Powering homes beyond fossil gas

VCOSS submission to the Building Electrification Regulatory Impact Statement

The Victorian Council of Social Service (VCOSS) strongly supports getting fossil gas out of homes. Electrification is the best pathway to decarbonising the residential sector, and efficient electric appliances are cheaper to run, healthier, and create fewer emissions. 

Historically, Victorian households were encouraged to connect to gas and use it liberally. Often this abundance led to the use of less efficient appliances, and the building of homes that were extremely energy inefficient – that is, difficult to cool in summer and difficult to heat in winter.  

Depleting gas fields, high demand, policy settings favouring export, and international market forces mean that gas is no longer a cheap source of energy for Victorians. Modern electric appliance technologies such as heat pumps are far more efficient than fossil gas alternatives. They are therefore cheaper to operate, consuming less energy for the same tasks. 

It is now also clear that burning fossil gas is a key contributor to greenhouse gas emissions that drive climate change. Meanwhile, our electricity network is increasingly based on renewable energy sources. As such, getting off gas is essential to reaching our net zero targets. 

There is also a growing body of evidence that burning gas in the home is damaging to health, with fugitive (unintentional) emissions linked to increased rates of asthma and respiratory illnesses, especially among children. As much as 12 per cent of all childhood asthma cases in Australia can be attributed to gas cooktops.1 

Victoria uses more fossil gas for residential and commercial purposes than other states, accounting for two-thirds of national household and commercial consumption, and three times more than the next highest user, New South Wales. 2 In fact, Victoria is the only state where the residential use of gas is higher than industrial usage. Victoria is also the only state where fossil gas usage is higher than electricity usage in the homes.3 

In this context, VCOSS has long supported the Victorian Government’s policy of gradual household electrification, and reversal of historic policies that encourage new gas connections. 

If planned well, electrification, as with all climate policies, has the potential to address many of the drivers of inequality in our economy, such as the quality and energy efficiency performance of housing. The reverse is also true: a poorly handled transition will entrench and exacerbate existing inequalities.  

Low-income households already spend a disproportionate portion of their income on energy bills. As such, any effort that assists low-income households to electrify their homes will see a significant reduction in bill stress. This is particularly true when costs for all of life’s basics are high, stretching household budgets from all angles.  

The government has a crucial role to play in ensuring all Victorians can access the benefits of electrification, as some households face structural barriers to electrifying their home. This includes the upfront cost of appliances, the potential costs of rewiring homes, differing rights over modifications to properties between owner-occupiers, renters and people in apartments, the costs of goods and services in rural and regional areas, and language and digital barriers. Often those that would benefit the most from electrification are those that face the most challenging barriers. 

These obstacles can be overcome only through government interventions. We cannot leave the energy transition to market forces.  

In this submission, VCOSS details its support for the Victorian Government’s proposed regulatory changes and recommends: 

  • The Victorian Government lead the way with social housing retrofits. 
  • Support for low-income households to benefit from electrification. 
  • Phasing out gas cooktops. 
  • Enacting strong enforcement and compliance measures, alongside proactive community outreach. 
  • Planning long-term for the eventual end of fossil gas usage in the home. 

Alongside the proposed building electrification requirements discussed here, VCOSS is also a strong supporter of the Victorian Government’s proposed energy efficiency minimum standards for rentals.4 Taken together, these policies represent a significant and ambitious step forward in improving the quality, liveability, and affordability of housing in Victoria. 

The Victorian Government should: 

  1. Enact the proposed Building Electrification regulations. 
  1. Electrify social housing to lead the process, ensure all people can benefit, learn lessons for wider implementation, and build economies of scale. 
  1. Provide additional targeted financial support to help households on the lowest incomes to afford the upfront cost of switching – rather than making them exempt. 
  1. Work towards eventually phasing out gas cooktops in residential properties. 
  1. Create fit-for-purpose guidelines and strong compliance and enforcement measures for installers, and work with communities to build social licence for new requirements. 
  1. Make clear plans for the full decommissioning of the gas network, including 

a) Setting an end date for gas in the home; 

    b) Creating schemes to transition whole neighbourhoods off gas together; and 

    c) Eventually, bring gas infrastructure into public ownership to facilitate a safe and equitable retirement of networks.  

    VCOSS is the peak body for Victoria’s social and community sector, and the state’s premier social advocacy body. We work towards a Victoria free from poverty and disadvantage, where every person and community experiences genuine wellbeing. Read more.

    We welcome the opportunity to provide this input.

    This work is authorised by VCOSS CEO Juanita Pope.

    PRIMARY AUTHOR

    Rory Anderson

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    VCOSS strongly supports household electrification

    The Victorian Government should:

    • Enact the proposed building electrification regulations.

