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National Energy Performance Strategy
Tony Wood, Alison Reeve, and Esther Suckling
National Energy Performance Strategy
Recommendations
All sectors Housing and homes
∙ Choose a limited number of initiatives to focus on. ∙ Implement minimum rental standards, and include energy
performance measures in these.
∙ Improve the consideration of demand-side technology in the next ∙ Implement the 2004 commitment to disclose house energy ratings
iteration of the Integrated System Plan at the point of sale or lease.
∙ Fund skills development and tools for property managers to make
∙ Make implementation of the National Energy Performance it quicker and easier to rate properties.
Strategy a standing item on the National Cabinet agenda
Industry
∙ Ensure energy performance is considered as part of determining
∙ Design signature election commitments to align with the aims of
‘best practice’ for new facilities under the Safeguard Mechanism
the National Energy Performance Strategy. This includes Rewiring
the Nation, the National Reconstruction Fund, the Powering the ∙ Ensure rules for accessing multi-year monitoring baselines under
Regions Fund, the Electric Vehicle Strategy, the Help to Buy Fund, the Safeguard Mechanism maintain the incentive for facilities to
and the Housing Australia Future Fund. make incremental improvements in energy performance.
∙ Encourage state governments to harmonise and expand White
∙ Set targets for sectors or sub-sectors, rather than nationally Certificate schemes to make it easier for the industrial sector to
participate.
∙ Invest in better data collection and policy evaluation ∙ Use an instant asset write-off to reduce net upfront costs for
energy saving assets.
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National Energy Performance Strategy
1 Introduction
This submission is made by Tony Wood, Alison Reeve, and Esther its own challenges. Some have made remarkable and largely unsung
Suckling of the Grattan Institute. Grattan Institute is an independent progress, such as the improvements in appliance energy efficiency.
think-tank focused on Australian domestic public policy. Grattan aims Others are stuck.
to improve policy outcomes by engaging with decision-makers and the community. This ubiquity is why previous energy performance strategies, plans, and
frameworks have resembled shopping lists. It is also why they have lost
In November 2022, the Department of Climate Change, Energy, focus over time.
Environment and Water released a consultation paper for the National
Energy Performance Strategy. In this submission, we build on our There is now impetus to do better. Australia has a bipartisan submission to the Safeguard Mechanism reform process,1 and two commitment to achieve net zero emissions by 2050; and a legislated previous Grattan Institute reports: target and emissions budget for 2030. At the same time, Australia’s
energy system is in a period of unprecedented transformation.
∙ The next industrial revolution: Transforming Australia to flourish in
Improving energy performance is an opportunity to make this
a net-zero world (2022) transformation smoother, more equitable, and cheaper.
∙ Towards net zero: Practical policies to reduce industrial emissions
This means recognising that not all energy performance improvements
(2021)
are of equal value. Choosing the wrong equipment can lock in
Successive governments have identified the contribution to GDP and long-term emissions, even if the equipment is more efficient. For to greenhouse gas abatement that improved energy performance example, installing a more efficient gas boiler will save energy, and could deliver. Successive inquiries, reports, frameworks, agreements, lower emissions. But if it has a 20-year life, the new boiler locks in 20 plans and strategies have identified the barriers, the opportunities, years of emissions. Installing an electric boiler may not save as much and proposed policy responses.2 But energy performance (whether energy in absolute terms, but it does not lock in emissions because the energy efficiency, demand management, or energy productivity) is electricity supply is decarbonising, and the owner could choose to use persistently resistant to change. Australia continues to compare poorly 100 per cent renewable energy.
to international peers.
Improving energy performance will require multiple policies across
Energy is embedded in every aspect of the economy and society – multiple sectors, and patience and persistence. Much of past success from homes and buildings to factories and mine sites. Every sector has has stemmed from regulation, and it is likely this will be the best tool in
many cases in the future. A successful National Energy Performance
1. Wood et al (2022).
2. See for example Ministerial Council on Energy (2004), Productivity Commission
Strategy requires much better data, and a commitment to evaluation
(2005), COAG (2009), DCCEE (2010), COAG (2010), COAG Energy Council and policy adjustment. It requires prioritisation: amongst all the things
(2015) governments can (and should) do, which should they do first? Which
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National Energy Performance Strategy do they need to start now because the logistics of change will be slow?
