Thu Jun 26

Yes, Victoria’s efforts to wean households off gas have been dialled back. But it’s still real progress

Written by Trivess Moore, Associate Professor in Property, Construction and Project Management, RMIT University

On the question of gas, Victoria’s government faces pressure from many directions.

The Bass Strait wells supplying Australia’s most gas-dependent state are running dry ^[1]. Gas prices shot up in 2020 and have stayed high ^[2]. Natural gas is mainly methane, a potent greenhouse gas.

But weaning more than two million ^[3] gas-using households off the fossil fuel is hard. The gas lobby pushed back ^[4] against proposed changes, as did ^[5] the Victorian Chamber of Commerce and Industry, while resistance from some stakeholders led to a backdown ^[6] on plans to phase out gas cooktops.

That’s why the government’s decision ^[7] to introduce most of the proposed changes is good news. Early plans to require dead gas heaters to be replaced with electric are gone for private housing. But from 2027, new homes have to be all-electric, while landlords will have to replace defunct gas appliances with electric and have ceiling insulation. The move will cut energy bills and accelerate the shift away from gas.

How did we get here?

This week’s announcement comes after lengthy consultation ^[8] on changes first proposed in 2021.

Some early responses have been supportive ^[9], though the gas industry isn’t happy ^[10], claiming the reforms will restrict customer choice and cost households more.

Premier Jacinta Allan pitched the announcement as a way to reserve dwindling and more expensive gas supplies for industry, stating:

by 2029, these reforms will unlock just under 12 petajoules of gas every year […] by 2035, they’ll deliver 44 PJ annually – enough to meet 85% of Victoria’s forecast industrial demand.

What are the main changes?

From January 2027, all newly built homes have to be all-electric. This closes a loophole in existing rules where the all-electric rule only applied to new houses requiring a planning permit ^[11].

When a gas hot water system reaches end of life in an existing house, it will have to be replaced with an efficient electric alternative from March 2027.

The news is even better for the rental sector.

In 2021, the state government introduced minimum requirements for rentals ^[12]. These are now being upgraded to include improved energy efficiency.

From March 2027, new energy efficiency rules will apply to rentals and public housing, including:

gas hot water systems and heaters must be replaced with efficient heat pumps at end of life
at the start of a new lease, the rental must have draught proofing, ceiling insulation installed with a minimum R5.0 rating when there is no insulation already, and an efficient electric cooling system in the main living area.

To help households transition, all upgrades are covered under the Victorian Energy Upgrades program ^[13] which will help reduce capital costs.

These plans are welcome. They will cut household energy bills and help meet wider sustainability goals.

As any Victorian who has sweltered over summer or frozen through winter knows, many of the state’s houses are not great on thermal performance. Most existing homes were built before the introduction of minimum standards ^[14] in the early 2000s.

Older homes are also more likely to present health risks such as mould and damp ^[15].

Old gas hot water units in Victoria can be repaired, but replacements will have to be electric from 2027. Rusty Todaro/Shutterstock ^[16]

Trade-offs proved necessary

During the consultation period, the Victorian government floated even more ambitious plans ^[17], such as requiring all households to replace dead gas heaters with efficient electric options.

The government originally explored making electric induction cooktops mandatory in new builds. These plans didn’t get through, potentially because of the attachment some householders feel to their gas heaters and cooktops, as we found in our research ^[18].

The state government looks to have decided not to let perfect be the enemy of the good. Better to make significant improvements even with some trade-offs.

When the market isn’t enough

Policymakers usually prefer the market to find solutions rather than requiring change through regulations.

This isn’t always possible. Here, Victoria’s gas supply challenges, subpar housing stock ^[19] and the pressing need to act on climate change means regulatory nudges are needed.

Could the government’s changes trigger a backlash? It’s possible, especially if the changes are framed as an added cost to landlords and their tenants. All-electric households are cheaper ^[20] to run, but it costs money upfront to replace appliances. Waiting until an appliance’s end of life and providing upgrade subsidies will help reduce the cost impact. High gas-users save more – a Melbourne household quitting gas would save ^[21] almost A$14,000 over ten years.

Trade-offs but still a step forward. Victorian Premier Jacinta Allan and Energy Minister Lily D'Ambrosio inspect a heat pump hot water system at Alan and Samantha Clifford’s Reservoir home this week. Joel Carrett/AAP ^[22]

18 months until launch

The first of these changes will be in place in just 18 months.

Schemes such as this have to be structured carefully. To ensure they work as well as possible for renters in particular, we suggest measures to avoid unintended consequences ^[23], such as means-testing any subsidy schemes to avoid leaving out ^[24] lower-income households.

We found many householders cannot access reliable information on retrofits and don’t always trust ^[25] the skills and information given by tradespeople. This is why it’s vital to have accessible, independent, accurate and trustworthy support in understanding how best to replace gas appliances with electric – and how to assess tradie qualifications.

The government’s decision to exempt rentals with existing ceiling insulation means rentals with old or compacted insulation will miss out.

Victoria should instead look to the Australian Capital Territory, which mandates installation of new R5.0 insulation if existing insulation isn’t at least R2 ^[26].

The government must also ensure renters don’t carry the upfront cost of the upgrades in higher rent. In Sweden, rent increases linked to energy efficiency upgrades were banned ^[27].

For the public to take to these changes, the government must ensure communication is clear and early and that any financial support is adequate and targeted to those most in need.