Many Australians use gas for cooking, heating, and hot showers. But Australia won’t hit its net zero emissions target by 2050 unless it gets off gas. To do this, we need to move our homes to efficient electric appliances.
Listen to the authors of Grattan’s latest report, Getting off gas: why, how, and who should pay?, discuss why, how, and who should pay for this change. Featuring Tony Wood, Energy and Climate Change Program Director, Alison Reeve, Deputy Program Director, and Esther Suckling, Associate.
Alison Reeve: Welcome to the Grattan Institute podcast. I’m Alison Reeve, the Deputy Program Director of the Energy and Climate Team. Many Australians, maybe even you, are using gas for cooking, for heating, and for hot showers. But Australia won’t hit its net zero emissions target by 2050 unless it gets off gas. And that means we need to move our homes to efficient electric appliances.
Our new report, Getting Off Gas, explores why and how and who should pay for this change. I’m delighted to be joined by my co authors on this report, Tony Wood, our program director. Hello, Tony. Hello, Alison. And Esther Suckling, the program associate. Hello, Esther. Hey, Alison. So let’s start with some numbers.
How essential is removing gas from Australian homes to hitting our net zero targets?
Esther Suckling: So at the moment, 20 percent of our national emissions come from burning gas and a large part of that actually comes from the LNG industry. There’s quite a lot of domestic gas used just to run that industry and export our LNG.
So we’ve got 20 percent total emissions within that slice, 9 percent of emissions come from LNG. homes and small businesses. That number is national. It’s very variable by state, though. So Victoria and the A. C. T. By proportion have the most usage of gas within homes. Places like Queensland have a much higher proportion of gas used in industrial activities, and then South Australia has a very high amount of gas used.
For gas generation. So the task is quite different for every state getting households off gas is a lower priority emissions wise for somewhere like Queensland, but the whole country will need to tackle household gas by our net zero date.
Alison Reeve: So I think it’s like 2 percent of total national emissions come from household gas.
Is that right? Yep. So that sounds really small. So why are we worried about it now?
Esther Suckling: Yeah. So that’s a great question. And 2 percent does sound quite small. The reason we’re worried about it now is because we have so many tiny users of gas. So there are 5 million Australian homes that use gas for cooking and water heating and space heating.
And 2 million of those homes are in Victoria. So that’s. a big challenge there. So every single one of those homes to get to net zero will have to make their transition off their gas appliances. And so you can imagine kind of the technical logistical difficulties there with such a large number of households.
The other thing is that gas appliances at home have quite long lifespans. So it’s between 10 to 15 years for your gas appliances. And a lot of people would Speak to this themselves. If you haven’t recently bought a gas water heater or a place one, you probably haven’t thought about it for years. So this means that we only have a few decision points where a household will replace their gas appliances to influence.
people to switch to electric. So if we think of the case of Victoria and the ACT, so Tony and I are living here in Melbourne, Alison is in the ACT, we have 2045 net zero targets in both states. That means we have 22 years to get homes off fossil gas. And so if we assume conservatively that your gas stove lasts for 10 years, That’s only two decision points that we have to influence.
So that’s why we really need to start moving on this now.
Alison Reeve: Yeah, I think that’s an important point. But I think there’s also potentially a bit of an opportunity there as well because we know that pretty much every gas appliance in the country is gonna have to be replaced at some point, and a lot of that replacement is gonna take place in the next 22 to 25 years.
And so it’s about how we sort of use that natural decision cycle to make part of this change. Tony. Is it actually you know, apart from the emissions story, is it actually, are there actually benefits for consumers for converting from gas to electric?
Tony Wood: Well, some years ago, when gas was a lot cheaper than it is today gas was a cost effective way to heat your home or cook your food.
That’s changed a lot. And so today, people who have gone off gas towards electricity. Overall, a better off now, that includes the cost of changing over. So if you think about those decision points that Esther was talking about, you’ve got, you’re either building a new home or renovating your kitchen and you’re making decisions about everything at once, or you’re thinking about, you’ve got to replace your cooktop, your water heater, whatever, with it.