Are there immediate easy wins?
Lastly, it requires embedding change so that improving energy performance becomes normal and invisible, and doesn’t flag when government’s attention turns elsewhere.
What should the National Energy Performance Strategy aim to do?
∙ Identify: Look for the areas where there are potential economic
gains and emissions abatement from energy efficiency, that are
currently under-supported by policy.
∙ Prioritise: Focus on activities that avoid long-term lock-in of
emissions; that will take a long time to complete; or that have
immediate impacts on household or commercial budgets.
∙ Track: Collect data as policies are implemented
∙ Evaluate: Evaluate effectiveness of each policy regularly, and
adjust as required.
The Strategy does not have to contain every existing initiative. As part of prioritising, it can identify current policies that are providing continuous improvement over time, and can continue to do so.
These don’t need special strategic attention. Examples might be the Equipment Energy Efficiency (E3) program or the National Built
Environment Rating System (NaBERS).
Ideally, the Strategy should contain five to seven opportunities where sustained attention and resourcing can make a significant difference.
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National Energy Performance Strategy
2 Discussion questions
In the following section, we address the discussion questions raised in is governed by Building Ministers and the Australian Building Codes the consultation paper. We have not responded to questions where we Board. Transport energy performance sits with the transport ministers.
cannot add value. Data is held by various organisations and is incomplete. Action to
improve energy performance has fractured into myriad individual
2.1 Governance initiatives. From the perspective of those outside government, there
is little sign of overall co-ordination, prioritisation, or systems thinking.
2.1.1 Incorporating demand considerations into energy system
planning Meanwhile, other portfolios make important policy decisions and
stimulate private sector investment in ways that have far-reaching
Current system planning does not include granular variation in demand consequences for the energy system. The energy system is expected as it does for generation. For example, the Integrated System Plan to accommodate these while also undergoing an unprecedented uses detailed input data on the expected cost trajectory for individual transition.
generation technologies. Other than rooftop PV (which is only a demand-side measure because it occurs behind the meter), it does While energy ministers are able to request consideration of energy not look at the relative costs of demand management or energy performance by other ministerial portfolios, they lack the authority to performance technologies, nor does it test whether different levels of demand it.
technology penetration could change the economics of generation ad Another governance body is not the answer. Rather, implementing transmission. the National Energy Performance Strategy should be a standing item
Energy National Cabinet Reform Committee should instruct the for National Cabinet’s agenda. Energy ministers can continue to be
Australian Energy Market Operator to improve the consideration of responsible for other initiatives.
demand-side technology in the next iteration of the Integrated System This would have two effects. First, because National Cabinet’s
Plan. This should include granular input data on the cost and potential agenda is crowded and First Ministers’ time is precious, it would force of energy efficiency measures; and should include scenarios with prioritisation amongst the many opportunities for improvement. Second, demand management and energy efficiency, to test the capacity of it would provide a channel for other ministerial portfolios to be tasked these to reduce the need for investment in networks and generation with responsibilities to improve energy performance, with the authority
of First Ministers behind it.
2.1.2 Better institutional co-ordination
Implement election promises with energy performance in mind
Energy touches every part of the economy, and so too will better energy performance. Industry energy performance is affected by At the federal level, new policies and programs are being designed as industry policy as much as climate policy. Building energy performance the government implements its election commitments. Many of these
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National Energy Performance Strategy
– such as Rewiring the Nation, the National Reconstruction Fund, the 2.2 Focus on data and evaluation, not targets
Powering the Regions Fund, the Electric Vehicle Strategy, reforms to
The purpose of improving energy performance is not to improve energy the Safeguard Mechanism, Help to Buy, and the Housing Australia
performance for its own sake. It is to build a more productive economy
Future Fund – will lock in patterns of energy production and use that
that can thrive in a net-zero world.
will last for decades. It is important that policy design for these new initiatives aligns with the aims of the National Energy Performance Because energy is embedded in very aspect of the economy and
Strategy. society, achievement of energy performance targets can be influenced
as much by changes in these (for example, smaller household size, a
∙ The business cases for transmission lines funded through shift from manufacturing to services) as by any policies. And because
Rewiring the Nation consider whether demand management could energy use and barriers to changing it are so diverse, policies will vary.
reduce costs before investment decisions are taken.