    VCOSS strongly supports the Victorian Government’s proposed requirements for Building Electrification. All-electric homes are cheaper to run, produce fewer greenhouse gas emissions, and are better for health. The proposed electrification requirements represent a crucial step towards cleaner, cheaper, healthier homes. VCOSS applauds this ambition. 

    Carbon emissions from producing and using gas account for 22 per cent of Australia’s overall emissions.5 While also contributing to emissions at the point of combustion, fossil gas itself (which is mostly methane) is more intense in terms of climate warming impact than carbon dioxide. The current reticulated gas network consists of many different types of pipelines, in different states of repair, and with segments dating back to the era of town gas. As such, fugitive (unintentional) emissions are a particular problem. In 2019, leakage accounted for about 3.7 per cent of Victoria’s gas consumption statewide, not accounting for fugitive emissions behind the meter – which are currently largely unknown.6  

    To replace this outdated energy technology, electricity is the best option in the home. Substitutes for fossil gas like “green” hydrogen or biomethane are currently unrealistic and unproven, while electrification is cost effective and ready to go.7 In the context of a climate emergency, we must move quickly with what we know works. Analysis commissioned by the Victorian Government in 2023 showed that emissions from all-electric homes are 16 per cent lower than an equivalent home using both electricity and fossil gas.8 That is even in the context of the current electricity grid, which is mainly reliant on brown coal-fired generation.  

    Electric appliances – particularly efficient versions, such as heat pumps – are more efficient than gas equivalents, and so are cheaper to run.9 According to the Institute for Energy Economics and Financial Analysis (IEEFA), the average Victorian home could save $1,200 a year on their energy bills, and Victorians overall could save a collective $912 million in locked-in costs for each year that appliances were converted to efficient electric at end of life rather than staying with gas.10 The Victorian government found that an all-electric home annually saves up to $1,020 for homes with no solar, and up to $1,250 with solar.11 

    VCOSS also supports end-of-service life of current installed appliances as an appropriate trigger point. Making the switch at this point reduces additional costs, reduces embodied emissions associated with demand for new appliances before end of life, and provides an easy intervention point for new regulations. It is also essential to keep up the pace of decarbonisation to meet our emissions targets in time.12 

    Electrification of homes is likely to occur piecemeal without intervention, with gas cost pressures and environmental concerns likely to drive adoption by wealthier consumers. For people on low or fixed incomes, for people who live in rentals, and other hard-to-electrify properties, this will not be an easy option. Research by the Brotherhood of St. Laurence has shown a high level of public support for a transition away from household gas and toward cleaner energy sources in Victoria, with structural barriers being the key obstacle to participation. 13 So, this change cannot be left to the market.  

    VCOSS believes that government intervention is essential to ensure that the switch to all-electric homes occurs in time to meet emissions targets and occurs in a manner that does not exacerbate or entrench existing economic inequalities. Achieving economies of scale, improving supply chains, and preparing tradespeople to electrify households are also unlikely in the absence of new regulation. 

    As such, the proposed regulations in the Building Electrification Regulatory Impact Statement, along with the Victorian Government’s proposed minimum energy efficiency standards for rental properties, lay out a sensible, orderly path towards getting off fossil gas in the home. 

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    Fossil gas should be removed from social housing as a priority

    The Victorian Government should:

    • Electrify social housing to lead the process, ensure all people can benefit, learn lessons for wider implementation, and build economies of scale. 

    We note the Building Electrification Regulatory Impact Statement cost benefit analysis does not include social housing, as this was examined in the recent RIS for Energy Efficiency Minimum Standards for Rental Properties and Rooming Houses. 

    However, VCOSS takes this opportunity to highlight the importance of government investment in building electrification in social housing and to advocate for prioritisation of this housing stock in Victoria’s progress to electrification.  

    Around 60,000 social housing properties in Victoria currently use gas.14 Residents of these properties face unique barriers to electrification, but also stand to make substantial gains – such as cost savings on bills, reduced health risk/better health and lower healthcare costs – from getting off gas. These household-level benefits accrue to deliver population-level and economy-wide benefits, such as reduced disease burden and increased productivity. 

    VCOSS applauds the significant investment in retrofitting social housing already made through schemes such as the Energy Efficiency in Social Housing Program. However, more support will be needed to ensure social renters access the benefits of electrification. 

    Community housing providers operate with much tighter returns than private landlords and are unable to raise rents for their tenants to recover additional costs. They are also unwilling to do so on moral grounds. In terms of public housing, the Victorian Government as the direct owner has an opportunity to lead the way with electrification.  

    Any direct investment in electrification retrofits in social housing would contribute to building the necessary workforce and supply-chain economies of scale to reduce overall costs to households. Electrifying social housing first would also provide insights on the unique challenges associated with retrofitting different property types, which in turn could be used to ease the transition in private properties. This is particularly true of apartments, which face unique electrification challenges and are not simply a conglomeration of smaller individual homes.  

