11.3.1 Reforms to improve energy productivity in electricity markets
11.3.2 Actions to unlock broader gains in end-use energy productivity
11.3.3 Improving the effectiveness, coordination and application of government policies and programs
11.3.4 Improving coordination through a more strategic approach
There are many policy challenges involved in improving Australia’s energy productivity.
The barriers to improved energy productivity are generally well understood. They include lack of access to information about energy use, a lack of necessary skills and capability, inefficient pricing, principal-agent or split incentives (whereby owners’ or providers’ incentives to invest in energy efficiency differ from those of tenants or consumers), organisational barriers to effective energy management, and perceptions of additional risk in energy-efficiency or demand-management investments or technologies.
Energy is invisible, and its use (including its cost) is embedded within other activities. As a result, decisions about energy are not always efficient. The interrelationship between barriers within the market is complex, and individual benefits are not always large or shared equally. This makes it difficult to realise potential gains. As shown by the International Energy Agency and others, it is necessary to develop a suite of enabling policies and measures (such as appliance standards, labelling, information tools and incentives) to overcome these barriers and enable more effective and efficient decision-making (IEA 2012b). Consistent with the COAG Complementarity Principles for Climate Change Mitigation Measures, policy interventions should be tightly targeted to market failures and the benefits should outweigh the costs.
Over the next four years, work is needed in three areas to achieve our energy productivity goals:
- further reform of electricity markets to promote energy productivity
- actions to unlock broader end-use productivity potential
- improved effectiveness, coordination and application of government policies and programs.
11.3.1 Reforms to improve energy productivity in electricity markets
Demand for electricity in Australian markets is peaky. In 2010–11, the top 25% of demand in South Australia occurred less than 1% of the time (AEMO 2011a). In other National Electricity Market jurisdictions, the proportions of maximum demand occurring for less than 1% of the time were around 20% in Victoria, 15% in New South Wales, 10% in Queensland and 5% in Tasmania. This is a very poor use of capacity and imposes potentially avoidable costs on all electricity consumers.
The need to meet growing peak demand in the electricity system has driven large investments in generation and network infrastructure. Peak demand is expected to be a significant contributor to an estimated $38 billion in electricity network augmentation costs in the current five-year cycle (IRG 2011:15–16).
Growing peak demand also imposes higher costs by requiring more fast-start backup generation. Recently, this has been through investments in open-cycle gas turbine peaking plants, which have much higher costs per unit of delivered energy.
These costs are reflected in network and generation prices paid by electricity retailers, which feed through to rising retail electricity prices for consumers. Uniform electricity pricing (mainly in the form of regulated tariffs) means that consumers who use energy at peak times are often not paying their full share of system costs, while those with lower peak usage may be paying more than they should. This drives higher (and inefficient) demand for energy at a higher overall cost and may be resulting in inequitable cross-subsidies between different groups of consumers.
For example, while it may cost around $1500 to buy and install a 2-kilowatt (electrical) reverse-cycle air conditioner, such a unit could impose capital costs on the energy system as a whole of $7000 when adding to peak demand (based on DEEDI 2011:4). The additional system capital costs are recovered over time through energy bills spread across all customers, but because energy is generally priced using a fixed tariff approach, only some of the costs are paid by the purchaser of the air conditioner.
Despite slower growth rates in recent years, peak demand has continued to increase, while at the same time total electricity consumption has been flat or declining. This means that increasing system costs are being spread over a smaller transactional base. Projections of continued subdued average demand growth and increased penetration of distributed generation suggest that this trend may continue into the future (AEMO 2012b, Simshauser & Nelson 2012).
Improving demand-side outcomes in the market is not just about reducing the growth in peak demand-there are other important benefits. Reducing overall demand through efficient price responses can defer the need for large-scale investment in baseload generation capacity, and there is already evidence that this is happening (AEMO 2012b). Stimulating demand-side investment can also defer or avoid network augmentation.
Areas of market reform that would promote more efficient patterns of demand include:
- pricing structures that better reflect the time-of-use or peak demand costs and, consequently, the value of demand reduction in the market
- greater ability on the part of energy consumers (or their agents) to respond to market opportunities, including through alternative options for wholesale market access
- network regulatory reforms that provide efficient incentives for demand-side alternatives to network augmentation
- the efficient adoption of enabling technologies, such as smart metering, load control and distributed generation and storage.