There are also a number of policies in place which may improve energy
∙ The National Reconstruction Fund should apply a merit criteria performance even though they are not energy performance policies –
in funding applications for businesses that can demonstrate such as the reformed Safeguard Mechanism
improvements in energy performance.
Given this, we suggest that a single over-arching target representing
∙ Assistance to trade-exposed industries through the Powering energy productivity, energy efficiency, or energy intensity, is probably
the Regions Fund should not support businesses to lock in poor not useful.
energy performance.
It would be more useful to set targets for sectors or sub-sectors, as
∙ The Electric Vehicle Strategy should consider energy tariff reforms part of designing policies to improve energy performance in those
and incentives to minimise the impact of unconstrained vehicle sectors. And, we suggest investing in better data collection and better
charging on the distribution network. evaluation, so that sector-specific policies can be tracked and adjusted
over time to remain effective.
∙ The Help to Buy Fund should consider raising the property price
cap for houses with higher energy efficiency ratings (discussed
further in Section 2.3). 2.3 Low-income households and renters
2.3.1 Change the Help to Buy scheme to avoid locking poorer
∙ Homes built through the Housing Australia Future Fund should
families into low-performing housing
meet high energy performance standards. Beyond the $200 million
committed to housing repair, maintenance, and improvements in The Help to Buy scheme assists first-home buyers to purchase a
remote Indigenous communities, the fund should dedicate ongoing home. Buyers can have a deposit of as little as 2 per cent, with the
spending on upgrading the energy performance of social and government owning up to 40 per cent equity in the property. The price
community housing (discussed further in Section 2.3). of eligible homes is capped, with caps varying by location. Eligible
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National Energy Performance Strategy buyers must earn no more than $90,000 per year for singles, or 2.3.2 Use the Australia Housing Future Fund to simulate supply
$120,000 per year for couples. of higher-performing homes
The Help to Buy price cap is necessary to avoid stimulating further The Australian Housing Future Fund is intended to provide the funding house-price increases, and to contain the cost of the scheme. However, to deliver the Government’s commitment of 30,000 new social and it risks locking buyers into homes that have poor energy performance. affordable homes in the fund’s first five years. It has also earmarked
$200 million for the repair, maintenance and improvement of housing in
Homes with high energy performance tend to command higher remote Indigenous communities.
purchase prices. In the ACT (the only jurisdiction to have implemented mandatory disclosure of energy efficiency ratings at point of sale or If these houses are built to comply with the National Construction Code, lease), the 2022 median price per square metre for homes with a rating they will achieve a minimum energy performance rating of 7 stars. The of 1.5 stars or less was $1288/sqm. For homes with 6 stars, it was Future Fund could explore the costs and benefits of increasing the star
$2567.3 rating for new homes. It could also explore funding energy upgrade
agreements to improve the energy performance of existing social and
An ACT home with a rating of 1.5 stars uses 337 per cent more
community housing.
energy than one rated at 6 stars.4 If all this extra energy comes from gas (which is likely, given the ACT’s cold climate and reliance on
2.3.3 Minimum rental standards could improve energy gas heating), it equates to an additional cost of ownership for an
performance in rental properties average-sized 1.5 star home of $5,732 per year5 – or one-and-a-half extra mortgage repayments each year.6 Minimum rental standards are different in different states, and only two
states include energy.7
The government should amend the Help to Buy scheme to raise the price cap for homes with higher star ratings. This would make it Consistent rental standards for energy performance, including a easier for buyers to pay off their home loans, which in the long term pathway to lifting the average energy efficiency star rating for rental exposes the government to less risk. It would improve access to more properties, should be a priority for Energy Ministers.
comfortable, healthier homes for low-income families. And it would send an important signal to the housing market that, in a net zero Disclosure of energy efficiency performance at the point of sale or economy, homes with better energy performance should be more highly lease was agreed to by energy ministers in 2004.The purpose of valued. disclosure is to give tenants the information they need to assess the
running costs of different properties, and make their own trade-offs
3. Powell (2022).
between rent and energy bills.
