Our political leaders are rightly cautious about policies to reduce greenhouse gas emissions when consumers are under financial stress. The answer isn’t to pretend this was going to be cheap and easy, but to be clear and pragmatic. Most Australians have pretty good b/s meters.
The latest Grattan Institute report, Bills down, emissions down: A practical path to net-zero electricity, shows how emissions can be reduced from electricity generation while total household energy bills can fall significantly.
Much commentary and political debate on energy and climate change policies focuses on higher prices and the impact on cost of living – and there is substance behind this debate.
Over the past five years, electricity prices for Australian households in the states covered by the National Electricity Market have risen by about 15 per cent in Victoria and South Australia, and by more than 30 per cent in NSW and Queensland, all dominated by a single increase of more than 20 per cent in 2023-24.
The major contributor to these increases has not been the cost of renewable electricity – it has been weather disruptions to coal supply, increasingly unreliable coal-fired power plants, and the cost of gas.Â
But identifying the causes doesn’t reduce the price pain.
Over the past 20 years, Australia has made good progress by reducing emissions by 28 per cent from where they were in 2005. In electricity, where fossil-fuelled power has dominated, we have done most of the easy things and it’s getting harder. .
We are also not on track to net-zero electricity by 2050 and, unless corrective actions are taken quickly, the challenges will get harder again after 2030 when current policies expire.
At the same time, Australians are living through the reality of a changing climate. More of us are suffering the social and financial effects of more frequent severe flooding, bushfires, and coastal erosion.
Many Australian households have been acting to reduce their emissions – and, somewhat surprisingly, it’s commonly lower-income suburbs that have the highest numbers of rooftop solar installations.
The good news is that several things have changed in recent years that allow for a new policy approach. As consumers steadily move from gas in their homes and petrol in their cars to electricity, their home energy bills are falling – and that is expected to continue.
The average Australian household will see their total annual home energy bill fall from around $5,800 now, to around $2,900 by 2050.Â
Making these changes – from gas cooking and heating to all-electric houses, and from petrol or diesel cars to electric or hybrid vehicles – across 10 million households will not be simple. Many factors will determine the rate of the change for individual households, and governments will have to support the transition, particularly by helping low-income households with the upfront capital costs of converting to electricity.
The financial benefits of the shift to electricity are clear. But if this shift is not accompanied by a constraint on emissions from electricity generation, we will not meet our climate change objectives. Some form of emissions constraint will be necessary.
The federal government already has a policy that is reducing emissions from heavy industry. It’s called the Safeguard Mechanism and was introduced by the Abbott Government in July 2016.
It was deliberately benign until revised by the Albanese Government in July 2023 with the objective of reducing industrial emissions in line with the net-zero-by-2050 target. This policy can be extended to electricity to align the two sectors, most likely without major revisions. Considering such a change should be part of the 2026 review of the Safeguard Mechanism and could apply from 2031.
Introducing such a policy on electricity sector emissions would have only a modest financial impact on households. The analysis in our report indicates that the annual saving of $2,900 on Australian household energy bills by 2050 will be reduced by only about $100 to $2,800.
And we would be on track to deliver our emissions reduction targets, with renewables’ share of generation rising to around 92 per cent by 2035 and residual emissions in 2050 a modest 5.6 million tonnes.
Over the past 10 years, political leaders have been reluctant to introduce carbon constraints or carbon prices because of the likely increase in electricity bills. Of course, no one wants higher prices, but we need to see the whole story before closing our minds.
Many things have changed over the past 20 years in the way we produce and use electricity. Our changing financial circumstances – with energy bills now heading down –mean that we can pay for lower electricity emissions without lowering our living standards.
Paying an affordable price for cleaner electricity is no different to many other trade-off decisions we routinely make. We choose better schools, leafier streets, and cleaner air, indeed better lots of stuff, even when it costs more, because we value those things.
Pricing carbon will make electricity more expensive than not pricing it. But it will give us something we value: lower emissions. And our report shows that that is now well and truly worth paying for.
Tony Wood is senior fellow, energy and climate change, at the Grattan Institute.
