Energy use reduction and input productivity growth in Australian industries

A report by the Prime Minister’s Task Group on Energy Efficiency (July 2010) emphasised the need for improved energy efficiency as a response to climate change to ensure a reduction in greenhouse gas emissions from energy consumption in Australia. However, empirical evidence on energy efficiency and its effect on energy use in Australia is scarce. Given this, estimates of the magnitude of the autonomous energy efficiency improvement parameter and the bias in technological change in Australia’s agricultural and industrial sectors have been made, using statistical and econometric techniques. The strong interaction prevailing between capital use and energy productivity in many industries indicates that energy use efficiency may be augmented by optimising capital use. This can be achieved by removing impediments to the use of new capital—that is, by making capital markets more flexible. This should ease the burden on energy efficiency policies or energy conservation measures by providing alternative ways to increase energy efficiency that do not focus on energy use as such. Results of the estimates for overall productivity, input use productivity, the influence of capital on energy productivity, and energy-saving and energy-using bias revealed widely different energy productivity growth rates in different industries studied. Such results suggest a need to revise the 0.5 per cent a year autonomous energy efficiency improvement parameter assumed in most economic projection models used in Australia