Efficient retail market pricing
Overall price levels are one of the main signals for long-run energy efficiency improvements. Reform of Australia’s electricity pricing regimes (discussed in Chapter 10: Energy markets: electricity) is needed to better reflect the variable cost of supply.
Retail price deregulation to allow competitive markets to set prices efficiently will give consumers an overall incentive to manage their energy use.
Reforms that support the adoption of time-varying pricing would also develop opportunities for the energy services sector to help consumers manage costs, and encourage energy supply businesses to more closely align investments with consumers’ willingness to pay.
Energy providers might offer customers a number of pricing structures. The simplest incremental change could be a two- or three-part tariff with predetermined peak, shoulder and off-peak daily periods, seasonal charging periods, or both. More advanced pricing models, such as critical peak pricing or rebates, could apply on a predetermined number of days with extreme weather conditions.
Australian trials have shown good results. For example, critical peak pricing trials in New South Wales have delivered average peak demand reductions of over 20%. A critical peak rebate program conducted by Endeavour Energy in the summer of 2010–11 achieved a higher than expected average peak demand reduction and reductions in peak period consumption ranging from 29% to 51% below the customer’s baseline energy consumption (Futura Consulting 2011). An international study of 69 critical peak pricing trials showed an average peak reduction of 16%, resulting in overall lower bills for consumers (VaasaETT 2011).
Different consumers may want a range of pricing structures, reflecting their (or their agents’) interest in and ability to manage consumption, or different appetites for price and supply certainty risk. Pricing options could also be matched with energy management options tailored to consumers’ needs.
Allowing or encouraging a market move away from the historical (and well-understood) model of uniform customer tariffs is challenging, particularly in the mass market (households and small businesses). Long-term success in this area will be driven by consumer demand for and acceptance of alternative pricing options, so future pricing structures must meet the needs of consumers as well as the needs of providers. This balance is best achieved by allowing competitive markets to respond innovatively to changing consumer preferences and evolving technologies. A market-driven approach will also allow the benefits of demand response to be shared more flexibly between providers and consumers.
The market is already moving in this direction, and a number of jurisdictions and energy providers now have options, developed after pricing trials, for differentiated tariffs. However, this process would be accelerated and deepened if it were supported by retail market reforms that deregulate retail pricing and encourage greater competition and innovation, including in services such as metering.
There may be some risks for consumers from uneven market power, particularly in the early stages of market development when products are new and consumers’ knowledge is relatively undeveloped. Appropriate consumer safeguards and information tools would be needed to mitigate or reduce those risks, particularly for vulnerable consumers, and to support greater consumer energy literacy (see Chapter 10: Energy markets: electricity).
Electricity consumption is generally observed to be inelastic, meaning that a unit increase in price leads to a proportionally lower decrease in consumption. For this reason, while demand response to price is important in delivering an efficient balance of demand and supply in the long term, effective competition between suppliers (or the regulation of monopoly suppliers) is also needed to maintain prices at or near supply costs.
Improving wholesale market participation
A number of barriers may be limiting the ability of participants to offer demand reduction in energy markets, including the wholesale market (AEMC 2012). They include onerous registration requirements that inhibit participation by third-party demand aggregation businesses and make it difficult or unprofitable for them to operate.
In addition, current wholesale market rules do not allow the separation of demand response from energy purchase arrangements. Options to trade demand reduction, either as predictable peak management or as ancillary services, are technically and economically feasible, but the transaction costs are relatively high because current arrangements require consumers to establish a customised energy procurement strategy as well as the technical and operational controls to manage energy use.
While the Australian Government generally takes a cautious approach to proposals that require changes to wholesale market structures, there is a strong case for reforms to improve access to energy markets and the ability of third-party demand aggregation agents to engage.
Network pricing, regulation and information
Networks have an important role in promoting more efficient demand patterns. More cost-reflective network pricing would give retailers and their customers a commercial incentive to take up demand management options that target long-run costs.
Where transaction costs or other factors prevent cost-reflective network pricing, network companies can engage through other providers or with consumers and their agents to invest in demand-side alternatives to network augmentation.