    Without government leadership – and public investment – to electrify social housing, particularly apartment buildings, these buildings may be some of the last left on the network, exposing social housing tenants to ballooning gas costs.  

    .

    Low-income households need financial supports, not exemptions

    The Victorian Government should:

    • Provide additional targeted financial support to help households on the lowest incomes to afford the upfront cost of switching – rather than making them exempt. 

    VCOSS acknowledges that some exemptions to building electrification regulations are necessary. In cases of particularly hard to electrify buildings – for example if there are constraints due to a building’s structure – and cases where new electricity distribution or transmission wires would be required to the property, exemptions are obviously appropriate. 

    However, the Victorian Government should not use exemptions simply due to high upfront costs where consumers would see significant benefits from electrification, or long-term excessive costs from staying on gas. We urge that some consumers are not simply put in the “too hard” basket. Instead, consumers who cannot afford the upfront cost of electrification should be financially supported to make the switch. 

    The Building Electrification Regulatory Impact Statement correctly identifies cohorts who will struggle to afford the upfront costs of electrification, even at the point of end-of-life of a previous appliance. Households on low and fixed incomes would face affordability issues with the higher cost of efficient electric appliances. Additionally, some homes will face higher costs to electrify, such as in older homes – often owned by older Victorians – that require additional rewiring work, and homes in regional areas where climates are colder and communities encounter challenges due to thin markets.  

    Energy costs are already very high for households that the community sector represents and supports. Increasing energy hardship in Victoria is clearly reflected in concerning trends identified in the Essential Service Commission’s Victorian Energy Market Report 2023-24. In 2023-24, more energy consumers missed bill a payment each month than in 2022-23, and 20,000 more electricity and 14,000 more gas customers owed their retailer at least $300 each month.15 The monthly average number of customers accessing tailored assistance for payment difficulty from their energy retailer has increased for the last three financial years, finishing 2023-24 at 69,518 electricity customers per month, and 62,806 gas customers per month.16  

    Energy is an essential service, one that people cannot live without and cannot safely discontinue using even if they are unable to pay for ongoing usage and will end up accruing debt. The average energy arrears for customers who cannot pay for their ongoing usage when entering tailored assistance from their retailer is currently $1,145 for electricity and $1,003 for gas.17 In extreme cases, debt can be much higher. VCOSS understands from our members that energy support services have seen debts above $10,000. Consumer Action Law Centre recorded a debt of $34,102 for one energy contact to the National Debt Helpline in 2023.18 

    Many people with intersecting cost pressures, such as high housing, food, medical, or transport costs, are forced to make bleak choices like foregoing essentials or lowering energy use to levels that are dangerous to physical and mental wellbeing. Common techniques include reducing heating use, spending more time in bed, and showering less frequently.19 A 2023 Australian Council of Social Service study found that, of surveyed energy consumers receiving income support, almost all were cutting down their energy use and some going without food or medicine to afford energy bills; people reported getting sick because they could not heat their home, including aggravating chronic respiratory conditions, increasing arthritis and joint pain, and increasing depression and anxiety.20 

    Gas appliances can be expected to last up to 20 years. In that time, consumers remaining on the gas network will see skyrocketing prices. While exempting households due to hardship may avoid the upfront cost of new electric appliances, by locking these cohorts into gas, exemptions will simply lead to higher long-term harms and missed benefits.  

    In 2021-2022 the cost of gas almost tripled.21 In Melbourne, households already pay as much as $280 a year just to stay connected to gas.22 The cumulative impact of electrification policy, coupled with existing rising gas prices, will mean that those who stay on the network due to exemptions would see higher and higher charges.  

    IEEFA found fixed and volumetric tariffs charged by gas distribution networks may need to increase an average of 7.7% and 7.5% a year respectively to enable networks to fully recover their costs amid widespread electrification.23 

    Put into context, the average real price rise that has been approved for Victorian gas distribution networks between 2015 and the end of the current access arrangement period (2027-28) ranges from -0.03% to 1.3%.24 

    Consumers would also miss out on significant benefits that households can already achieve through electrification. Currently, even just upgrading old gas heating appliances to efficient electric reverse cycle air conditioners (RCAC) delivers significant savings. In scenarios modelled by Environment Victoria and Renew, replacing gas heating even in low quality (1.6-star) homes saw large savings to energy bills, over $1,000 annually, and reduced emissions when switching gas heating to RCAC.25 

    As RCACs also act as air conditioners, lower income households who could access cheaper efficient cooling, and if removing gas entirely, eliminate the cost of gas supply charges. This could enable the use of heating and cooling more effectively in times of extreme temperatures. Currently, many households ration cooling and heating to dangerously low levels to avoid high prices.  

