Certificate schemes – good for governments, but what about customers?

Retailer certificate schemes (RCS) have been growing in popularity in recent years as a policy mechanism to help deliver the energy transition. There are legitimate economic reasons to use certificate schemes: retailers competing against each other can drive innovation and more efficient price discovery. But quite often their existence (and expansion) is because they allow governments to pursue policies without committing funding in the budget.

With cost-of-living growing in focus, it is important customers are not paying more than they need to in order to realise the benefits of these schemes.

Towards the end of the 2000s, several jurisdictions introduced energy efficiency RCSs. More recently, some governments have consulted on the introduction of RCSs aimed at supporting renewable fuels such as green hydrogen and biogas.

Several states have initiated reviews into their schemes. The main ones are a strategic review of the Victorian Energy Upgrades program. That program has been in spotlight particularly with a rapid increase in its effective targets over the period 2021-2025 which saw the cost of Victorian Energy Efficiency Certificates increase significantly. South Australia is also undertaking a strategic review of its Retailer Energy Productivity Scheme. The REPS targets currently only run to this year and the South Australian Government is consulting on appropriate targets and other associated elements of the scheme for 2026-30. In New South Wales there are statutory reviews of the state’s Energy Savings Scheme and Peak Demand Reduction Scheme.

To help inform discussions around the schemes, the Australian Energy Council commissioned a report to unpack the design and performance of the various retailer-led jurisdictional certificate schemes in Australia, which provides some strong insights into their benefits and costs.

The report puts forward some recommendations on how to improve the efficiency of these schemes. It also includes a deeper dive into the Victorian Energy Upgrades program and South Australian Retailer Energy Productivity Scheme.  

The key points of the report are:

• Retailer Certificate Schemes can be an efficient way to harness competition between energy retailers to deliver a policy objective at lowest cost.
• In order to do this, a scheme should have a single metric that can be achieved through a range of activities allowing the market to discover which activities are the most efficient way to achieve the metric.
• A scheme should also be based around tradeable certificates, and balance integrity with low barriers to participation and low administrative costs. Flexibility in compliance is also key.
• Consumers bear the costs of such schemes and so they should demonstrably benefit from the scheme regardless of whether they participate in certificate creation.
• The energy transition is creating a range of new challenges for existing schemes (mostly focussed on energy efficiency) and also driving government interest in creating new schemes (to develop renewable fuels industries).
• Policymakers should look for ways to streamline existing schemes, including features such as banking and borrowing, harmonisation, and allowing trading (where not already a feature).
• Policymakers should avoid creating sub targets, mixing and matching activities that don’t deliver the same outcomes (e.g. mixing fuel-switching, energy reduction and demand management) and undermining additionality.
• Policymakers should also consider the equity implications of such schemes in the context of the growing deployment of consumer energy resources, such as rooftop PV, batteries and electric vehicles.
• In the case of renewable fuels schemes, policymakers should consider if these are the right policy levers, given limited options for qualifying activities and lack of clarity over whether all energy consumers benefit from the development of these industries.

You can read the full report here: Stocktake of Certificate Schemes