Australian household energy bills will halve by 2050 as solar panels, batteries, cars and electric appliances become the norm, reducing pressure on the federal government over living costs and creating space for more climate action, a think tank study suggests.
Modeling by the Grattan Institute concludes that reducing greenhouse gas emissions from electricity production, in line with the goal of achieving net-zero emissions by 2050, will reduce average household energy costs from around $5,800 today to around $3,000.
The report states that a drop of approximately this magnitude will occur under existing policies, as households use less gas and gasoline and more clean energy. The biggest savings are expected in gas-dependent Victoria, where modeling suggests average annual spending on petrol, gas and electricity could fall from $6,036 to $2,767.
The report states that emissions cuts in the energy sector are not happening fast enough and that the mid-century net-zero target will not be achieved without a policy that requires cuts in pollution from electricity.
The Grattan Institute has called on the government to consider expanding a policy applied to major polluting industrial sites – the safeguard mechanism – to include power stations. It claims this would limit household energy savings compared to what would happen otherwise, but only marginally – by around 3%.
It claims the safeguard mechanism is already a form of carbon pricing – language the Labor government has avoided since losing a bitter political fight that culminated in the abolition of the coalition government under Tony Abbott. a functional carbon pricing scheme in 2014. The director of the institute’s energy and climate change program, Alison Reeve, said the way people use energy has changed since then “and carbon pricing policy should change too.”
“For too long, federal governments of both political colors have avoided pricing carbon because they feared higher electricity prices,” Reeve said. “Our report shows that the source of this fear is becoming obsolete.”
The Coalition introduced the safeguard mechanism and Labor renewed it in 2023. It takes around 200 industrial sites that release more than 100,000 tonnes of carbon dioxide in Australia every year – including liquefied natural gas plants, coal mines, smelters and factories – to reduce emissions intensity by 4.9% every year by 2030.
Cuts can be made on-site or through the purchase of carbon offsets. Companies that reduce emissions below a benchmark also receive “safeguard mechanism credits” that they can sell to polluters who do not meet their benchmark.
Government data suggests that total direct pollution from installations covered by the safeguard mechanism fell by almost 2% in the first year after Labor’s renewal. But the scheme has been criticized for allowing unlimited use of offsets, despite peer-reviewed studies suggesting it is not delivering what was promised.
A review of the safeguard mechanism is planned for next year.
Reeve said the institute’s modeling assumed electricity companies would make direct emissions cuts and could not rely on Australian carbon credits created through methods that include better coverage of nature.
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She said a carbon tax or a “pure” emissions trading scheme would be better than current policies including the safeguard mechanism – a point also made by former Labor climate and economics adviser Ross Garnaut – but Grattan had focused on what was politically achievable.
“None of those horses are in the race right now,” she said. “You can only bet on the horses that are in the race.”
The Labor Party has faced criticism for delays in rolling out solar and wind farms needed to meet its target of 82% of electricity coming from renewable sources by 2030.
Renewable energy in homes has grown since the introduction of a battery subsidy in July. But investment in large-scale developments – especially wind farms – has slowed, in part due to delays in planning approvals, the construction of transmission links and supply chains.
Federal Minister for Climate Change and Energy Chris Bowen said the government is focused on implementing existing policies, including an underwriting program for major solar, wind and battery developments (known as the capacity investment scheme), the $20 billion “reconnecting the nation” program and the battery subsidy. He said he was “looking at a range of post-2030 settings” but had no plans to include electricity in the safeguard mechanism.
Renewable energy supplied 42% of electricity in the country’s main electrical grid last year.
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