It blows up for every reason, hopefully your cooktop hasn’t blown up. What then happens is that you have to make that decision. Now, what we’ve taken into account is the cost of that decision. In some cases today, the electrical appliance will cost more than the gas appliance. And so we’ve taken that into account.
So after you take that into account across the board, everybody from Queensland through to South Australia and Victoria would save money. If they change that over, including the cost, they’d pay that off over the next few years as a result of the savings. The savings on using electricity being lower than gas in Western Australia will be slightly the other way because Western Australia is in a fortune position where their gas prices are still very low.
So it’ll take a bit longer So I think that the overall conclusion certainly for the vast majority of us And in case you and I and Esther we would be better off if we’re all electric And that’s where we should be. Now, so the second point, again, beyond the emissions reduction that we get is health. Now, there’s a, in some ways this issue can be a bit disputed, but there’s clear evidence that changes in the air that you breathe will cause asthma, and in particular, it seems to have more of an impact on children.
There’s been a lot of work done that suggests that cooking with gas. Does in fact increase the incidence of asthma. So somewhere between 12 and 20 percent of asthma cases have been linked to cooking with gas. Now, to some extent that could be cause the range hood isn’t working properly, or you’re not using it or it stopped venting to the atmosphere.
It’s just basically letting the gases come back into the house. Now, these are, these results have been disputed by some, but there’s a lot of evidence that there’s a correlation. And so it would seem to be on the precautionary side. That whilst you’ve got the benefits of savings of emissions and costs, the at least general acceptance that there’s going to be a benefit from avoiding the health problems would be valuable.
On the other hand, I think it’s also important that when these things are disputed, that the health authorities have a pretty close look at it. And I think a number of them are doing that, certainly around the world.
Alison Reeve: We’ve got five million homes. That we need to change over. We know that this is gonna save people money and we know that there’s potentially some health benefits for some people, and it’s an obvious task that we need to do to get to net zero.
So where should governments actually start with this?
Esther Suckling: So the first thing that we think governments should do as a starting point is to make a clear end date for. And make that very publicly communicated so that all of the players in the economy from households, landlords appliance manufacturers, tradies, everyone knows the direction that we’re heading in and can make their decisions accordingly.
So if you think of a household planning for what appliance to get. Next, it’s really important that they have the clarity around where we’re going with this. So that’s the first thing. The second thing is that we should stop making the problem worse. And that means banning new connections to households and small businesses.
At the moment the ACT has actually committed to making this ban and it will come into place from November of this year and we think that the rest of the country should follow suit. There’s simply no point trying to urge people off gas and using potentially taxpayer money to do so if you’re at the same time allowing people to join the network.
So, that’s the second one. And then, Tony, did you want to talk about the role of a communications campaign here?
Tony Wood: Yeah, I think because of the nature of this change, in every other case of doing something about emissions, most of the time we can blame and worry about the big coal fired power stations and how they should close.
But in this case, it’s pretty evident, like everyone understands this, that the problem is that we are using these gas appliances in our homes. And we’re the ones that are going to have to change. And that’s a much more difficult message to absorb. It’s not about making people feel guilty and it’s not about forcing them to make change and throw away perfectly good gas appliances because the cost would be significant.
What it is about. Is, as Esther said, setting the direction very clearly, making it very clear that people have got lots of time and most importantly, making sure that people have access to information because I’m sure many people who are listening to this podcast will have the experience when their hot water system fails, they look at the fridge magnet and it’s called your plumber and the plumber says, look, I could change that for you in 24 hours.
Now what you need, of course, is to make sure all of those plumbers are also qualified to give you good info advice for how you would switch over to electricity. And I think that’s one of the big issues, is information. And so a significant communications campaign maintained over a long period of time with good access to information is absolutely critical.
And to be fair, I think one of the places that is beginning to do this is where you are, Alison. That is the ACT government are doing some of this and we are seeing the benefit of good communications there.
Alison Reeve: That’s definitely true. The ACT government’s put a huge amount of effort into communicating this with with the community particularly around that new connections debate, which is going on at the moment, but also just about.