A number of biases in the application of the network regulatory arrangements in practice are inhibiting the balanced consideration of demand-side investments, and changes to incentives in this area are likely to be needed. For example, the Australian Energy Market Commission considers that the current regulatory arrangements may bias network businesses to prefer capital expenditure over operating expenditure, because of both the potential to make a profit and the certainty of cost recovery (AEMC 2012). If demand-side projects are more likely to involve operating expenditure (for example, to search for, enrol and reward customers in a demand reduction program), a network business’s incentive to invest in demand management may not be as strong as the incentive to invest in network infrastructure.
The value of demand-side actions is largely time and location dependent, reflecting different demand trends and network constraints. With reforms to provide the right balance of economic incentives, network businesses should be free to decide how to deal with those constraints with the most efficient combination of investment in supply-side infrastructure (such as poles and wires) and demand-side contracts. This should mean that there may be no need to set demand-side targets. However, an overall requirement to consider demand-side options remains appropriate, at least initially, to overcome historical biases against such options. There may also be some cultural biases within network businesses against demand-side investments (AEMC 2012). As discussed in Chapter 10: Energy markets: electricity, a sharper focus on driving business efficiency in network businesses, including through improved transparency and governance of business operations, may also result in more attention to cost-effective demand-side alternatives.
Energy management is likely to be an expanding business opportunity. The institutional framework needs to ensure that the opportunity is open to a range of parties and is not developed internally through cross-subsidies from other network business areas. This problem is not unique to demand-side participation in the electricity market, and should be addressed through ring-fencing arrangements that separate the supply business from demand-side activities.
Timely, up-to-date and accessible public information on network capacity and limitations is also necessary to allow parties (other than the network businesses) to identify opportunities for augmentation deferral, and to allow demand-side options (including distributed generation) to be more easily evaluated and implemented by consumers and their advisers. This will be supported by a proposed change to the distribution network planning and expansion framework rules being finalised by the AEMC. The change will harmonise planning approaches and information publication requirements in this area.
A growing number of enabling technologies can contribute to efficient demand-side participation, including smart meters, more sophisticated energy management systems and a range of industrial- and household-scale distributed generation technologies. More extensive household and business computerisation and connectivity provide new commercial options for energy management (for example, direct load control of major appliances, such as air conditioners and pumps), and make it easier to collect, understand and communicate information about energy use.
Many of these developments will be market driven, and the main role of regulation is to support their safe, timely and efficient deployment. However, because many technologies benefit both consumers and energy providers, how those benefits are realised and shared between parties is an important question. In many cases, an equitable division is likely to be achieved through market-based approaches that allow customers and providers to negotiate commercial arrangements. However, there may be a role for regulation or market guidance where opportunities and risks are split across both competitive and monopoly sectors.
Some energy service providers and consumers will want to use and trade energy from distributed generation and other new energy technologies, which suggests a growing need for a broader range of metering options in future (for example, to allow a consumer to buy and sell energy from different providers at the same site).
Smart meters also have communication capabilities that can support additional energy services, such as remote reading, the automated control of appliances, and the provision of timelier energy-use information to guide consumer decision-making. These functions need to be applied more effectively, drawing on lessons from trials such as the Smart Grid, Smart City and Solar Cities programs and major deployments such as the Victorian rollout of smart meters. In this context, the Standing Council on Energy and Resources is developing a flexible national framework to guide the deployment and use of smart meters (see Chapter 10: Energy markets: electricity).
The take-up and efficient operation of distributed generation and energy storage technologies will help to balance supply and demand in the market more efficiently, and may support cost-effective reductions in network investment. SP AusNets critical peak pricing structure for commercial and industrial customers, under which customers are eligible for lower network capacity charges if they reduce their energy use during five notified peak days, demonstrates this potential. Almost all customers with distributed generation run their generators to avoid drawing energy from the network at critical peak price times.
As discussed in Chapter 10: Energy markets: electricity, there is a need for further work to develop consistent connection standards for distributed generators, and to resolve the allocation of network augmentation and connection costs between distribution companies and the owners of small and medium generators. The Australian Government strongly supports current work in this area.
