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Would an energy efficiency target or targets be suitable for Australia?
Targets can provide an effective way of communicating the direction and pace of change to the community and measuring progress/providing accountability but there needs to be careful consideration of how these can be applied effectively to drive energy performance. To date – and for good reasons – governments have not adopted a single energy efficiency/performance target across the economy but there have been specific targets set for sectors and programs. For example, the Victorian Energy Upgrades program sets annual targets to 2025 that drive investment in energy efficiency upgrades and these are used by AEMO in its energy system forecasting.
As the discussion paper sets out energy performance comprises more than just energy efficiency and accordingly, target setting will be complex and there are risks in setting a single, whole of economy metric such as a national energy efficiency target. A range of benchmark measures/targets including sector-specific measures may be more effective in driving action. These would also need to encompass more than just energy efficiency gains, to take account of the following issues:
• Energy efficiency needs to be pursued in tandem with fuel shifting/electrification and emissions reduction – to meet our emissions reduction targets.
• Improved energy performance needs to be framed from a system-wide perspective reflecting the role of demand side measures and the scope for actions under the EP Strategy to pursue both energy efficiency and demand response/management opportunities.
Outcome-based targets for specific sectors would provide useful markers for consumers and businesses. For example: timelines for further uplift in building standards and expectations of change in % of building stock meeting a 5 or 7 star rating by 2025/2030; implementation of energy standards for rental housing by all jurisdictions; and deadlines for the implementation of upgrades to existing social and public housing to meet a specified star rating.
An immediate priority for the NEP Strategy should be improved data to underpin policy development, communications to stakeholders and the community and inform effective target-setting and measurement of progress. There is currently a paucity of data on key sectors and areas for energy performance policy intervention, for example: our residential and commercial building stock, its construction date which will indicate star rating and the rate at which it is renewed/upgraded/replaced; and market sales data on appliances and equipment and consumer preferences.
Reporting on energy performance progress in key sectors should be an important element of the NEP Strategy (regardless of whether there is a high level target). For example, a communications campaign on where there has been significant uplift in appliance efficiency and new homes (what proportion of the national housing stock has now been built to at least a 5 star standard). These approaches would help to empower households and businesses and build government and stakeholder understanding of the gaps and need for further/ongoing action.
What are the key opportunities to improve the energy performance of new and existing residential buildings?
Energy performance/emissions standards through the NCC are the key opportunity for new buildings but to maximise their effectiveness they require commitment by governments to timely reviews/implementation; support for industry upskilling and transition; and enhanced auditing and inspection of new builds to ensure they meet standards.
The NCC and state-based building regulations could also be an effective instrument for upgrading existing residential buildings through strengthened and more effectively implemented provisions for alterations/renovations to meet star ratings and inclusion of a clear trigger for the upgrade of the whole house (retrofit of building fabric and installed major appliances consistent with the whole of house package) as part of a major renovation.
Strengthened, comprehensive standards for major appliance categories - hot water systems, heating and cooling - offer a major opportunity for improved energy performance across new and existing buildings. Standards ensure that consumers invest in high efficiency appliances that will lock in cost of living savings and efficiency/demand side/emissions benefits across the energy system. Appliance standards will have a big impact for disadvantaged consumers and renters ensuring that they are not left behind in the move to improved energy performance.
What are key financial and non-financial barriers to the uptake of energy performance improvement opportunities? How can these barriers be overcome?
The key financial and non-financial barriers apply to renters. Energy standards for rental properties provide an effective way of addressing these barriers and can be implemented through a simple framework of targeted requirements for energy efficient hot water systems, heating/cooling, draught-proofing and ceiling insulation that address the major energy costs and enhance comfort and healthy outcomes for renters. These could also be designed to support electrification.
What are the opportunities to improve the energy performance of residential buildings for low-income households?
Targeted standards for rental housing that require landlords to undertake upgrades will have significant benefits for low income households.
What actions should be prioritised to assist low-income households to improve energy efficiency in their homes?
