Energy savings target could save $3.5bn

The government has released several hundred pages of analysis suggesting a 5% energy savings target and trading scheme would provide net benefits of $3.5 billion. Yet they don’t seem that enthusiastic.

The federal government has released a second cost-benefit analysis of a national energy savings target and trading scheme, finding that it would provide net benefits of $3.5 billion. However the government continues to play down the chances of it implementing such a scheme, in spite of an earlier study coming to similar conclusions.

Back in 2010, Prime Minister Kevin Rudd established a taskforce to investigate the potential for energy efficiency to reduce carbon emissions, while saving the economy money. This report concluded that businesses and households tended to miss opportunities for improved energy efficiency that would leave them financially better off. 

One of its recommendations was that the government establish a scheme similar to ones operating in NSW and Victoria, as well as many jurisdictions overseas, that would set an energy savings target for energy retailers to achieve.

Under such a scheme, products and equipment such as lighting and air-conditioners are assessed to determine energy reductions they achieve relative to current standard practice. These are then awarded credits. Retailers seek to acquire these credits to meet their government-set target and thereby avoid paying a fine. While retailers incur extra costs which they pass onto consumers, the track record of such schemes is that these costs are outweighed by the savings consumers gain from reduced energy consumption.

Three years on and the government is still nervous about committing to such a scheme.  Understandably so given the shrill scare campaigns waged by anyone who thinks they might gain from scaring consumers about apparently skyrocketing costs of living.

The government’s 144 page report (complemented by several other reports containing a further several hundred pages of analysis by consultants) examines the impacts of a scheme that sought to reduce Australia’s energy consumption five per cent below business as usual. 

The chart below provides an outline of the costs and benefits broken down by source over time.  Initially costs outweigh benefits because the energy efficient equipment incurs an extra cost over standard practice. But these then provide energy savings over time, which reduce the costs incurred in supplying electricity and gas to consumers and also reduce the cost of carbon pricing.

Costs and sources of benefits over time from 5 per cent energy reduction target

Graph for Energy savings target could save $3.5bn

Source: SKM-MMA (2013)

According to the government’s report, there would be a small increase in household electricity prices of less than one per cent, but overall households that took advantage of the scheme would reduce their electricity bills by an average of $180 per year through reduced consumption in 2020 and $85 in 2030. The minority of households that they expect would not utilise the scheme would face an annual increase of $10-$15 per year in 2020, rising to $30 to $40 in 2030.

This is an incredibly detailed set of analyses suggesting Australians would be better off with such a scheme in place. Will it be ignored in a political race to the bottom over cost of living scare campaigns and cutting green tape?

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