Australian energy productivity goals are slipping out of reach

Australia is unlikely to meet the federal government’s National Energy Productivity Plan’s (NEPP) goal of achieving 40 per cent energy productivity between 2015 and 2030 without changes to existing policies.

Energy productivity is an indicator of the amount of economic output that is derived from each unit of energy consumed and can be improved by increasing the use of renewables, battery storage, improving energy efficiency and carrying out demand management.

Monash Business School’s Dr Mita Bhattacharya and her co-authors have calculated in new research that under the current business as usual scenario, Australia’s states and territories will only achieve a 20 per cent increase in energy productivity by 2030.

South Australia, Victoria and Western Australia are forecast to achieve 22 per cent energy productivity, followed by Queensland at 20 per cent, New South Wales at 17 percent, the Northern Territory at 16 per cent and Tasmania trailing at 14 per cent.

This could drag on states’ economies that are already under pressure from the COVID-19 pandemic.

Dr Bhattacharya noted that despite Australia having an abundance of renewable energy sources, it accounts for just 6 per cent of the country’s energy consumption.

“Continuing high dependence on fossil fuels is hampering Australia’s ability to transition to a low carbon dioxide economy at present,” she added.

In order for the NEPP to achieve its 40 per cent target by 2030, it would need to introduce policies aimed at doubling current levels of energy productivity.

COVID-19 impact

Ironically, Dr Bhattacharya believes the disruption caused by COVID-19 to the Australian economy could actually help the country reach these targets in the short term as the crisis has lowered demand.

While greater energy productivity can be achieved by greater efficiency, reduced energy consumption also helps to improve the indicator.

Australian governments are preparing to prioritise the needs for the renewable energy sector so that states are not too behind in meeting the targets in 2030.

“During this outbreak period, federal and state governments are supporting the essential sectors such as the clean energy sector including renewables, financial and health services, transport (freight) and agribusiness,” Dr Bhattacharya says.

Major policy implementations have been focused recently on a transition to renewable resources along with clean energy policies for non-renewables, including changes in energy mix, investment in energy technology and clean energy resources, Dr Bhattacharya added.

This is the same objective that the International Energy Agency (IEA) is aiming for, which noted that renewables, hydrogen and battery storage would help the world meet climate goals and other sustainability objectives.

Falling Energy Prices

Overall, energy consumption is likely to go down, as many businesses either close or pare back their operations.

Additionally, the recent decrease in oil and gas prices should also lower the cost of energy.

“A falling Australian dollar and the outbreak in China will affect the earnings in the mining sector in the short to medium-run. The effects of COVID-19 outbreak in China had already had a deleterious effect on the solar panel, wind and batteries through the supply chain,” Dr Bhattacharya noted.

This will be exacerbated by the subsequent outbreak of the virus in other parts of the world.

To minimise the long-run disruption on energy demand and overall productivity, she suggested that policymakers could continue the adoption of renewable resources, offer rebates in electricity bills to consumers and businesses facing difficulties paying, and maintain the generation, transmission and distribution of power.