided in terms of the possible costs and cost savings to business and homes, in abatement or energy amounts that would aid in understanding the scale of the task.

There is little focus on cogeneration through most of the report, despite this being a focus in the consultation workshops. Cogeneration is a key measure that can underpin the achievement of a national energy efficiency target, particularly since this target is expressed as a fraction of primary energy consumption.

The energy savings initiative is the only significant financial incentive for energy efficiency that is highlighted. The report does not examine other financial measures that could complement this or a carbon price, such as taxation system adjustments (e.g. for industry investment along similar lines to election commitments regarding depreciation for buildings), or direct incentives to target large-scale technology replacement that a white certificates scheme may not unlock.

Some of the more innovative and potentially transforming measures; such as energy efficiency hubs, the role of Energy Services Companies, and Energy Market reform including demand management, receive relatively little focus.

Where to from here?

The Government has received the report, and is likely to respond to it within the first half of 2011. Until that time, most of the foundation recommendations of the report are not likely to be acted on.

The report may be considered in the context of the Energy White Paper process, which had commenced but was stalled due to changes in domestic and international climate / energy environment and due to the announcement of this report.

There are a range of measures in the report that are flagged as “easy to implement” in the short term without major establishment needs; such as removal of exemptions on generators in the EEO scheme. So it may be that some initiatives will gain a green light in the short term, while awaiting the Government’s response to the more significant recommendations of the report.

Written by Patrick Denvir.

Join the conversation