Helping people understand what this is going to mean for them. And I think what’s important is like when they’re going to have to make decisions by. So there’s this whole sort of thing around like make your next choice electric. So it’s not like you have to do something right now, but it’s like making sure you properly set up, as Tony was saying, for when that decision point comes along.
The other thing that’s been quite interesting in the ACT2 is just giving people a personal experience of things like cooking with an induction cooktop. There was a whole new suburb that was built in Canberra that was the first all electric suburb and one of the things that the The housing developer did there was they put cooking classes on every weekend in the display village where you could go along and learn how to cook on an induction cooktop.
And they actually measured people’s attitudes to cooking before and after that, and found that there was a big change in how willing people were to accept that. So there’s a whole sort of thing to, I think, around how you sort of try before you buy on this stuff to help people make the best decision for them.
Tony Wood: How those cooking people deal with their barbecue, for example, Alison, because it seems to me that, you know, I’ve got a I’ve got a barbecue. My indoor cooker runs on electricity, but my outdoor barbecue runs on, on gas, LPG. So what happens about my my gas barbecue?
Alison Reeve: So I should make very clear that the ACT government has not banned barbecues from anywhere, and it LPG, which is LPG is what people using barbecues.
Those are those gas bottles that you buy from the service station. I did some maths on this the other day. If you have a barbecue. You emit about 13 kilos of greenhouse gas emissions in the process of doing that. That’s about one tenth of one billionth of Victoria’s annual greenhouse gas emissions. So it is really not a high priority for anybody at the moment to go after those.
One thing that we do need to do though, I think, is to make sure that appliances perform. Well, I think a lot of people have had a bad experience with electric appliances. You might have, you know, stayed in a holiday house that had, you know, one of those really old electric cooktops with the little spirals on it and, you know, might have found that difficult to cook on.
And so one of the things that we’ve recommended in the report is that we need to get The kind of regulation around stoves and water heaters and heaters that we’ve got around things like washing machines and air conditioners and fridges. And so that means setting a minimum standard that those appliances have to meet and also making sure that they become more efficient over time.
So this means that they’ll perform well and it also gives sort of an additional guarantee that people will save money when they switch over. So electric homes save money and they’re better for the environment. But, we also know in a lot of areas, it’s just not the status quo to have an electric home. So, Esther, what is going on there?
Why, why aren’t people using these electric appliances instead of the gas ones?
Esther Suckling: We found through our research on this report that there’s a number of reasons and only around 50 percent of households could actually decide tomorrow that they were gonna completely upgrade their house to Electricity.
So the first kind of main barrier we can think about is rentals. 30 percent of Australian households rent. And obviously I’m a renter. I know this very well. You don’t have control over your appliances in a rental home. And what’s more, the landlord doesn’t have a huge incentive to upgrade your gas appliance to electric because as we touched on previously, Electric appliances are often more expensive and the savings would flow to the tenant.
So it’s a loss for the landlord. So that’s a huge chunk of homes, which already don’t have that decision. Another group are multi unit homes. So might actually ask Tony here, cause I know you have an apartment. Some of the constraints that have come up in the research is that one, a lot of the time your gas bills are bundled into your body corporate.
And so if one individual apartment decided to make a switch, then they’re not really going to receive the benefits. And another issue is space constraints. So often centralized electric systems, like centralized heat pumps for hot water. They just take up more space than centralized gas, water heaters. What’s your experience there, Tony, in your apartment?
Tony Wood: Well, it’s interesting because I think most. Modern apartment buildings are dealing with two major issues at the same time. One is people are starting to put in their electric cars and charging their electric cars in an apartment building is not simple. It can be done. I’ve done it and it works. And you get the benefits of the, of the cheaper fuel in this case, it’s similarly the same thing.
So the same way that those apartment buildings are putting in the facility so that you can charge your car in the garage and not physically connected to your apartment and you pay the body corporate. In my apartment, if I use gas for my for heating, whatever then for cooking, I only, most, in most apartments, it’s true to say, I think that it’s done where the gas usage is relatively small because many apartment buildings have ducted electrical heating, but they do, they have provided gas through the, through the whole building for cooking.