The Australian Energy Market Commission is also examining the potential impacts of the growing penetration of electric vehicles on grid and market integration. The Australian Government is demonstrating the benefits of using smart technology to promote more efficient traffic management through the National Smart Managed Motorways Program, which will provide significant fuel, emissions and time savings while also improving road safety.
The benefit of a comprehensive approach to demand-side reform
Reforms in the areas described above will provide incremental benefits to consumers, energy providers, or both. However, a comprehensive and strategic approach that addresses them together could produce a mutually supporting combination of market and regulatory incentives across the energy supply chain and a more efficient and equitable distribution of costs and benefits.
The government recognises that these reforms deal with complex issues, some of which may have major market implications. Changes should be initiated on the basis of careful analysis. In this context, the government supports the objectives of the Standing Council on Energy and Resources demand-side participation framework and will work with the states and territories to carefully assess and respond to the outcomes of the Australian Energy Market Commission’s Power of Choice review. As indicated by the Prime Minister in her speech on energy market reforms on 7 August 2012, this will be a key part of a package of reforms that the government will take to COAG in December 2012.
11.3.2 Actions to unlock broader gains in end-use energy productivity
Higher energy prices and the introduction of carbon pricing will provide a strong incentive for consumers to focus on their energy management, but there remains a need for well-targeted complementary actions to address recognised market failures, information gaps and other barriers in business and household decision-making (PMTGEE 2010). Those actions can empower consumers to participate more effectively in the market and to realise savings in energy use and costs.
There is also a need for government action to address market failures that reduce incentives for the private sector to invest in innovation that improves energy productivity. While these barriers are generally the same as those faced in other areas of innovation (such as first-mover disadvantage and the inability to capture all the benefits), investment in this area has been quite low compared to investment in supply-side technology developments, such as carbon capture and storage and renewable energy. There is also a traditional interest in expanding business opportunities where returns could be higher than savings from minimising recurrent costs (so-called sunk costs).
As a result, a comprehensive and cohesive mix of policies is needed to support households and businesses to improve their end-use energy efficiency through:
- the provision of information that will facilitate incremental improvements and behavioural change in the use of existing processes and practices
- balanced regulation to support the take-up of higher-performing energy-efficient technologies and to promote greater inclusion of energy efficiency in the up-front design and operation of long-lived investments
- a technology, innovation and deployment framework that recognises the inherent risks and barriers companies face when researching or investing in new technologies, and can drive innovation to deliver step-change improvement in how energy is used.
The Australian Government, through measures outlined in the Clean Energy Future Plan and other initiatives, has in place a broad set of policies and measures that seek to address these issues in different sectors of the economy.2
Informing households and enabling behavioural change
Information on options to improve end-use efficiency empowers consumers to respond effectively to market price signals and change their behaviour or optimise their business practices. Households and smaller businesses, in particular, often lack easily accessible, understandable and relevant information. In addition, factors such as habits, social norms and individuals’ limited time and ability to make considered decisions have been identified as having an equally important role in influencing the take-up of energy-efficient technologies and behaviours.
Energy bill benchmarking allows households to compare their electricity consumption to that of similar households and motivates them to use less. Bill benchmarking is occurring in the Australian Capital Territory and Tasmania under the National Energy Customer Framework (see Chapter 10: Energy markets: electricity for more detail on the framework and its implementation).
The Low Income Energy Efficiency Program is providing $100 million to support groups of service providers to demonstrate smart energy use in low-income households across Australia. Websites such as Living Greener3 are also providing households and small businesses with information on energy management strategies in a form that is easily accessible and understandable. As part of the National Energy Customer Framework, the Australian Energy Regulator has recently launched an energy retail price comparison website for consumers.4 Similar services are also available in the private sector. Advisory services delivered as part of the Home Energy Saver Scheme will also support low-income households to understand options for making longer-term energy efficiency improvements.
In future, a consumer energy data access system or hub to improve the flow of consumption information could allow consumers, or other parties authorised by them, easier access to their energy information to help inform decisions affecting energy use. Energy providers and service companies could use such data to provide energy management tools and support better consumer decisions. The data access system will also provide de-identified data to support policymaking. A scoping study by the Australian Government on this issue found that some energy suppliers were moving towards providing their customers with greater access to their data. The study also identified some major barriers, such as significant information inequality between different providers, untimely access to information and limitations on access by other parties approved by the customer, which may affect the ability of consumers to make informed choices.
