The Productivity Commission’s latest report on Australia’s transition to net zero highlights significant gaps in emissions reduction policies but fails to address several critical avenues for achieving the target at the lowest cost, according to energy transition experts.
Amandine Denis-Ryan, CEO of the Institute for Energy Economics and Financial Analysis (IEEFA) Australia, said the Commission’s report, released yesterday, “identifies major gaps in Australia’s current emissions reduction policies but overlooks important levers for achieving net zero at least cost”.
The interim report, Investing in cheaper, cleaner energy and the net zero transformation, flags gaps in policy concerning the electricity sector post-2030, industrial facilities exempt from the Safeguard Mechanism, and heavy vehicles.
However, Denis-Ryan noted the report overlooks crucial actions that could drive meaningful and cost-effective progress:
- Comprehensively improving energy efficiency and flexibility.
- Reviewing inefficient electricity network revenue regulation and pricing.
- Reducing fugitive methane emissions from coal and gas extraction.
- Scrutinising the net economic cost-benefit of new coal and gas projects.
Denis-Ryan stressed: “The report does not consider opportunities to improve energy efficiency and flexibility and to upgrade inefficient electricity network regulation and pricing, which could reduce emissions while cutting energy bills and reduce the need for large-scale electricity investment.”
According to the International Energy Agency’s latest assessment, “the goal of doubling the global rate of energy efficiency improvements could provide larger emissions reductions by 2030 than anything else, but looks far out of reach under today’s policy settings”.
Australia’s own annual improvement rates in energy efficiency have slowed since 2015, falling far short of net zero-aligned trajectories.
IEEFA estimates more than 1.7 million inefficient gas and electric appliances are installed annually, costing households over $3 billion in unnecessary energy expenses.
Denis-Ryan explained: “Improving electric appliances’ efficiency nationally would save more electricity per year than the increase needed to accommodate the shift from gas to electric appliances.”
Flexible operation of appliances like hot water heaters and air conditioners could also support the transition, utilising daytime solar capacity instead of exacerbating evening peaks – a move that would reduce the need for costly new generation and grid infrastructure.
Significant untapped potential remains in industrial energy efficiency.
“A program delivered by the Australian Alliance for Energy Productivity in New South Wales found that 80-90 per cent of energy used by compressed air systems is wasted,” said Denis-Ryan.
“Since the closure of the Energy Efficiency Opportunities program in 2014, there has been a gap in comprehensive government policy.”
IEEFA analysis reveals that electricity distribution and transmission networks earned $15 billion in supernormal profits from 2014 to 2023, on top of allowed profits of $17.6 billion, driving up consumer bills and hurting productivity.
“Current regulation based on monopoly assumptions for electricity networks is outdated,” Denis-Ryan said.
“A first-principles review of the economic regulation of electricity distribution networks is essential.”
Distributed energy resources, such as rooftop solar and home batteries, increasingly have the ability to provide grid services, and “IEEFA has found that rooftop solar and batteries could slash summer and winter peak demand in all states, reducing it to zero or below zero in the vast majority of cases”.
However, tariff reform and incentives are needed to maximise benefits.
Coal and gas extraction accounts for 20–25 per cent of Australia’s greenhouse gas emissions. Reducing methane emissions from these sectors would have a “rapid, significant effect on atmospheric warming potential,” Denis-Ryan said.
Methane abatement remains an “inexpensive method with considerable economic and financial benefits,” with 76 petajoules of recoverable methane — worth $950 million — available annually according to IEEFA estimates.
Despite these benefits, the Safeguard Mechanism has failed to drive reductions in fugitive methane emissions, which are projected to remain stable until at least 2035.
IEEFA’s research indicates new liquified natural gas (LNG) projects face high economic risks due to a looming global supply glut that could depress prices and worsen outcomes for existing projects.
“Existing LNG projects in eastern Australia have had disappointing financial results and have led to significant economic costs by driving a tripling in domestic gas prices in the eastern states,” Denis-Ryan explained.
These developments have also led to facility closures and a drop in gas-fired electricity generation.
Furthermore, these projects use and emit substantial quantities of gas and have not demonstrated reliable mitigation through carbon capture or storage.
Denis-Ryan concluded: “IEEFA hopes that the Productivity Commission will take a broader look at the opportunities available to both progress Australia’s emissions reduction agenda and reduce costs for Australians.”
The organisation has urged policymakers to incorporate these overlooked levers, describing them as essential to achieving net zero at least cost while ensuring both affordability and productivity gains for Australian consumers and businesses.