The transformation of the energy system is crucial for the decarbonisation of Australia’s economy. It has substantial emissions in its own right – with electricity generation around a third of national emissions and other stationary energy around another fifth.

Equally important is that a decarbonised energy system enables the decarbonisation of the rest of the economy, notably through electrification with renewable electricity.

Climateworks analysis shows that electrification is the least-cost way to decarbonise across other areas of the economy, including cars, other road transport, buildings, and many areas of industry.

Climateworks views an integrated process for energy system transition as crucial to reaching net zero emissions and making the most of all available economic opportunities.

Therefore, we consider the key task of the national energy objectives (NEO) is ensuring legislation catalyses the transformation of the energy system to enable economy-wide emissions reductions in line with the Paris Agreement, in addition to reducing emissions within the gas and electricity markets themselves.

We welcome that the Energy Ministers have identified social-equity, and affordability as important future matters for the NEO. We recognise these matters are outside this consultation’s scope, and anticipate engaging with the government on these issues in due course.

The rapid shifts in electricity generation, where the total cost is almost exclusively driven by capital costs, rather than fuel, and the scale of investment required across the energy system, mean that further changes are increasingly important and urgent.

Further action beyond the current proposals will be important to enable energy agencies to properly consider the integration of demand/customer-side initiatives and how the market can incentivise these.

For example, initiatives to improve energy-efficiency and demand-management will optimise system costs.

There may need to be further changes to the NEO to enable this, or it may be that optimisation of the demand/customer side with supply changes is best dealt with through processes such as the National Energy Transformation Partnership.