Policy update from EEC Head of Policy Rob Murray-Leach 27 April 2022
While Australia has some excellent energy efficiency programs for commercial buildings, our overall performance on energy efficiency seriously lags other developed countries. In particular, our industrial and transport energy efficiency policies are almost non-existent.
This isn’t just my personal view - Australia has once again been ranked as the worst developed country for energy efficiency policy and performance in the ‘International Energy Efficiency Scorecard’.
The American Council for an Energy Efficient Economy produces the Scorecard every few years, which assesses the energy efficiency policies and performance of the 25 top energy consuming countries. These countries collectively account for 82 per cent of the energy consumed on the planet, and 80 per cent of the world’s gross domestic product (GDP). The Scorecard considers a wide range of policies and performance, including climate change targets, buildings, manufacturing and transport.
Australia performed relatively well in the buildings category, due to the efficiency of our commercial buildings and national approach to building standards. However, Australia performed very badly on industrial energy efficiency, and was one of the worst countries in the world for transport efficiency. Australia is almost unique among developed countries in lacking fuel-efficiency standards for cars.
Overall, Australia was ranked 18th for energy efficiency policy and performance, making it the worst developed economy for energy efficiency. A number of emerging economies, including Mexico, Turkey, India and Indonesia, performed significantly better than Australia. The top three performers were France, the UK and Germany, and the top ten included Japan, China and the US.
Australia’s global ranking on energy efficiency is, frankly, a national embarrassment. More importantly, it means that Australians’ energy bills and greenhouse gas emissions are far higher than they need to be. It is long past the time that Australia should catch up with our global competitors.
The role of energy management in net zero
The EEC is currently working on a report on the role of energy management in net zero. We are certainly not the only people thinking about this – there’s been a flurry of new reports on this issue.
European energy gurus Jan Rosenow and Nick Eyre have written a paper ‘Reinventing energy efficiency for net zero’ which highlights the importance of shifting the focus of energy management. They highlight that, to date, energy efficiency has been the single largest source of greenhouse gas abatement:
“In recent decades, more than 90 per cent of the progress in breaking the relationship between carbon emissions and economic growth globally has come from reducing the energy intensity of the economy, i.e. from energy efficiency in its broadest economic sense”
Energy efficiency has delivered most of these gains by reducing the amount of fossil fuels consumed to deliver a service (e.g. warm homes). However, if the goal is net zero, it’s not enough to just reduce the amount of fossil fuels that we use, we have to virtually eliminate fossil fuel use. This means that ‘efficient’ equipment that directly consumes fossil fuels (e.g. better coal-fired boilers) cannot be in use in 2050. Instead, we need to invest in technology that is compatible with net zero.
This doesn’t mean that ‘traditional’ energy efficiency is dead, at all. Investing in technologies like insulation and efficient reverse cycle air conditioners will both immediately reduce fossil fuel use and be compatible with a net zero energy system – in fact they’re essential to keep net zero affordable. Some forms of energy management are actually becoming even more critical. For example, improving the thermal efficiency of homes reduces energy demand in the evenings and colder months, which is critical to moving to an energy system with a high penetration of solar PV.
In addition, there is often a strong alignment between electrification and energy efficiency. For example, electric vehicles are significantly more energy efficient than cars with internal combustion engines. Given that key electrification technologies (e.g. heat pumps) will become dominant in the coming decades, Rosenow and Eyre recommend that governments invest now in research and development and minimum standards to further improve the energy efficiency of key electrification technologies.
The critical importance of energy efficiency in getting to net zero is also highlighted by a new paper from the International Renewable Energy Agency (IRENA). On 29 March IRENA released its World Energy Transitions Outlook 2022 report, which concluded:
“Ramping up renewables, together with an aggressive energy efficiency strategy, is the most realistic path towards halving emissions by 2030, as recommended by the IPCC”
The report suggested that to achieve deep emission cuts to 2050, about 25 per cent of global abatement should be delivered by renewables, 25 per cent by energy efficiency and 20 per cent by electrification.
