The decarbonisation of the Australian economy will be one of our most significant transitions in coming decades. It will require major systems change as we transition our energy systems – for households, transport, industry and agriculture – towards new architectures that can deliver net zero carbon emissions.
Governments around Australia are marshalling resources to the net zero cause. At the federal level there are dozens of policy initiatives designed to help transition energy systems, with many more across the states. These include new generation capacity for renewables, new transmission and storage infrastructure, electrification and decarbonisation in industry, as well as the arrival of EVs into the transport system.
How are these investments changing Australia’s energy system? How much progress has been made in moving towards net zero, and how much further do we have to go?
Last year, we published our first annual stocktake on energy transition progress. It found households were well along the way, but a higher tempo was needed in the industrial sectors that account for half of Australia’s energy use.
With new data for 2022-23 just released, now is a good time to take stock of how the agenda is progressing.
The key benchmarks make for some mixed reading. On the upside, the march of renewables continued strongly last year, continuing to chip away towards our national targets. But progress on energy efficiency was held back by deterioration in a few laggard industries, while industrial electrification rates are yet to show an upward trend.
First things first – the main battleground for Australia’s energy transition is in industry, not households.
When people think about the energy transition, they often reflect on everyday impacts. Energy use in the household typically comes to mind: things like home appliances, heating and air conditioning, vehicles, rooftop solar and batteries.
But the data shows that three quarters of Australia’s energy use actually comes from businesses. Energy intensive industrial sectors – manufacturing, mining, construction, agriculture and utilities – currently account for around half (49%) of national energy consumption. Less intensive services sectors contribute another quarter (27%).
There are also major sectoral differences between the types of energy transition changes required. In transport-intensive sectors (mining, construction, agriculture and commercial transport) liquid fuels make up the bulk of energy use. In manufacturing there is much more reliance on gas. Service industries and utilities instead use a lot of electricity.
This data shows that industrial decarbonisation is where the heavy lifting will occur for Australia’s energy transition. And that the decarbonisation paths for each industry will look very different. So how is industry doing in preparing itself for the lift?
The brightest spot in this year’s data is the significant uplift in Australia’s renewable energy generation. In the 2022-23 financial year the supply of renewable energy grew by 12%, a significant uplift in a single year. This continues a long-term trend of rising renewables, with generation tripling over the last decade to 325 PJ per annum.
Most of this uplift has been driven by increasing PV deployments, with solar generation adding 20% in the last year. Wind generation also added 10%. Hydro supply has been steady for a decade at around 60 PJ per annum, and has become a smaller component in the renewables mix as solar and wind have boomed.
However, there remains an exceptionally long way to go before renewables can meet Australia’s energy needs. Renewables currently only account for one-third of national electricity use, and only 5.5% of total energy use.
Indeed, the lift required by renewables will only get steeper. As industries shift from hydrocarbons to electricity, AEMO estimates the amount of electricity required will roughly double by 2050. This suggests that we will ultimately need around 2000 PJ of renewables – six times more than current supply. Storage solutions to manage the intermittency of solar and wind will also need to be deployed at great scale.
A tripling of our renewables capacity in a decade is a major achievement. But we still have a long way to go in the renewables build out.
An overlooked but extremely important front in the energy transition is efficiency – how much energy does industry use per unit of output. Improving energy efficiency is some of the lowest hanging transition fruit, as a joule of energy saved is a joule that needn’t be decarbonised.
Taking the long-term view, Australia has done a good job in improving energy efficiency. Over the last decade, industry has cut its energy intensity by 17%, and households by 19%. Had these efficiency gains not been delivered, Australia’s energy use would be around 850 PJ (or 20%) higher.
With 210 PJ of new renewables added to the network over the last decade, this shows that improving efficiency has done around four times more “transition work” than the renewables build out so far.
However, there remains an exceptionally long way to go before renewables can meet Australia’s energy needs. Renewables currently only account for one-third of national electricity use, and only 5.5% of total energy use.
Indeed, the lift required by renewables will only get steeper. As industries shift from hydrocarbons to electricity, AEMO estimates the amount of electricity required will roughly double by 2050. This suggests that we will ultimately need around 2000 PJ of renewables – six times more than current supply. Storage solutions to manage the intermittency of solar and wind will also need to be deployed at great scale.
A tripling of our renewables capacity in a decade is a major achievement. But we still have a long way to go in the renewables build out.
An overlooked but extremely important front in the energy transition is efficiency – how much energy does industry use per unit of output. Improving energy efficiency is some of the lowest hanging transition fruit, as a joule of energy saved is a joule that needn’t be decarbonised.
Taking the long-term view, Australia has done a good job in improving energy efficiency. Over the last decade, industry has cut its energy intensity by 17%, and households by 19%. Had these efficiency gains not been delivered, Australia’s energy use would be around 850 PJ (or 20%) higher.
With 210 PJ of new renewables added to the network over the last decade, this shows that improving efficiency has done around four times more “transition work” than the renewables build out so far.
Jeffrey Wilson is Head of Research and Economics at the Australian Industry Group.
He leads our economics team and provides strategic direction in developing the research program to support our advocacy, service delivery and policy activities.
Dr Wilson specialises in international economic policy, with a focus on how trade and investment shape the Australian business environment.