Recognising that solutions to multiple barriers may be better provided by the private sector, the Australian Government is investigating the merits of a national energy savings initiative (a national energy efficiency or white certificate trading scheme). This would place obligations on energy retailers to find and implement energy savings in households and businesses. Such a scheme would only be implemented if supported by COAG and on the basis that it replaces existing state-based schemes. It would also need to be complementary to the carbon price.
Box 11.1: Managing energy use in the future
How we use and manage energy in our homes and businesses may change dramatically in coming years through an expanding range of smart end-use appliances and applications and a more diverse range of services offered by a growing number of energy providers, including retailers, distributors and specialist energy services companies.
More households and businesses will be able to access smart meters that will allow them to see electricity consumption data almost in real time via internal home or business displays, the internet or even smartphone apps. Many homes in Victoria already have this capability.
Using the information collected by smart meters, consumers will be able to see how much electricity they are using at different times of the day, check how their consumption is tracking compared to last month’s bill, and use that information to reduce their consumption before the next bill arrives. They will be able to remotely switch off TVs, computers, pool pumps or lights that have been left on and quickly see what this does to their electricity use. They should also be able to provide their detailed data to an energy-efficiency adviser, who will then be able to provide tailored advice to help them save electricity and money.
Energy retailers will begin to offer a wider range of energy tariff packages that better reflect the needs of their customers, taking into account the real cost of electricity supplied at different times of the day. This will allow consumers to reduce their energy use or use energy-hungry appliances during lower-cost periods.
For businesses with equipment such as chillers or pumps that can be shut down for a few hours several days a year, a tariff that offers cheaper electricity in return for switching off at particular times could provide considerable savings. One-quarter of the capacity in our electricity system is used to supply power during peak events that last for less than two days each year in total. If consumers can change the times when they use, say, pumps, chillers or dishwashers, some of the need for new capacity can be avoided and they can start to reduce their energy bills.
Energy and energy service companies and market aggregators will also begin to develop sophisticated energy management tools and technologies that can use the functionality offered by smart meters and appliances.
The future of energy management holds great promise, but to unlock that potential and accelerate change we need to make sure we have the right market and regulatory frameworks to incentivise energy businesses and appliance manufacturers to be more innovative and to empower and reward consumers who want to better manage their costs.
Overcoming information barriers in business
For businesses, energy use can be a relatively invisible component of their cost structures, concealed among other business priorities.
The Energy Efficiency Opportunities program has demonstrated the potential for large, cost-effective savings when companies adopt better energy management systems and are able to analyse and understand how energy is used in their operations. Many businesses participating in the program have indicated that better analysis and communication of energy-use data has helped them shift from the traditional view of energy as a sunk cost to a more proactive approach to energy use and management.
To encourage the consideration of energy use at the design stage where significant energy savings are most easily and cost-effectively realised, the Clean Energy Future Plan will extend the Energy Efficiency Opportunities program to major new development or expansion projects.
The government is consulting industry and conducting trials to determine options in this area, taking into account the need to avoid imposing unnecessary burdens or inefficient costs on business. The program has also been extended to smaller energy users on a voluntary basis to support the take-up of good energy management practices.
The Australian Government is improving access to information for small business through initiatives such as the Energy Efficiency Information Grants Program, which is providing funding to help industry associations and non-profit organisations provide practical, tailored energy-efficiency information to small and medium-sized enterprises and community organisations.
The Energy Efficiency Exchange website is a good example of how Australian governments can collaborate to consolidate quality information in one location to reduce business research costs.5 The website includes best-practice resources in a range of areas, including energy management, technologies and business support programs.
Rating and guidance tools can guide companies when they make important procurement decisions. For example, the Commercial Building Disclosure program requires the disclosure of a buildings energy efficiency to potential buyers or lessees of office space of 2000 square metres or more. This is creating an informed market that rewards better-performing buildings and delivers strong market-based incentives for owners to improve their properties.
In the transport sector, the Australian Green Vehicle Guide aims to help consumers make better-informed choices by assessing the environmental performance of vehicles. The guide provides information about the greenhouse gas emissions, air pollution ratings and fuel consumption of light vehicles produced in 2004 or later.