And that gas is relatively small. So they don’t tend to meter it individually. It’s paid through the body corporate, as you said. And that’s the system that has to be replaced. Now, what it means, I mean, individuals can do it as they like, but they don’t get the benefit. And so the apartment I actually bought had an induction hooked up already.
What it meant was, through my body corporate fees, I’m actually paying for gas that I’m not using. Now, it’s a very small number because gas is such a small usage, but it will change. And so I know that my body corporate is something to grapple with. Okay. As we think about the next few years, what do we do in this building to make sure everybody changes over to gas at the same time?
And everybody, most people are on side with this, and they understand what the issues are, but it has to be planned. And that’s an example, Esther, of the huge number of different circumstances that are going to be faced. But as, as we make the transition and all of them will have to be fixed, they’re all fixable and doable and they all will deliver benefits in the medium to longer term, but you can’t pretend they’re not there.
Esther Suckling: Exactly. Another key constraint is the financial side of things. In a lot of cases, if you were going to replace your gas heating, your gas, water heating and your cooking, and you were going to do it all at once, it could cost you up to 15 grand and the cost gap can be around 5, 000 between. Replacing all with electric and replacing everything with gas.
So we know that a lot of households are already struggling with the energy bills. A quarter of households were found by our MIT study to have struggled in the past year to pay their bills. You know, we’ve had really steady and significant increases in those electricity and gas costs. And so there’s a sort of.
Perverse outcome here where the people who are struggling the most with their bills are also the least likely to have the money up front to be able to upgrade to an induction cooktop, for example, when their gas stove breaks and even beyond people who. Perhaps our high income we found from our research that a lot of people don’t have the 15, 000 in their bank or in an offset account.
Or they may be saving towards another goal and can’t afford to use that money in that way. So. Without any government support there, you face a real equity risk particularly for the poorest people living in, say, public housing, social housing on very low incomes who can’t access those savings.
And finally, and I think we’ve touched on this. A bit throughout this podcast already, we’ve got the more intangible element of preferences. So a lot of people, they may live in a standalone home, which they own, and they might have enough money to switch over, but they simply prefer using gas. Like Alison said, they might’ve had a bad experience with an electric stove, or maybe they haven’t heard of a heat pump heat pumps for hot water, actually.
Pretty rare in Australia. And so this is where it’s really about. Shifting the ideas that people have towards these appliances and giving them as much information to make that choice. One other interesting point I just wanted to touch on that, which Alison found in her research of some survey data is that oftentimes people will say that they prefer a electric appliance, but then when the time comes, they’ll replace a like for like, so a gas water system with a gas hot water system.
Alison Reeve: I think it was interesting too. We did a little informal survey around the Grattan office about what, what appliances people had and what they thought about changing. One of the things that was interesting was that I think we asked 15 different people and we got 45 reasons for why people thought.
You know, that they, they couldn’t make this change. And some of that was people renting, like you said, but some of it was also, I don’t have the money right now, or I want the money for something else, or I live in an apartment building. I think another one that came up too, was people like, Oh, I am going to do it.
I’m just going to do it when we renovate the kitchen. You know, so it was also about timing, and I think this sort of comes back to, you know, talking about the need to give people as much notice as possible as well. It means people can fit these decisions in around everything else that’s going on in their lives.
Esther, just coming back to cost, do you want to talk a little bit more about what we recommended in the report governments should do to help people with that upfront cost?
Esther Suckling: So, what we have recommended is that the government Essentially subsidized banks to give low interest loans to households and what a low interest loan does is it allows you to spread that higher upfront cost over time and better match it up with the savings that come in year on year with your energy bills.
The government took a big step towards this in the recent budget announcement with a one. Billion dollar package, which is going to go towards a lot of home efficiency upgrades, which includes installing electric appliances. And this package is going to be administered through the Clean Energy Finance Corporation.