For low income owner occupiers, means tested rebates to support the replacement of inefficient heating with high efficiency heating/cooling. This action would also support a shift to electrification and address potential health risks associated with some older gas heaters.
Introduction of incentives for retrofitting ceiling insulation (supported by an appropriate industry accreditation program) will benefit some households in older homes that are uninsulated or poorly insulated.
What are the key opportunities to improve energy performance of residential buildings for renters?
Regulated standards that require landlords to upgrade their rental property. These standards can be effectively targeted at key areas of energy consumption - hot water, heating/cooling, draught-proofing and ceiling insulation - to allow for ease of implementation and compliance and to maximise cost of living, comfort and health benefits for renters.
How can the energy performance of rental homes be made more transparent to prospective tenants?
A simple checklist to be completed by the landlord identifying the age of the house (built to what star rating) and its key energy performance features (ceiling insulation, draught-proofing, efficient heating/cooling, efficient hot water system).
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Submission to National Energy Performance Strategy consultation
Key roles for Commonwealth/national leadership
National leadership from the Commonwealth through the National Energy Performance (NEP) Strategy will assist in maximising the opportunities and impact of demand side action to: deliver cost savings for consumers; deliver strengthened emissions reduction targets in 2030 and beyond; and support energy resilience as our energy system transitions including by addressing supply pressures and integrating demand side responses into forward planning of Australia’s energy system.
Most importantly, national leadership is required to ensure that consideration of demand side opportunities is embedded in whole of energy system planning and to maximise action in areas where the Commonwealth holds the key levers and where coordination and consistency of action is of paramount importance. These areas should be a key focus for the NEP Strategy recognising that new initiatives will need to complement the activity already occurring at state and territory level.
The Commonwealth has a lead responsibility in two key areas that underpin energy performance: energy performance standards for buildings through the National Construction Code (NCC) and the regulation of energy and emission standards for appliances and equipment through Minimum Energy Performance Standards (MEPS).
2022 saw an important and long overdue step forward with strengthened energy performance standards for new residential buildings. The NEP Strategy needs to confirm a commitment to an ambitious program of progressive ratcheting up of building energy efficiency standards. A key opportunity for strengthening the NCC provisions is to adopt more ambitious requirements for energy performance when buildings are renovated, altered and upgraded. There has been insufficient focus on this area in the NCC work program to date. The NEP Strategy should include targeted action to improve energy performance when existing buildings are undergoing major alterations as a key measure to transform the performance of existing building stock nationwide.
There has been very slow progress in key Commonwealth government programs charged with the development and delivery of comprehensive, up to date energy standards for appliances and equipment. These programs (E3, GEMS) need to be better resourced and accelerated with ambitious targets to ensure that all Australians can rely on performance standards consistent with international best practice. For households and SMEs, there are major gaps with patchy/no standards for key energy consuming appliances – hot water systems, heating and cooling. Addressing these gaps needs to be a priority if the NEP Strategy is to deliver its objective of empowering consumers to reduce their energy costs.
Energy performance improvements can support jobs growth but will require Australian businesses to skill up, plan for and adapt product and production lines to meet the needs of changing markets and the demand for higher performing appliances, equipment and buildings. The NEP Strategy provides government with the opportunity to provide businesses with certainty that these changes are coming especially with respect to the roll out of strengthened standards and fuel switching strategies over the period to 2030.
Why regulated energy performance standards should be a priority
For households and most business consumers ‘to take control over their energy use’ requires strong commitments from government (both Commonwealth and state) to a range of supporting programs and policies. Over many decades of government action on energy efficiency, the most effective interventions have been the imposition of regulated standards that support improved performance through a direct intervention in the market.
Standards lift the bar across the market and ensure that all consumers can easily access improved energy performance – while still supporting consumer choice. Robust and regularly updated minimum standards can have a transformational impact across the market and community as appliances and equipment are replaced and new and upgraded buildings replace old buildings.