Balanced regulation to embed long-term energy efficiency gains
In some circumstances, even with efficient pricing and market incentives, direct regulation can be a cost-effective way to address market failures, raise energy-efficiency standards and help to ensure that inefficient energy use is not locked in over a long period.
Appliance, building and vehicle standards can overcome diffuse small-scale market failures that would otherwise result in inefficient decision-making or poor use of technology. Work in this area is ongoing and includes the following:
Greenhouse and energy minimum standards legislation is due to come into effect on 1 October 2012 and provides for a nationally consistent energy standards framework incorporating the Equipment Energy Efficiency (E3) program. It also provides for coverage of new product areas, including non-energy-using products such as insulation and window glass.
Changes to the Building Code of Australia raise the minimum standards for the energy performance of new buildings, including a 6-star energy rating or equivalent for new residential buildings and a significant tightening of energy-efficiency requirements for all new commercial buildings.
A draft national building energy standard-setting, assessment and rating framework aims to establish a pathway for potential future increases in minimum building standards to 2020 and to improve the approach to assessing and rating buildings. This will be incorporated into a framework policy statement for consideration by governments in the near future.
The introduction of mandatory CO2 emissions standards for all new light vehicles is expected to commence from 2015.
Standards Australia is working with jurisdictions to establish a standard interface for demand response in appliances such as air conditioners and pool pumps. This will help to lower transaction costs for direct load control and the smart use of appliances more generally and will reduce future transaction costs for their deployment and commercial use.
Improving Australia’s transport energy productivity requires the collaboration of infrastructure and land-use planning bodies to make better use of existing infrastructure. The Australian Government has recently released the National Land Freight Strategy, a long-term blueprint for a streamlined, integrated and multimodal transport system. The strategy includes recommendations to more effectively use existing infrastructure, including the use of technology to improve traffic flows along major motorways, using higher productivity vehicles on key freight routes, creating dedicated freight routes and separating passenger trains from freight trains.
The Australian Government is committed to investing in transport infrastructure networks and better strategic planning for urban areas to support its energy productivity objectives. The National Urban Policy builds on COAG’s strategic planning reforms for capital cities and will improve the way energy efficiency is considered in infrastructure investment decisions. A $90 million investment through the Australian Rail Track Corporation for a trial of the Advanced Train Management System aims to make our rail system more productive and efficient. The Australian Government is providing funding of over $3.8 billion to upgrade Australia’s freight rail network and over $3.6 billion for urban rail to provide genuine alternatives to road travel and transport.
Improving transport efficiency will also require collaboration between government and the transport industry. The Smart Transport for a Growing Nation project, implemented by the National Transport Council, recognises that Australia’s transport system is facing many challenges that threaten its sustainability and efficiency. The project involves the council collaborating with government and industry stakeholders to identify regulatory and operational reforms that will improve the performance of Australia’s transport system over the longer term.
Technology innovation and deployment
When major investment decisions are made, the deployment of the most energy-efficient end-use technologies is crucial if we are to maintain energy productivity improvements over time.
Customers and energy providers can have different incentives to invest in energy efficiency, and those incentives do not always align. Customers often have limited time and financial resources to devote to reducing their energy costs, while providers may be incentivised to maximise sales rather than to invest in demand reduction.
Access to capital for projects outside a business’s usual scope or not closely linked to its core business drivers can be difficult to obtain. Developing a business case can also involve high transaction costs in proving feasibility or negotiating finance. In addition, benefits from such investments may be unclear or perceived as higher risk, further dampening investment appetite.
The Australian Government is taking action to address these issues:
The Clean Technology Program is providing $1.2 billion in funding over seven years from 2011–12. Its largest component is the $800 million Clean Technology Investment Program, which is supporting Australian manufacturers to invest in energy-efficient capital equipment and low-emissions technologies, processes and products.
Low Carbon Australia is working in partnership with the financial and energy services sectors to develop innovative financing options that can make investment in energy-efficiency projects more appealing and in tune with companies’ internal capital requirements. This will help to stimulate the development of energy performance contracting and similar financing models, which can guarantee energy savings to an end-using company with minimal up-front capital costs.
