The energy target seldom talked about

Hey Reader, welcome to The Energy's weekly data newsletter. This week we look at Australia's international commitment to energy efficiency.

Australia's efficiency pledge

In 2023 Australia joined 117 other countries at COP28 pledging to double the average annual rate of energy efficiency improvements every year until 2030.

This commitment was reaffirmed by Australia at last month’s IEA conference on energy efficiency. But as Australia continues its campaign to host COP31, it still has some way to go to meet this rarely-discussed pledge.

Energy Minister Chris Bowen recently said he saw energy efficiency as “an important part of the embroidery of decarbonisation to complement the transition to renewables”.

He emphasised the government’s priority had been on reforms needed to meet renewable energy targets, but added that the electricity sector plan to 2035 would provide “markers” to help the private sector see the value the government placed on energy efficiency.

*Source: Australian Energy Update 2024 energy.gov.au*

Australia reduced its energy intensity by about 35% between 2000-23, tracking just above the global average of about 2% per year - the pledge is to boost this to 4%.

In the transition, efficiency and renewables targets are intertwined, as Energy Efficiency Council CEO Luke Menzel explains.

Expert view

"Energy efficiency and renewables are two great tastes that taste great together. That’s why it was a massive moment when Australia joined with around 120 other nations at COP28 in 2023 and signed up to the ‘triple/double’ pledge – tripling renewable capacity and doubling the annual rate of energy efficiency improvement by 2030.

Eventually the triple/double made it into the final COP28 text. Incredibly this was the first time targets for the two big levers for energy system decarbonisation were set down in a COP text.

All well and good, but how is Australia doing on follow through? When you look at where we were in 2023 our 82% renewables target is effectively a tripling of renewable capacity, and the government has been pulling out all the stops to hit it.

However there hasn’t been anywhere near the same level of action or attention on upping our energy efficiency and electrifying our economy. And yes, electrification contributes to efficiency, in fact it delivers a double dividend: reducing our reliance on fossil fuels and upping our energy efficiency at the same time.

Minister Bowen has said he is serious about picking up the pace on energy efficiency in the government’s second term. That is good to hear, but the clock is ticking, both for building the momentum we need to hit our 2030 target, and showing the world that we’re leading by example ahead of COP31.”

Luke Menzel
CEO, Energy Efficiency Council

How is efficiency measured?

As with many things in energy - it’s complicated.

The metric often used to measure energy efficiency is 'primary energy intensity', or the amount of energy used to generate a unit of GDP.

Global progress has slowed in recent years due to faster-than-average growth in energy demand combined with slower-than-average economic growth.

*Global annual improvement in primary energy intensity, and by IEA scenario. Source: IEA*

In Australia, improvements in primary energy intensity over the last few decades have come from our move away from energy-intensive sectors like from petroleum refining and car manufacturing. At the same time, we’ve generated more GDP from high value-added goods and services (like education) which use far less energy/$GDP.

Australia’s switch to renewable energy is also improving our energy intensity, which means there’s a blurring of the lines between the energy efficiency target and the other big goal to triple renewables capacity by 2030.

Moving past 'embroidery'

To get a better understanding of energy efficiency in Australia, you need to look closely at how and where energy is being used.

Australia’s mix shows why the government has been focused on policy in the transport and industrial sectors - for example the New Vehicle Efficiency Standard, and policies supporting electrification and decarbonisation in industry.

It’s questionable whether this will be enough to drive the doubling of efficiency pledged.

A recent report from the IEA offers some actionable insights for governments, which it acknowledges will need to take a "stronger and more comprehensive approach” to energy efficiency to realise the higher ambition.

These include:

Improving access to affordable capital for households and businesses, such as low-interest loans linked to sustainability or low and zero interest rate financing for efficient vehicles
Leveraging public funds such as grants or project development assistance to attract private investment
Focussing on supporting industrial financing options, since this where financing can deliver the best results. This could include a variety of instruments such as ESCOs, green leasing and green loans for SMEs and heavy industry.

Australia has low-interest financing for households in the form of the $1 billion Household Energy Upgrade Fund administered by the Clean Energy Finance Corporation, but there’s no data on how it’s going.

And our industrial financing options are limited, aside from ARENA's Industry Transformation Stream, which is not a long-term financing solution.

“There isn't really a well-developed energy service company (ESCO) industry in Australia like there is in other parts of the world,” says EEC head of policy Jeremy Sung.

Sung points to a recent study showing a lack of trust and understanding in Australia about what ESCOs do. The researchers recommend governments tie new incentives and financing to some sort of ESCO capacity building mechanism, including accreditation.

The economic upside

As the government sets its sights on boosting productivity as a major second-term agenda, energy efficiency could come alongside planning reform as a priority.

Energy efficiency ultimately allows an economy to produce more with less.

*World GDP and extra GDP produced with the same amount of energy due to energy efficiency, 2000 and 2023. Source: IEA*

But beyond the obvious economic upside, the IEA says there's a case for energy efficiency also boosting labour productivity. A Europen/UK study showed companies could benefit much more from energy efficiency investments than what is often assumed.