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Energy Efficiency & Security

Energy efficiency and security is an important driver for AIGN members, which are (or represent) energy-intensive entities, produce energy commodities and services, or use energy products as feedstock.

There are many factors that have influenced the strength of the Australian economy in the last two decades. Undoubtedly, one of the most important has been the decision by successive governments to pursue competition policy reform, including in energy markets. This has resulted in an economy with an historically strong mining and manufacturing base; these sectors are responsible, directly and indirectly, for substantial revenue and employment.

The provision of “…adequate, reliable and affordable energy to… underpin strong economic growth” 1 is a key priority for the Coalition Government. The Government has commissioned its Chief Scientist, Dr Alan Finked AO, to conduct an independent review in to the future security of the National Electricity Market, 2 with the Preliminary report presented to the Council of Australian Governments (COAG) Leaders’ Meeting on 9 December 2016. 3

The Government is also implementing its National Energy Productivity Plan (NEPP), which “…provides a framework and an initial economy-wide work plan designed to accelerate action to deliver a 40 per cent improvement in Australia’s energy productivity by 2030. The NEPP 2016 Annual Report details that it is expected to contribute over one quarter of the savings required to meet Australia’s 2030 emissions reduction target (see Climate Change section). Under the NEPP, the Government has provided about $10 million in funding for various programs and initiatives, with COAG committing a further $8 million in its 2016/17 budget. 4

The Government has furthermore introduced a number of standards, programs and other tools to boost energy efficiency across Australia, including in households and commercial buildings.5 Energy efficiency for large energy users is a more complex issue; due to the large input costs associated with energy production and use, energy efficiency is one of a number of important factors that large energy users must take into account in all business decision-making.

Energy Efficiency and Energy Intensive Industry
AIGN has prepared a paper examining the many elements business consider when making investments. This paper notes that focusing on energy efficiency whilst ignoring other important inputs will not necessarily result in the most efficient use of energy resources (usually due to highly individualised factors and considerations). Such an approach ignores the underpinning profitability of a business and is therefore unviable. Investment – and hence production – decisions are driven by the combined costs of all inputs and best reflect an individual entity’s perspective of the economic environment and their competitiveness within it. Large energy producers and users, including export and import competing companies, have complex decision-making processes and must consider a wide range of factors; energy efficiency outcomes are just one factor.

Government policies and programs that are implemented in the absence of market failure or that do not address the underlying market failure specifically, run the risk of encouraging irrational decision-making.

From industry’s point of view the formula for a step change in energy efficiency is relatively straightforward:

  • A competitive industry = a profitable industry
  • A profitable industry =investment and replacement of capital stock
  • Investment = new energy efficient technology
  • New technology = step-change in energy efficiency

  • Governments can best support investment in industrial business energy efficiency by providing a stable, nationally integrated, energy and climate change policy environment in which policy risks are minimised.

    1 Energy
    2 National Electricity Market Review
    3 Energy Market Preliminary Report
    4 NEPP 20 Annual Report 2016 (p 4)

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