While the IRENA report understandably focuses on renewable energy, it clearly highlights the importance of energy management. Energy efficiency is seen as critical to both short-term emissions reductions and supporting the transition to renewables. IRENA recommends that the rate of global improvement in energy intensity should increase from 1.2 per cent in recent years to 3.1 per cent to 2030. Key actions include:
- Doubling the rate of retrofitting buildings to about 2 per cent per annum;
- Adopting more efficient boilers, air conditioners, motors and appliances; and
- Mandating minimum standards, products and processes in industry.
ARENA load flexibility study
In April, the Australian Renewable Energy Agency (ARENA) released a load flexibility study which looks at the potential for flexible demand to reduce the cost of moving to a renewable National Electricity Market (NEM).
Before I look at some of the results of the ARENA study, it’s important to note that ARENA’s definition of ‘demand flexibility’ is “the capability to vary customer demand in response to generation, network or market signals”. This means that this study is just focussing on demand response and does NOT cover the potential for energy efficiency and permanent load shifting (e.g. running water heaters in the middle of the day) to shape demand to better match the profile of solar generation. The study also doesn’t include the very substantial potential reductions in network costs that demand response could deliver.
Those caveats out the way, the study’s key finding is that demand flexibility could deliver between $8 billion and $18 billion in savings (net present value). The benefits of demand flexibility increase as more renewable energy is added to the grid and as more electrification occurs. The modelling found that, if a lot of electric vehicles are added to the grid, this will be the largest source of demand flexibility.
In summary, to move to a renewable grid, we really need some of our demand to be flexible.
It’s probably an understatement to say that there’s a lot going on in building energy efficiency right now. Accordingly, I’m about to use a lot of acronyms.
Firstly, in around August this year Australian federal, state and territory building ministers will consider raising standards in the National Construction Code (NCC) for new residential buildings (stand-alone homes and apartments). A number of independent reports by groups like the Climate Council and Renew have found that higher building standards would reduce both emissions and energy bills.
In 2021 the Australian Building Codes Board (ABCB) released a draft proposal for changes to the NCC that included increasing the minimum standard for building fabric from 6 stars NatHERS to 7 stars, and introducing an overall ‘energy budget’ for new buildings that covers building fabric, energy using appliances and generation. This would mean that all new homes would have to be a minimum of 7 stars NatHERS, but above this they’d have flexibility about how they meet the overall energy budget.
In late 2021 the ABCB released a draft assessment by ACIL Allen of the impact of these changes to building regulations. ACIL Allen’s analysis suggested that higher building standards would benefit the occupants of new homes but the overall cost to the economy would exceed the benefits. The EEC, Green Building Council of Australia, Property Council of Australia and ASBEC commissioned Philip Harrington to review ACIL Allen’s draft Regulatory Impact Statement, and he found that ACIL Allen had systematically overestimated the costs and underestimated the benefits of higher building standards. This critique has been fed into the review of the Regulatory Impact Statement.
In March 2022, Building Ministers released a communique that suggested that they were positively inclined to raise standards in the NCC later this year. However, I think it is too early to be certain that building standards will be raised in 2022 and, even if they are, there is likely to be a phase-in period of at least 12 months.
One issue that does need to be briefly discussed is the argument that ‘higher energy efficiency standards will increase condensation and mould issue’. The first response to this is that we *absolutely* need to improve the way that buildings are designed and constructed to address condensation and mould – for example by mandating extraction fans in bathrooms, using permeable building wraps and improving the way that insulation is installed.
However, building energy efficiency and better moisture control are not just compatible, they’re actually complements. From personal experience, to fix mould issues in my 1970s home I had to add insulation and eliminate thermal bridges that were creating condensation points. To ensure that efficiency and moisture control are complements, we need to get serious about ventilation and ensure that buildings are design and constructed properly. If you’re interested in this subject, Luke interviewed building gurus Jenny Edwards and Jon Konstantakopoulos on this subject in a First Fuel episode last year.
The second key development in buildings is the release of the Draft National Framework for Disclosure of Residential Energy Efficiency information. While the document says it was finalised in December 2021, it was actually released in February this year. While consultation on the Draft Framework has not yet commenced, it’s a high level and very sensible document that should support national consistency in the way that buildings are rated.
