After last week’s election in the US, I can’t think of a better time to take a step back and reflect on the forces shaping the global energy efficiency market.
But before I get to Trump, I want to note four fundamental drivers in the energy market that have carried over from the pre-Trump era.
The cost of innovative new technology continues to plummet on both the supply and the demand side of the market.
Consumers – both businesses and households – are demanding more control over their energy services, which is driving uptake of these new technologies sooner than anyone expected.
Over the last year, there has been a new clarity and ambition in climate policy around the world, including Australia’s ratification of the Paris climate agreement just last week.
And this new clarity has prompted an increased focus from the world’s financiers on the risks and opportunities associated with the transition underway in our energy system.
The trends are compelling and well established. We can expect them to continue, and that adds up to a world in which ambitious energy efficiency makes more and more sense.
But what about Trump?
There is no doubt that Donald Trump’s victory in last week’s presidential election will have a serious impact on the role of the United States in the global effort on climate change. However it’s worth noting that Trump’s energy and climate policies don’t differ dramatically from standard issue Republican positions.
While many of the president-elect’s views on domestic and foreign affairs break from Republican orthodoxy, a President Rubio or a President Cruz would almost certainly have taken a similar stance to Trump on energy and climate policy.
This is an important point: the instability in the US approach to these issues is not caused by shock events like the election of Donald Trump. It is caused by longstanding and intractable differences in the views of Republicans and Democrats on the appropriate response to climate change.
Until that is resolved, the US will be an unreliable partner in any global climate effort. This leaves Europe, China and maybe – interestingly – California as the global leaders in this space, at least for the next four years.
So we can safely say there are multiple, rapidly shifting and sometimes conflicting forces shaping the global market for energy efficiency. Trump’s election complicates the picture, but doesn’t alter the fundamentals of the market.
A clear trajectory
Indeed the trajectory of the market is indisputable. Just last month the International Energy Agency reported the global energy efficiency market is worth $290 billion, and its growing at 6% a year.
China alone invested $485 billion in energy efficiency between 2006 and 2014, with the annual savings delivering as much “energy” as China’s entire renewable energy supply.
The world is becoming more energy efficient and this has big implications for Australia.
We can go slow, make the transition to a more energy efficient economy later and risk locking in investments in technology and infrastructure that will be unnecessary or uncompetitive in just a few years.
Or we can act, make our homes more comfortable and our businesses more productive, and use the local expertise we develop in the process to export energy efficient products and services to the world.
Of course it’s not about pursuing energy efficiency and not moving to higher levels of renewable generation.
We need to do both, because the transition to low carbon generation will be quicker – and much cheaper – if we drive cost effective energy efficiency at the same time.
Government in the driver’s seat
So how do we grasp this opportunity? One of the highlights of the National Energy Efficiency Conference this week was the keynote presentation from IEA head of energy efficiency Dr Brian Motherway.
Dr Motherway emphasised the importance of good policy making on energy efficiency. In the IEA’s view, the presence of robust policy is the key differentiator between jurisdictions that are making substantive progress on energy efficiency, and jurisdictions that are being left behind.
But what does good energy efficiency policy look like? How do we know it when we see it?
In my view, there are a few tell-tale signs. You know you’ve got a good energy efficiency policy when:
- It is part of an overarching framework that aims to manage the transformation taking place in the way we generate and consume energy.
- Government steps up and takes an active role in supporting businesses and households to become more energy efficient.
- Policy-makers take the time to understand the unique drivers and barriers to energy efficiency in different parts of the economy, and tailors its response to the particular circumstances in each sector.
- Ambition is matched by funding, not in the form of handouts or make-work programs, but resourcing that underpins the necessary research, trials, rollout and scale-up of sensible initiatives.
- NSW leadership on show
Which brings me to some recent developments in Australian energy policy that have been largely crowded out of the news cycle by more sensational news from the US.
Just over a week ago, the NSW government released a suite of new climate and energy plans, including the Draft Plan to Save NSW Energy and Money.
The good news is that the draft plan meets all the criteria for good policy I outlined above.
It is the first time any Australian government has proposed such a balanced, considered and properly resourced set of measures on energy efficiency.
In fact, this plan is a roadmap for NSW joining global leaders California in managing the transformation underway in our energy system.
It proposes things like increasing energy standards for new commercial buildings to ensure these long-lived assets aren’t hogging energy for the next 40 years; supporting large energy users to investigate energy savings opportunities that drive business productivity; accelerating energy efficient appliance standards so mums and dads aren’t stuck with poorly-performing appliances that send their energy bills skyrocketing.
It’s an ambitious agenda, underpinned by an understanding that energy efficiency doesn’t happen by itself and that governments have a central role in unlocking the opportunity.
It has left me with a renewed sense of optimism, that we can use the draft plan as a template for action around the country, and as a launching pad for Australia to export its energy efficiency expertise to Asia and the world.
And that, as the Donald says, would be huge.
This is an edited version of an address given by Luke Menzel, CEO of the Energy Efficiency Council at the National Energy Efficiency Conference 2016.
The National Energy Efficiency Conference took place at Australian Technology Park in Sydney on 15 and 16 November 2016.