IEEFA urges broader review of emissions reduction policies in Australia

An interim report by the Australian Government’s Productivity Commission has identified gaps in the country’s emissions reduction policies, particularly concerning the electricity sector post-2030, industrial facilities exempt from the Safeguard Mechanism, and heavy vehicles.

The report, titled ‘Investing in Cheaper, Cleaner Energy and the Net Zero Transformation’, is part of an initiative aimed at bolstering Australia’s productivity but has overlooked several potential levers for achieving net zero emissions at minimal cost, according to the Institute for Energy Economics & Financial Analysis (IEEFA).

The overlooked areas include enhancing energy efficiency and flexibility, revising inefficient electricity network revenue regulation and pricing, reducing fugitive methane emissions from coal and gas extraction, and critically assessing the net economic cost-benefit of new coal and gas projects.

IEEFA has calculated that more than 1.7 million inefficient gas and electric appliances are installed annually in Australia, costing households more than A$3bn ($1.9bn) in unnecessary energy expenses.

There is a significant opportunity to improve national electric appliance efficiency, which could save more electricity per year than the amount required for the transition from gas to electric appliances.

IEEFA’s analysis indicates that electricity distribution and transmission networks have made supernormal profits of A$15bn over 2014-2023, in addition to “allowed” profits of A$17.6bn, resulting in higher consumer electricity bills and diminished economic productivity.

With the rise of distributed energy resources, current monopoly-based electricity network regulations are outdated.

The growth in household batteries offers a significant chance to reduce household bills and investment in large-scale electricity system assets.

IEEFA’s research suggests that rooftop solar and batteries could significantly reduce peak demand, often to zero or below, in most states during summer and winter. However, appropriate tariffs and incentives are necessary to encourage optimal outcomes for the energy system.

At least 20% of Australia’s emissions, and potentially up to 25% if methane emissions underreporting is accounted for, are attributable to coal and gas extraction.

Methane emissions are projected to remain stable until 2035, with the Safeguard Mechanism proving insufficient for driving reductions.

IEEFA estimates that approximately 76 petajoules of methane, valued at around A$950m, could be recovered annually from the coal and gas sector, which is more than double the anticipated gas demand for power generation in the National Electricity Market in 2025.

IEEFA has also highlighted the economic risks of new coal and gas developments, especially those aimed at liquefied natural gas (LNG) exports.

Eastern Australia’s existing LNG projects have yielded disappointing financial outcomes and have tripled domestic gas prices, leading to industrial facility closures and reduced gas generation.

LNG projects are also associated with significant gas use and emissions that cannot be sufficiently mitigated by carbon capture and storage.

In conclusion, IEEFA urges the Productivity Commission to consider a wider array of opportunities that can advance Australia’s emissions reduction goals while simultaneously reducing costs for Australians.