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Political leadership required on energy productivity

Apr 16, 2015

In a White Paper that has left many in the energy sector underwhelmed, there was an encouraging signal in the initiative to boost energy productivity by up to 40 per cent by 2030. But this too was a pretty modest ambition compared with what is already happening in the rest of the world. And while the Energy White Paper contains plenty of words there are not many that indicate how the 40 per cent productivity improvement might be achieved by any effective policy response from Canberra.

And that’s the broader point raised by a number of informed commentators about the White Paper as a whole. It establishes no coherent foundation across all aspects of the sector for an effective energy policy for the decades ahead, a period in which issues like a credible response to climate change will be critical.

A sample of views make the case:

“Is the Energy White Paper… fully fit for purpose in terms of producing a strategy for, say, the next 10-15 years? The short answer is ‘No’. … the paper canvasses the Federal Government’s desire to obtain timely, co-operative action on energy policy management from the States and Territories but it does not come up with any bold statement of how to fix the problem. More of the same is not a solution. Even worse, the paper does not try to grapple with the fact that we cannot make effective energy policy without a settled national position on carbon abatement management.” Keith Orchison, veteran energy commentator and former Executive Director of the Australian Petroleum Production and Exploration Association and Managing Director of the Energy Supply Association of Australia (ESAA).

“The Federal Government’s Energy White Paper is incomplete until it directly considers and addresses climate change policy along with its impact on the economy and the energy sector. Energy use is the largest single contributor to greenhouse gas emissions in Australia.  Attempts to reduce our carbon footprint at least cost have been hindered by the proliferation and constant turnover of government policies. Changes to climate policy have already had a material impact on the energy industry from stop-start carbon pricing to home insulation to failing renewable energy policy. Now is not the time to ignore the problem.” Matthew Warren, Chief Executive, Energy Supply Association of Australia.

“We commend the Abbott Government for putting energy productivity at the heart of the Energy White Paper. Getting more out of each unit of energy is the best way to cut households’ energy bills and boost Australian businesses’ competitiveness. However, if the Australian Government is going to unlock the potential of energy productivity, it can’t sit idly by – it needs to take strong action.” Rob Murray-Leach, Chief Executive, Energy Efficiency Council.

The importance of that strong action was mooted just prior to the publication of the White Paper by Dr Bruce Godfrey who chairs the Australian Academy of Technological Sciences and Engineering’s (ATSE) Energy Forum.

Writing in the ATSE’s February issue of Focus magazine, Godfrey says “lifting productivity is a key priority to underpin prosperity, societal wellbeing and industry competitiveness”.

“Energy productivity – the amount of economic output per unit of energy input – aims to take into account the economic, environmental and social dividends derived from the effective application of energy resources through efficiency and conservation.

“Enhancing energy productivity therefore is an important element of any national productivity improvement strategy – and it is being pursued in major economies such as China, Europe and the US.

“For some two decades, Australia has ranked at or below the OECD average for energy productivity. Furthermore, Australia’s electricity prices have almost doubled in the past seven years and gas prices are now increasing rapidly.

“The combination of poor energy productivity and high energy prices means increasing competitive disadvantage for Australian businesses and falling affordability for consumers.”

Chris Dunstan, Research Director at the Institute for Sustainable Futures at the University of Technology, Sydney, makes a similar point and puts the Government’s 40 per cent ambition by 2030 into context.

Writing in The Conversation last month, Dunstan says that “between 1971 and 2009, Australia’s energy productivity increased by a meagre 23 per cent, to $5.30 of Gross Domestic Produce (GDP) per kilogram of oil equivalent (shortened to $/kgoe)”.

“In comparison, average energy productivity for OECD nations almost doubled from $3.40 to $6.30/kgoe,” Dunstan says.

“Based on 1990 to 2009 trends, Australia would need to increase its energy productivity by 56 per cent to catch up with the OECD average by 2030. However, with the global push for greater energy productivity now accelerating, an even faster rate of Australian improvement is likely to be required.”

The Federal Government’s target will not even see Australia match its key trading partners’ current performance let alone get ahead.  Put simply, at a time of increasing global competitiveness, Australian businesses will remain at a competitive disadvantage even if the Government’s modest ambition is realised.

The White Paper says “improvements in energy productivity can be achieved through a range of more effective choices, including better buildings; vehicle fuel efficiency; efficient equipment and appliances; and action by governments, small-to-medium enterprises (SMEs) and large industry”.

“Energy productivity can also improve through consumer choice that reduces the costs of sourcing and delivering energy, such as switching to more cost-effective fuels or reducing peak demand.

The White Paper maintains that “in the five years to 2011 over 164 petajoules of energy savings potential was identified for Australia’s industrial sector”.

“This represented 2.7 per cent of Australia’s total energy use (equivalent to the energy use of 3.3 million Australian households and their cars for a year). The identified savings opportunities with a payback period of four years or less equate to possible annual net financial benefits of over $1.2 billion.”

What the Energy White paper fails to mention was that the Energy Efficiency Opportunities Program – which required large energy-using companies to submit reports on energy-saving opportunities and identified the savings referred to – was scrapped by the Abbott Government in 2014. Commenting on the program which was established in 2006, the Federal Parliamentary Library research service said “successive reviews of the program have concluded that it is effective”.

The White paper maintains that “a national improvement target of up to 40 per cent by 2030 is achievable, but will require contributions from a broad range of sectors and actions, both regulated and voluntary”.

“Opportunities for further improvements in industry will be largely voluntary action as major energy users respond to energy price signals,” it says.

Bruce Godfrey writes that “formidable obstacles must be overcome” to realise the potential for increased energy productivity. He says major public and private support is required for:

  • strengthening of energy-efficiency codes for commercial and residential building stocks;
  • energy efficiency retrofits in buildings
  • enhanced minimum energy performance standards for commercial and residential appliances; and
  • stringent fuel economy standards for vehicles and increased use of public transport.

There is no shortage of informed voices calling on the Federal Government to do more in the area of energy policy. But it seems the Federal Government is content to have a largely “voluntary” response from the market as its preferred course. Yet again, the missing element in this debate is political leadership.

 

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