From 2013–14, the Clean Energy Finance Corporation will provide $10 billion in finance to support the commercialisation and deployment of renewable energy, energy-efficiency and low-emissions technologies. It will also invest in the transformation of existing manufacturing businesses to refocus on meeting demand for inputs in those areas.
The Community Energy Efficiency Program is providing $200 million to assist local government, not-for-profit and community organisations to undertake energy-efficiency upgrades to community infrastructure.
Driving step-change improvement
Evidence from the Energy Efficiency Opportunities program suggests that there has been much less investment in projects involving best available technologies or innovative approaches that could deliver larger step-change improvements in energy efficiency, but which involve higher risk (or perceptions of risk) or longer paybacks.
The Australian Government is working to improve the level of research and innovation in energy-efficient technologies and processes. This includes providing support for early-stage innovation and demonstration projects in the private sector through incentive-based measures such as the Clean Technology Innovation Program and tax rebates through the R&D Tax Incentive.
The government also recognises that industry may benefit from a more structured approach over time to improve its energy productivity as it transitions to a low-carbon future. In the Netherlands, the government has worked with industry to develop energy-efficiency roadmaps with short-, medium- and long-term strategies to deliver up to 50% reductions in energy use over a 20-year period. The roadmaps place a strong emphasis on government working with industry on productivity growth and innovation.
Consistent with its economic and industry policy agenda to boost business innovation and productivity, the Australian Government proposes to explore opportunities to work with industry and other stakeholders, including research agencies, to develop energy productivity roadmaps in key industry sectors. The sectoral roadmaps would identify areas where energy productivity can be improved and greenhouse gas emissions reduced. They would also explore cost-effective actions that could be taken to foster process and product innovation and drive energy productivity improvements over the short, medium and long terms.
Emissions-intensive, trade-exposed activities, such as aluminium, steel and cement clinker production, use around a quarter of Australia’s electricity and constitute a significant portion of our non-electricity stationary energy demand. The Jobs and Competitiveness Program within the government’s Clean Energy Future Plan is designed to support the competitive position of these industries and to provide an incentive for them to improve their energy productivity. Manufacturing activities that are not emissions-intensive can access the Clean Technology Program for grant-based funding to improve their energy productivity.
11.3.3 Improving the effectiveness, coordination and application of government policies and programs
Addressing the many barriers to improved energy productivity in different sectors of the economy has led to an array of policies and programs that have grown incrementally over time. In addition, most energy programs have mandated boundaries or separate drivers. This can limit their ability to integrate and optimise effort among government programs and private sector initiatives, particularly in changing circumstances.
With the implementation of carbon pricing and the government’s commitment to reduce the regulatory burden on business, a more coordinated and integrated approach is needed. At its 13 April 2012 meeting, COAG recognised the need to prioritise the completion of a review of carbon reduction and energy efficiency schemes and tasked a cross-jurisdictional taskforce to advise it on how to rationalise policies and programs that are not complementary to the carbon price, or are ineffective, inefficient or impose duplicative reporting requirements on business. This review has begun in consultation with COAG’s Select Council on Climate Change and is due to report by February 2013.
11.3.4 Improving coordination through a more strategic approach
There would be benefits in adopting a more strategic and systematic approach to improving energy productivity in key sectors of the Australian economy. This would involve better coordination of business-related energy-efficiency and innovation programs and the development of sector-specific strategies, where appropriate, to focus government and industry effort.
The National Strategy on Energy Efficiency (NSEE) provides a mechanism for coordination across jurisdictions on the approaches and strategies needed to improve energy productivity. A review of the NSEE is currently exploring how jurisdictions can collaborate most effectively to streamline energy-efficiency programs and policies and reduce the duplication of programs and reporting requirements among jurisdictions.
The review is also a timely opportunity to focus the NSEE on strategic outcomes required in key areas of the Australian economy (households, industry, buildings and transport) to improve energy productivity. The NSEE could define the energy productivity outcomes sought in those areas. This would involve the development of energy productivity strategies to achieve short-, medium- and long-term objectives. The focus would be on improving the coordination of policies and programs to reduce barriers to greater end-use efficiency (including by defining the optimal mix of information, incentives, regulation and other measures) and on the removal of duplication and unnecessary compliance burden.
2 See www.cleanenergyfuture.gov.au.