Policy update November 2021 18 November 2021

by Rob Murray-Leach

The Glasgow Conference of Parties (COP26) has dominated energy and climate change news. Really understanding the outcomes of COP26 will require some time and a lot more reflection, but at a high level it showed that governments around the world are moving towards stronger action on climate change, albeit not fast enough.

The key question is – what does COP mean for Australia? Here I think it’s easy to get lost in the detail; it helps to keep a broad view. The most obvious questions is – did COP influence the Morrison Government’s position on climate change? The simple answer is “not really in the short-term”. The Australian Government released its Long-Term Emissions Reduction Plan, which is thin on detail and doesn’t include new policies. The Plan sets out a goal for Australia to meet its climate change targets through existing measures and changes in technology. Last Friday the Government released the  modelling behind the plan, which has been roundly criticised by experts such as Tony Wood from the Grattan Institute.

However, I think it’s a mistake to just look at the short-term implications of COP. International pressure on Australia to do more on climate change is now white hot. The impact that this will have on the Australian Government in the medium and long term will depend a lot on election outcomes – will Morrison be re-elected with a large enough majority that he can overrule the Nationals; will he be re-elected with a small majority that gives him less room to manoeuvre; or will Labor be elected?

One thing is certain; if there’s a vacuum at the federal level this international pressure is going to give state and territory governments the confidence to raise their ambition on climate and energy policy. The NSW Government’s recent decision to raise the 2030 target to a 50% reduction of emissions from 2005 levels is a case in point. As the Australian Capital Territory (ACT) Government budget for 2021-22, which includes a ‘social cost of carbon’ applied to each tonne of emissions from government operations. The interim price will be $20 per tonne of emissions.

Just as critically, COP will also confirm to sensible businesses that the writing is on the wall – decarbonisation is inevitable. Australian governments may come and go, but megatrends are something that no sensible company can ignore.

Energy Efficiency Market Report 2021

On 17 November the International Energy Agency (IEA) released its annual Energy Efficiency Market Report. This report is essential reading for people in the energy management sector. Some of the key messages from the report include:

  • Energy efficiency will play a critical role in reaching net zero, especially when it comes to reducing emissions over the next decade;
  • Improvements in energy efficiency have already delivered significant reductions in greenhouse gas emissions, but the rate of energy efficiency improvement is below where it should be due to gaps in governments’ policies;
  • While COVID-19 resulted in major reductions in energy consumption, especially during lockdowns, demand has rebounded strongly. Overall, global progress on improving energy efficiency has been negatively impacted by COVID-19; and
  • Digitisation is evolving rapidly in the energy efficiency space.

Energy efficiency schemes

In September 2021 the price of Victorian Energy Efficiency Certificates (VEECs) under the Victorian Energy Upgrades (VEU) Program rose significantly. This occurred despite enough certificates having been generated to meet the whole target for 2021 and almost half of the target for 2022. The rise in the price of VEECs has been caused by a number of factors, including:

  • COVID-19 dramatically reducing the ability to create VEECs;
  • The reduction in incentives for lighting upgrades, which has traditionally provided low cost VEECs;
  • A reduction in the Emissions Factor for electricity, which reduces the amount of VEECs generated by electricity-saving activities; and
  • Certificate generators signing contracts that meant that they had to deliver certificates to retailers by certain dates, putting significant pressure on them.

On 27 October, the Victorian Government released a set of proposals to address this, including:

  • Extending the retailer surrender date from 30 April 2022 to 31 July 2022;
  • Extending residential lighting activities to 31 January 2023;
  • The Department of Environment, Land, Water and Planning (DELWP) will regularly publish information in relation to the pipeline of new VEU program activities; and
  • DELWP will regularly publish information in relation to the VEEC market. The first edition of this information can be found here.

DELWP recently released a consultation paper on these issues, and submissions are due on 25 November. It is worth noting that the price of VEECs has moderated, but it is still significantly higher than the price of certificates in New South Wales.

The Victorian Government is also undertaking consultation on changes to compliance and protections associated with the VEU program, with submissions due on 18 November and 25 November. I strongly encourage people involved in the VEU to submit to this process.

Minimum Rental Standards in the ACT

The ACT Government has committed to introducing minimum energy efficiency standards for rental homes. The ACT Government just released consultation documents on its proposal that specify, as a first stage, all rental properties should be required to have a minimum level of ceiling insulation. Submissions due by end-of-day on Sunday 19 December.

The ACT Government proposal is part of a national trend, with the Victorian Government also committed to minimum energy efficiency standards for rental homes. All governments are collaborating on the development of a national framework for energy efficiency standards for rental properties, which is likely to be complete in mid-2022. Under this framework it will still be up to individual states and territories to commit to minimum standards, but we believe that the trend will be for more governments to make commitments in coming years.

Clean Energy Finance Corporation

On 25 October the Clean Energy Finance Corporation (CEFC) released its annual report, which showed that the organisation has invested $3.7 billion to date in energy efficiency, out of a total $9.5 billion that the CEFC has invested to date. A good outcome, but one that doesn’t necessarily grab the headlines!

Rob Murray-Leach is Head of Policy with the Energy Efficiency Council. Connect with Rob on LinkedIn.

This article was originally published in the November edition of Efficiency Insight.