To accelerate improvements in energy performance and ensure that all households (including disadvantaged and renters) and businesses (especially SMEs) benefit from improved energy performance, the NEP Strategy needs to pursue further action on energy performance standards for buildings and key appliances/equipment. This will deliver benefits at scale and address identified barriers for SMEs and households (limited knowledge/ability, split incentives for renters, competing priorities).
Energy performance standards operate most cost-effectively when aligned with business and consumer investment cycles – when new homes and renovations are designed and built, when appliances and equipment are replaced – but there are also opportunities for accelerated action such as requiring landlords to upgrade to higher efficiency appliances.
The key challenges for government are to ensure that energy performance standards keep pace with international best practice, adapt to changes in technology and consumer preference (e.g. demand response functionality for appliances and equipment) and are implemented with robust systems for quality control, inspection and performance audit.
There is a strong case for new energy performance standards for rental properties to be adopted by all jurisdictions (noting that there is a phased introduction underway in Victoria). Rental standards will drive improvements in the nation’s poorest quality housing, deliver cost of living and health and comfort benefits to renters, and address the split incentive that currently presents a significant barrier to investment in this sector.
There has been significant interest in the potential for mandatory disclosure regimes as a means of driving energy performance. This offers improved information for consumers but has less certain outcomes than direct market interventions. Disclosure regimes will address some barriers (information asymmetry) but of themselves cannot deliver guaranteed performance improvements and benefits at scale, including for key disadvantaged consumer segments (low income, renter, SME). As with all regulatory regimes, there would be a need for careful consideration of the auditing and compliance machinery required by any new disclosure regime.
Scope of NEP Strategy and considerations re targets
Energy performance cannot be considered in isolation from emissions performance. The NEP Strategy should also support the shift by residential and commercial consumers to low emissions options for appliances and equipment – in particular, setting out a clear pathway for the electrification of residential hot water, cooking and heating including using MEPS to phase out gas appliances.
The NEP Strategy also needs to provide a clear vision of the role of demand side measures as part of our energy system and in the context of the major transition underway to a low emissions energy system.
Targets can provide an effective way of communicating the direction and pace of change to the community and measuring progress/providing accountability. To date – and for good reasons – governments have not adopted a single energy efficiency/performance target across the economy but there have been specific targets set for sectors and programs. For example, the Victorian Energy Upgrades program sets annual targets to 2025 that drive investment in energy efficiency upgrades and these are used by AEMO in its energy system forecasting.
As set out in the discussion paper, energy performance comprises more than just energy efficiency and accordingly, target setting will be complex and there are risks in setting a single, whole of economy metric such as a national energy efficiency target. A range of benchmark measures/targets including sector-specific measures may be more effective in driving action. These would also need to encompass more than just energy efficiency gains, to take account of the following issues:
Energy efficiency needs to be pursued in tandem with other national objectives regarding fuel shifting/electrification and emissions reduction.
Improved energy performance needs to be framed from a system-wide perspective reflecting the role of demand side measures and the scope for actions under the NEP Strategy to pursue both energy efficiency and demand response/management opportunities.
Outcome-based targets for specific sectors would provide useful markers for consumers and businesses. For example: timelines for further uplift in building standards and expectations of change in % of building stock meeting a 5 or 7 star rating by 2025/2030; implementation of energy standards for rental housing by all jurisdictions; and deadlines for the implementation of upgrades to existing social and public housing to meet a specified star rating.
An immediate priority for the NEP Strategy should be improved data to underpin policy development, communications to stakeholders and the community and inform effective target-setting and measurement of progress. There is currently a paucity of data on key sectors and areas for energy performance policy intervention, including for: our residential and commercial building stock, its construction date which will indicate star rating and the rate at which it is renewed/upgraded/replaced; and market sales data on appliances and equipment and consumer preferences.
Reporting on energy performance progress in key sectors should be an important element of the NEP Strategy. For example, a communications campaign on the uplift in appliance efficiency and new homes (what proportion of the national housing stock has now been built to at least a 5 star standard). These approaches would help to empower households and businesses and build government and stakeholder understanding of the gaps and need for further/ongoing action.
Sarah Stephen PSM
3 February 2023
