Alan Pears-Energy productivity and efficiency improvement: Australia’s forgotten fuels

May 5, 2022
Electricity pylon
The National Objectives for electricity and gas markets focus on reducing energy prices’ not total energy-related costs. Image: Pixabay

Whether you focus on climate policy, energy market transition, social justice, health or business competitiveness and innovation, improving energy productivity and efficiency is a winner.

Yet Australia’s major political parties and even some major clean energy industry organisations and environmental groups rarely mention this. In contrast, the European Union now applies the principle of ‘energy efficiency first’. The International Energy Agency, which employs many economists, has been calling energy efficiency ‘the first fuel’ for years. IEA’s least cost zero net carbon scenarios include energy efficiency providing comparable cuts in emissions to renewables over the next two decades. IEA and EU recognise that energy productivity improvement delivers many additional benefits beyond saving energy and reducing carbon emissions, including supporting more rapid and cost-effective displacement of fossil fuels by renewables.

Australia has consistently scored poorly in global comparisons of energy efficiency. The American Council for an Energy Efficient Economy recently rated Australia as 18th out of 25 countries, with our performance in industrial and transport sectors rating 22nd and 23rd.

Australian business routinely rejects investment in energy productivity measures that deliver rates of return on investment of 30% per annum or more and carbon emission reductions at a cost of minus $100 per tonne of avoided emissions. These measures can also offer productivity and other business benefits through reduced capital costs, more reliable and flexible production and improved product quality. It is economic and environmental madness to reject negative cost emission reduction while paying increasing prices for carbon offsets!

Key building industry organisations are opposing an increase in regulated building energy performance from 6 to 7 stars, on the basis that it increases ‘sticker price’ and exceeds mortgage limits. If incorporated into a mortgage, this is almost aways cashflow positive for the first owner. It will deliver financial, health and comfort benefits and emission reductions for all occupants over 70 years. There is a solution. The Australian government is prepared to underwrite risk for first home buyers to enter housing with a lower deposit. This is a much bigger risk than underwriting a small increase in loans to cover extra upfront cost of high efficiency, which actually improves ability to repay the loan.

The failure of energy reform to drive improved energy efficiency is an economic, social and environmental disaster. As we transition to variable renewable energy and shift off gas, we need extreme energy efficiency to limit peaks and manage electricity demand. A 7-star home needs less than a third as much heat as a typical 2 star home on a cold, cloudy winter day when solar generation is limited. An efficient building stays comfortable and food in an efficient fridge is protected for longer if power supply fails or demand response measures apply.

Australia’s ‘supply side’ culture is deeply enmeshed in policy, institutional structures, and not just for energy. We happily ‘consume’ more land, water and resources. The National Objectives for electricity and gas markets focus on reducing energy prices’ not total energy-related costs, so measures that reduce costs without necessarily reducing prices are outside scope. While there is enthusiastic discussion of energy storage and short-term management of demand to assist in energy supply infrastructure management, there is no focus on the long-term driver of demand, energy productivity. AEMO’s low electricity demand scenario assumes lower economic growth, the reverse of what an effective energy productivity strategy would deliver.

In a recent paper comparing Australian and European Union policies on building and appliance energy efficiency (see for a webinar and to access the paper), I highlight the contrast in overarching objectives, levels of funding, institutional structures and use of effective policy tools.

While the EU faces its challenges, its use of strong Standards, Energy Efficiency Directives, effective institutional structures, substantial funding and ongoing research to learn from experience and support improvement provide useful lessons for Australia. But the EU must also dramatically accelerate implementation if it is to achieve its ambitious targets.

In contrast, Australia lacks high level, adequately funded independent institutions run by motivated people skilled and competent in energy productivity and efficiency. Our experience with renewable energy policy could provide some useful lessons. Instead, organisations like ARENA focus on funding renewable energy, not energy efficiency and productivity. Our present government’s ‘technologies not taxes’ approach is simplistic. It focuses on a limited range of long-term technologies and propping up the fossil fuel industry. We need to drive implementation of comprehensive zero carbon solutions now, using a range of policy tools. Much of our focus must be on development and implementation of programs that drive change on the ground now.

A key institutional problem in Australia is that energy efficiency policy decision-making is dominated by organisations that lack motivation and expertise to drive effective action. For example, building energy regulation must compete for attention of Building Ministers with many other issues and powerful interest groups with other agendas. Transport efficiency standards have been blocked by political and business forces.

Information and promotional programs are poorly supported. For example, as we approach winter and the urgency of shifting from gas heating increases, the government’s energy rating website calculator provides no information to help consumers to choose the most efficient reverse cycle air conditioners. This has been the case for months. University research has shown that some home builders misuse the NatHERS building star rating scheme to mislead and exploit ignorant home buyers regarding the efficiency of new homes that just meet our weak building energy standards.

Politics has been a serious blocker of energy efficiency. The aggressive and misleading ‘pink batts’ hysteria has undermined policy and program support for insulation for a decade. None of the deaths were caused by pink batts, though the manufacturer’s business model was seriously damaged. Indeed, before that program, fire authorities rightly blamed halogen downlights for fires.

Australia’s world-leading industrial Energy Efficiency Opportunities program was shut down in 2014 despite delivering over $300 million in annual savings and carbon abatement at minus $95/tonne of avoided emissions. The closure relied on an Office of Best Practice Regulation analysis that assumed an ongoing program would save no money but would burden industry with ongoing compliance costs of $17.7 million annually. And industry was optimally implementing energy efficiency! So much for evidence-based policy. This appalling situation has undermined government action since then. It’s not surprising that Australia scored 22nd out of 25th in the ACEEE scorecard!

On the positive side, we do have some successes. The commercial building NABERS rating scheme is a global leader. It is one of very few building energy schemes based on actual performance rather than ‘design intent’. Our appliance energy labelling program has been a world leader, though it has fallen into disrepair. State-level Energy Retailer Obligation schemes that require retailers to fund consumer incentives for energy efficiency measures have had some success. Early proposals for a more economically efficient national scheme were rejected.

Recent work by groups such as the Australian Alliance for Energy Productivity and the RACE for 2030 Cooperative Research Centre is opening up exciting new potential for energy productivity and efficiency improvement. Efficient, smart, flexible, connected machinery and equipment, combined with advanced data analytics, more sophisticated financial analysis and new business models, now allow us to identify, implement and allocate value to the multiple business, social and environmental benefits of energy productivity and efficiency improvement.

This can transform our reality, and accelerate and cut costs of transformation towards a zero-emission economy and society while limiting the damage and trauma of global heating. It’s our choice.


Alan Pears AM has worked on clean energy and climate policy for several decades. His work spans all sectors of the economy, ranging from practical site-level projects to program development and implementation, policy analysis and education. He is a Senior Industry Fellow at RMIT University and a Fellow at the University of Melbourne’s Climate and Energy College

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