Australia will lose opportunities to cut the cost of reducing emissions unless it boosts its poor performance in energy efficiency and productivity, a report by the Climate Institute has warned.

“This research shows that Australia’s energy productivity lags behind other developed countries across many sectors of the economy and that there are significant opportunities to save energy and cut costs with a comprehensive energy efficiency strategy,” said Climate Institute CEO John Connor.

Mr Connor said that Australia needs to set a 2015 deadline to be at the forefront of the Organisation for Economic Cooperation and Development (OECD) energy efficiency improvement.

The report found that many countries are more competitive in energy productivity than Australia, with Australia’s energy efficiency improving at a rate three times slower than the OECD average.

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The report also found that there are potential energy efficiency improvements of up to 73 per cent, 70 per cent and 46 per cent in the residential, commercial and manufacturing sectors respectively.

“The previous government’s Energy White Paper shows that the uptake of commercial energy efficiency opportunities alone could grow our economy by about $1 billion a year,” said Mr Connor.

The Climate Institute commissioned McLennan Magasanik Associates (MMA) to review national energy efficiency options for Australia. The research found that well designed and targeted energy efficiency policies will play a vital role in achieving low cost emissions abatement, which will help to minimise the price impacts of the emissions trading scheme.

The MMA study also identified a range of barriers to improving energy efficiency in Australia. They include information failures in processing and prioritising energy efficiency information, transaction costs of obtaining information and incentive misalignments such as landlords having little incentive if tenants are paying energy bills.

The study also found that capital constraints for low income households, public good aspects of information that discourage private investment and behavioural barriers to decision making are all obstacles to achieving higher energy efficiency and productivity.

Other findings from the research showed that among the OECD countries studied, Australia has the third highest energy hungry economy, is one of the highest energy users for passenger kilowatts travelled, and has only improved its service sector efficiency by 6 per cent between 1990 - 2004. In contrast, Germany and the UK improved their service sectors’ efficiency by 43 per cent and 23 per cent respectively.

The report identified a range of potential areas for effective and efficient government intervention to improve energy efficiency and productivity in Australia. The three broad categories of intervention explored were information, performance standards and financial support.

The report also found that the case for intervention is strong during the initial period of emissions trading. Mandatory targets can also be justified if an emissions trading scheme starts with soft or capped carbon price signals – an option considered by the Garnaut Review’s Draft Report.

“Australia needs to dramatically improve its energy efficiency and productivity and Government action is vital on that front. We’re being left behind in the energy efficiency race and we urgently need policies to reverse our rising pollution by 2012 and make our economy competitive in the emerging global low-carbon economy,” said John Connor.