So it’s going to be at arm’s length from government. And we think that’s a really good thing because. Banks have far more experience with assessing people’s individual loan risk, you know, that’s their job. And so by going through the CEFC and then utilizing the existing banking infrastructure, which people already have a relationship with their bank, what we think will happen is you’ll see more and more of these loan products pop up and more uptake of those loans as well.
Alison Reeve: And Tony, what about people who live in in rented homes or in multi unit buildings and they, they can’t control their appliances? What have we said that governments should be doing to help those households?
Tony Wood: Well, those situations are more complex because I guess This is described quite graphically.
You’ve got the situation where the renter and the homeowner or the building owner don’t see the same cost and benefits. One sees the cost, the other sees the benefits. We think the simplest way would be to give the owner initially a tax write off because you then make, give everybody advice that within a certain, within a period of time, probably by 2030, for example.
That that would become a requirement and so give plenty of people plenty of time to do what they need to do upgrade the house and in the meantime, they would get the benefit up front of the tax write off that would create some momentum because what we think is going to happen is that once you create momentum for these changes, as we saw happen with rooftop solar, the cost come down.
And so by the time we get to the point. Where it becomes effectively the economics favor completely favor doing this and the upfront capital changeover cost is virtually gone, then it created, it’s got, it drives by itself. So you don’t need to provide that support anymore. So it only needs to be relatively short period of time.
Alison Reeve: And I think we should emphasize too, it’s not unusual for governments to set standards around what needs to be in a rented home. So the Vic in Victoria, for example, you can’t rent out a home that doesn’t have a heater in it. And in the a CT you can’t rent out a home that doesn’t have ceiling insulation in it.
So this isn’t sort of a, an abnormal kind of thing. It’s just a way of making sure that rental renters get access to the same things that everybody else does as well. And I think that’s sort of an important part of keeping this. whole transition equitable. What we don’t want is people getting stranded on redundant gas connections because they can’t afford to transition.
Tony, did you want to just mention briefly the sort of what happens with the whole of the gas network as this change is underway and some of the impact that that might have on gas bills if it’s not managed well?
Tony Wood: Whilst we’ve talked a lot about the personal changeover challenges and benefits, this one doesn’t get enough attention because it’s going to be critical to get it right.
What we can see happening here is That people already who can afford the changeover for the reasons that Esther described will make the decision and they are doing that and they convert to electricity. They may pay a relatively modest cost to physically disconnect the gas, but most of the time that’s not very much.
Now what they’ve done is they’ve walked away from the system. A network like a gas network, the chain, the cost of running that network doesn’t change very much, even if there’s less gas going through it, that affects the people who sell the gas, but the network business, the costs are more or less the same.
What that means is that the costs which were previously being paid by the person who’s left. And now being paid for by the person who’s still there. Now that looks not too bad when they’ve only very small numbers, but if this whole process is not just going to keep going, but accelerate, you can see that what happens is that people are leaving increasingly frequently and the smaller and smaller number of people are now left and that’s clearly.
Untenable because you wouldn’t you create what people have called a death spiral and that very bad for what’s going to happen here. So that can’t be allowed to happen as I put it all on consumers who are left is not the right answer. On the other hand, this business, it’s got billions of dollars invested in these assets.
And they would say, well, wait a second, we built this for you. It’s not like a, you know, all refinery or a coal fired power station. It’s actually a social asset and it was built. In some cases we were required to connect people to the grid. And if you just send us broke overnight by writing down the value or assets, that’s not tenable either.
And so again, even if it takes place over a period of time. You’re going to have to make sure that dealing with the financial consequences of effectively writing down or writing off the value of these assets over time has to take place and the whole system has to be operated safely and reliably by the business owners and operators.
And that’s a very tricky issue. Now, we don’t think too many people have grappled with it. The Europeans are doing a little. That means that the government has to decide between the three bodies, the customers, the consumers. Network owners, operators, and the government, who’s going to pay and when and how much?
I don’t think there’s any perfect theoretical answer to that, but it’s going to be very, one of the very important parts of this transition to make those decisions clear. Again, giving people, not just the consumers, but also the businesses. Plenty of time to plan for that future.
Alison Reeve:Look, thank you both for joining me today.
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