Australia is uniquely positioned to emulate California on climate change policy by regulating improved energy and fuel efficiency standards to drive large-scale reductions in greenhouse gas emissions.
Our new report has found that, should the government take aggressive regulatory action, Australia will be able to meet its 2030 emissions reduction target, without an Emissions Intensity Scheme (EIS) for the electricity sector.
Energy productivity activities such as fuel efficiency standards for vehicles and industrial energy efficiency, can contribute around 43 per cent of Australia’s abatement task to meet the 2030 target, or 66Mt of emissions reductions in 2030.
These activities may be implemented at “negative cost” – providing a return over the lifetime of an investment.
While a large volume of energy productivity abatement exists in Australia, capturing these opportunities will require more aggressive regulation, with potential for the National Energy Productivity Plan (NEPP) to be relied on to create stronger incentives for industry to deliver large-scale emissions reductions.
Energy productivity represents a silver bullet for Australian climate policy, in that it can deliver large volumes of emissions reductions at negative marginal cost.
The NEPP can be more aggressively applied to capture negative cost opportunities by better regulating high emitting companies, consumer goods, and government procurements to incentivise the upfront investment to improve energy efficiency.
If policy is ambitious enough, we see the NEPP becoming the short-term driver of Australia’s emissions reduction policy framework through to 2030.
By relying on direct regulation to target energy productivity, Australia can emulate aspects of California’s climate policy framework, where energy and vehicle efficiency standards have been the main driver of emissions reductions.
In that market, policymakers targeted renewable energy and negative cost abatement opportunities via direct regulation to deliver around three-quarters of all emissions reductions, supported by a smaller contribution from industry via a cap and trade program.
But while Australia can adopt the Californian approach and rely on the NEPP to meet its 2030 target, tighter policy settings will also be required to limit emissions growth from large industrial emitters covered by the safeguard mechanism.
Even if aggressive energy productivity regulation is introduced under the NEPP, these gains are likely to be undermined by just a small number of Australia’s largest businesses unless industry is held accountable to stronger emission baselines.
Industry emissions therefore represent Australia’s Achilles heel on climate policy. Irrespective of what is done to regulate energy productivity, the land-sector, or renewable energy, Australia will not meet its 2030 target without tighter emissions controls on industry.
But if industry emissions are curbed under the safeguard mechanism, combined with direct regulation under the NEPP, Australia may be able to meet its 2030 target without further regulation for the electricity sector.
This means Australia may meet its 2030 target without legislating an EIS.
Ultimately, an EIS will be required to provide certainty to investors and support the decarbonisation of the economy in line with a 1.5- to 2-degree target under the Paris Agreement, however, Australia can achieve its current target by relying on energy productivity gains and tighter emissions controls on high emitting industries.
RepuTex is Australia’s largest provider of energy and emissions market analysis, with customers at over 150 of the region’s leading Power, Energy, Metals, Mining, Government and Carbon Farming firms.