The third key development is that work is progressing on the national framework for the energy efficiency of rental properties. Similar to the National Framework for Disclosure, this will be a high-level document that should support the acceleration and national consistency of minimum standards for rental properties. We anticipate that public documents will be released for consultation later this year.
At the same time that the national framework is progressing, states and territories are pursuing firm standards for rental homes. In 2021 Victoria introduced a requirement that rental homes must include a fixed heater in good working order in the main living area, and that heater must be rated at least 2 stars for energy efficiency. This is a basic standard that is focussed more on health than efficiency, but it’s an important first step. Victoria is also considering introducing minimum standards for ceiling insulation in rental properties. The ACT Government is also planning to introduce minimum standards for rental homes. While the design of the ACT standards aren’t finalised yet, they are likely to involve minimum requirements for ceiling insulation.
The importance of minimum standards for rental properties was recently demonstrated by a new report by Better Renting – Hot homes: Renter Researchers’ experiences of summer 21-22. The report found that many renters’ quality of life was seriously impacted in hot weather. Interestingly, the data found that the comfort of rental homes with air conditioners was not automatically better than homes without air conditioners. While more work will be required to understand this finding, it does highlight that an air conditioner on its own is not enough to guarantee the comfort of a home in hot weather. Building elements like proper ceiling insulation and eaves are critical for comfortable buildings.
This highlights that, when we consider retrofitting homes, it’s often better to focus on ‘improved thermal comfort’ rather than ‘efficiency’. Most of the homes in Australia that were built before 2003 perform so badly that a retrofit primarily designed to improve health and comfort (including minimising condensation) will almost always deliver significant energy savings.
Energy efficiency schemes
The NSW Government has announced that the new Peak Demand Reduction Scheme (PDRS) will commence on 1 November 2022. The Government has released a consultation paper on activities for the PDRS, which will close on 13 May. The EEC will provide a submission. In the first round of consultation the NSW Government is seeking feedback on activities that relate to:
- Air conditioners
- Heat pump water heaters
- Refrigerated cabinets
- Ventilation motors
- Refrigeration motors
- Pool pumps
- Spare fridges and freezers
The Victorian Government has been continuing consultation on a range of activities under the Victorian Energy Upgrades (VEU) program. On 31 March the Victorian Government released a consultation paper on using the VEU to provide incentives for home energy assessments using tools like the Residential Efficiency Scorecard. On 11 April the Government released responses to consultations on hot pipe lagging and gas boiler and water heater activities, and expects to publish final Regulations and Specifications in Q2 2022.
However, the Victorian Government has fallen behind on its own timetable for consultation around new activities, causing significant concerns among some parts of the energy efficiency industry.
On 7 April the Clean Energy Regulator announced that the Emissions Reduction Fund (ERF) would no longer buy abatement from public and commercial lighting projects. This is consistent with most energy efficiency schemes moving away from incentives for commercial lighting, but is also largely irrelevant – the ERF has driven very few lighting projects.
On 19 March, Labor convincingly won the South Australian election. This is unlikely to see a dramatic shift in energy policy, because South Australia has shown us that sensible bipartisanship around energy policy can be part of an election-winning strategy.
In 2018 the South Australian Liberal Opposition took the high road and, instead of taking cheap political shots on energy, it put forward a sensible energy policy that was largely consistent with the direction (but not the detail) of SA Labor’s energy policy. As Luke remarked at the time, the Liberal Opposition’s energy policy was so technical and sensible it looked like an incumbent’s election platform. The Liberals won that election.
In 2020-22, the Labor Opposition took the high road on COVID policy, and largely didn’t take cheap political shots. In the run up to the 2022 election they put forward a very similar energy platform to the Liberals and won the 2022 election. While I have no doubt that there will be changes in policy, the direction of South Australian policy remains consistent.
For the federal election, I’m not going to even attempt to make a prediction of the outcome and its impact on energy efficiency policy. The polls are too close to call and the impact of the election on energy efficiency will not only depend on which party can form minority or majority government, but also the composition of both the house and the senate. To pass legislation, whichever party forms government will need to secure the support of both its own backbenchers and probably a range of minor parties and independents.
Instead of wasting your time reading tea leaves, I look forward to providing a comprehensive analysis of the federal election after it’s completed.