4. Grattan calculation using NaBERS star bands and climate zones: NaBERS
(2022a), NaBERS (2022b).
5. Grattan calculation based on average ACT house size of 256.3 sqm and ACT gas
tariff of $0.042680/MJ: Taylor (2022), ACTEW-AGL (2022). 7. The ACT Government requires rental properties to have ceiling insulation (from 1
6. Based on a $600,000 loan with less than 5 per cent deposit using calculator from April 2023). The Victorian Government requires an energy efficient heater to be
Rate City (2023). installed.
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National Energy Performance Strategy
Twenty years later, only the ACT has implemented it. It is well 2.4.2 Smaller industrial facilities beyond time for other states catch up. The federal government could
Outside of the Safeguard are thousands of smaller industrial facilities.
incentivise this by making access to any initiatives in the National
Business owners and staff in these facilities often lack expertise in
Energy Performance Strategy conditional on the states and territories
energy management or do not have the time to focus on it.9 And energy implementing mandatory disclosure. To complement this, the federal
efficient equipment can cost more than conventional equipment, and government could fund skills development and rating tools access for
this cost must be born upfront, with the savings only recouped over a property managers to make it easier and quicker to rate properties.
number of years. For small firms, with less liquidity and less certainty
There should also be penalties on landlords for wrongful disclosure.
over how long they will be in business, this can be a strong barrier to
change.
2.4 Industry
2.4.1 A stringent Safeguard Mechanism will improve energy Energy efficiency obligations should be harmonised
performance and reduce emissions
In our 2021 report, Towards net zero: practical policies to reduce
Proposed reforms to the Safeguard Mechanism should drive better industrial emissions, we recommended expanding and harmonising energy performance in large industrial facilities. Over half the emissions state-based energy efficiency obligation schemes (also known as White from the industrial sector come from fuel consumption,8 and these are Certificate schemes), and reforming them to make it easier for the the easiest emissions to tackle. industrial sector to participate.
The proposed approach to multi-year monitoring baselines could act as We do not see additional value in moving to a national White Certificate a disincentive to improve energy performance of existing facilities. The scheme. The Commonwealth has tried this before, and found it difficult government should release more detail about how access to multi-year to make the costs and benefits stack up on a national basis.10 It monitoring will be assessed, and ensure that it maintains the incentive would be better for state-based schemes to continue, with greater for facilities to make incremental improvements to energy performance. harmonisation between them, so that state-specific circumstances can
be addressed.
The reformed Safeguard Mechanisms proposes requiring new facilities to meet a baseline of ‘international best practice, adapted for an
Use an instant asset write-off to align costs and benefits
Australian context’. Given Australia’s energy performance compares so poorly with other countries, too much weighting towards the Australian An instant asset write-off encourages business investment in new context will lock in poorly performing facilities for twenty years or more, assets. It allows businesses to claim an immediate tax deduction for leaving a legacy of higher emissions and higher energy consumption. the cost of an asset in the year it is first used.
This should be taken into account when determining ‘best practice’.
9. EEC (2016, p. 35).
8. Wood et al (2021). 10. DCCEE (2012).
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National Energy Performance Strategy
As noted above, one of the barriers to improving energy efficiency (and achieving the associated emissions reductions) is that the costs of a new asset are paid upfront, but the ongoing savings are realised over a number of years. However, when businesses are already struggling with higher energy prices, there is less spare cash to spend on new equipment.
An instant asset write-off reduces the net upfront cost, which may make the ongoing savings more attractive.
The Federal Government should extend the instant asset write-off for assets that reduce gas or electricity consumption, and encourage smaller industrial firms to use the instant asset write-off to help finance upgrades. This should be a temporary measure, which ends when energy prices return to levels closer to the long-term average.
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