The three main elements of the government’s vision in its Energy White Paper, released this week, are competition, energy productivity and investment. One significant new proposal is a National Energy Productivity Plan to “lower costs, improve energy use and stimulate economic growth”.
This will cover the built environment, equipment and appliances, and vehicles, and aims to “improve national energy productivity by up to 40% by 2030”.
Energy productivity, which includes energy efficiency but also goes beyond it, is a way of doing more with less. When it works, it means Australia could be using less energy – which is good news for reducing greenhouse gas emissions from burning fossil fuels, and for energy security.
But how quickly can such as plan be developed and put in place? And is the government’s upper limit of a 40% improvement by 2030 ambitious?
What is energy productivity?
The most common indicator of energy productivity is the amount of economic output per unit of energy input: the higher the value the better. This is similar to other productivity indicators.
One way to think of energy productivity is to look at gross domestic product (GDP) per unit of primary energy. Primary energy is the raw energy that is harvested, mined or extracted. Typically some of this energy is “lost” through processing, conversion and delivery to the meter or fuel pump.
This is different to “final” or “end use” energy such as when you flick a switch at home. For instance, heating a room with an electric fan heater uses fewer units of metered electric energy than if gas is used, as the gas appliance has combustion losses on the consumer side of the meter. But in terms of primary energy, the electric fan heater uses much more energy, as three units of fossil fuel are used to create each unit of electricity. So despite the losses from gas combustion, the gas heater uses half as much primary energy as the electric one.
Productivity could focus business
In the white paper, the government seems to use a different energy productivity indicator, the “cost of energy” per unit of GDP, although this is not clearly defined. This means that any reduction in energy prices – through competition, flexible electricity prices, or privatisation as recommended in the paper – will increase energy productivity. So the way the government has defined energy productivity may not deliver a reduction in primary energy use, or the associated environmental benefits.
Energy productivity has become a buzzword over the past few years for several reasons.
First, it has proved increasingly difficult to drive overall productivity improvement by focusing on labour and capital productivity, the two traditionally dominant factors.
Second, while energy is a relatively small input to the economy, it plays a key role as the “engine of development”, as industry and business can’t deliver products and services without energy, and can have large impacts on overall productivity of labour and capital.
Third, increasing economic output while lowering costs is attractive for policy makers and businesses. With the major role of energy as a driver of climate change, and concerns about energy security in many parts of the world, energy productivity can help us focus on energy issues.
For instance, I commonly encounter businesses across all sectors who reject energy efficiency measures that pay back costs immediately or within five years, despite the clear benefits of pursuing them. But by showing that energy efficiency is very profitable in comparison with other investments, I hope to encourage businesses will begin to take advantage of their amazing benefits.
How can we improve energy productivity?
improving traditional energy efficiency: more energy efficient buildings, appliances and vehicles, smarter operation of equipment, avoiding waste;
optimising energy supply and use across the supply chain: increasing utilisation of equipment, minimising energy losses in conversion and delivery of energy, and choosing energy sources and prices wisely;
transforming business models, by replacing physical products with virtual services, or shifting from producing commodity products to high-value products.
ClimateWorks Australia has presented similar options, but separate out electrification (such as using energy efficient electric cars plugged into renewable energy), and energy conversion and distribution.
In the white paper the government’s approach allows competition, privatisation and cost-reflective pricing to improve energy productivity under its broader definition.
Could Australia do more?
Neither Australia’s present level of energy productivity, nor its rate of improvement, rate all that highly in comparison to other countries, as shown in a study by the Australian Alliance for Saving Energy.
Some countries are aiming high. The US target is to double its energy productivity relative to 2005 by 2030. At the same time, both the Alliance and ClimateWorks studies have concluded that it is feasible and worthwhile for Australia to near double its energy productivity by 2030.
The government uses a broader definition of energy productivity, and admits in the white paper that business as usual would deliver a 25% improvement by 2030. So its 40% improvement upper limit for a target seems lacking in ambition.
Given the lengthy and complex process proposed to develop (let alone implement) the energy productivity plan, and the lack of detail on resources, funding and institutional processes, maybe that’s just realistic.