    Accordingly, VCOSS recommends that rather than exempting households on hardship grounds, the Victorian Government create direct subsidies and rebates that cover the full cost of electrification to enable low-income households to replace gas appliances with electric models and access energy efficiency upgrades. While the Solar Homes and Victorian Energy Upgrades programs offer meaningful discounts to households, a financial support program could cover the remaining costs for efficient electric appliances to ensure households on the lowest incomes can participate in the energy transition. As part of this effort, the Victorian Government could re-launch the Home Heating and Cooling Upgrades program, without user co-payment, to enable access to RCAC. 

    .

    Keeping gas cooktops is harmful to health, and a barrier to removing fossil gas connections 

    The Victorian Government should:

    • Work towards eventually phasing out gas cooktops in residential properties. 

    VCOSS acknowledges the challenges that the Victorian Government faces in including gas cooktops in electrification regulations. Electric induction cooktops are currently a relatively expensive appliance, and we also understand that some cohorts have a particular attachment to cooking with a gas flame.  

    However, an emerging and compelling body of evidence demonstrates that gas cooktops are a danger to health. Allowing continued installation of gas cooktops is also a significant barrier to final gas abolishment in homes, adding unnecessary gas appliance removal work later, and maintaining unnecessary connection charges to household bills. For these reasons, VCOSS recommends the Victorian Government work towards eventually prohibiting gas cooktops in electrification policy. 

    As well as carbon dioxide produced through combustion, gas cooktops release methane through leaks and incomplete combustion, health-damaging air-pollutants such as nitrogen oxides, carbon monoxide, formaldehyde, benzene, and other particulates, especially when used without adequate ventilation.26 Fugitive methane emissions have also been shown to occur even when the cooktop is off and not burning.27 Health impacts include increased rates of asthma and respiratory illnesses.28 As much as 12 per cent of all childhood asthma cases in Australia can be attributed to gas cooktops.29 Some of the chemicals listed above are also carcinogens. 

    Households on lower incomes are more likely to be exposed to these harms, as they are more likely to live in rental properties and other more affordable housing with poor ventilation or older, poorly maintained appliances.30 

    Although the energy use of gas cooktops is low compared to space heating and water heating, keeping a single appliance such as a gas a cooktop in the home prevents the full abolishment of the gas connection – meaning locked-in high gas prices for a single use. Even more concerning is the possibility that those appliances become stranded assets if gas infrastructure is wound down.31 

    There are additional challenges for renters that are not currently addressed in the government’s proposed regulatory reforms and – from VCOSS’ perspective – require attention. For example, neither the Building Electrification proposals or the proposed Energy Efficiency Minimum Standards for Rental Properties and Rooming Houses require the removal of gas cooktops. The well-established split incentive will mean many renters stay on the gas network paying unaffordable prices for it, while being exposed to harmful emissions. 

    Gas cooktops must eventually be phased out through government intervention. Indeed, many consumers who will have switched both space heating and water heating appliances will likely make that choice on their own. In the absence of government policy, it will be vulnerable cohorts who are left behind. 

    Finally, we understand that the cost benefit analysis carried out for the Building Electrification Regulatory Impact Statement quantifies the cost of health impacts from air pollution produced by gas appliances based on the health impacts of gas-fired electricity generation. We acknowledge that this kind of modelling is difficult given limitations with available data, and VCOSS does not have the in-house capability to provide greater insights.  

    However, we strongly urge that further consideration be given to the health impacts of gas cooktops – and other gas appliances – given the growing body of evidence that harmful pollutants are released through their use. The impacts upon household air quality, and by extension health, are likely different and potentially more severe than those of electricity generation. More broadly, given the Victorian Government’s focus on early intervention investment, we would argue that giving adequate weighting to the health costs and benefits of proposed policies is essential for making a strong case for measures that might have high upfront costs, but that deliver significantly greater savings to the State Budget over time from avoided healthcare costs.  

    .

    Strong compliance and enforcement measures should be paired with positive outreach 

    The Victorian Government should:

    • Create fit-for-purpose guidelines and strong compliance and enforcement measures for installers, and work with communities to build social licence for new requirements. 

    The success of the proposed building electrification requirements relies heavily on a large number of service providers – many of which are small-businesses – changing their operations to comply with new standards. These providers will often be the main point of contact for consumers who are required to change their appliances from gas to electric. As the requirements specify end-of-appliance life as the trigger point, these consumers will often be dealing with a broken-down essential appliance when they come to make this decision, potentially left without heating or hot water in the middle of winter. 

    Consumers have been shown to prefer gas heating if their previous heating unit was also gas.32 It is reasonable to assume people want to go with what they know. In this context, providers such as installers and other tradespeople are crucial actors to ensure households understand new requirements to electrify, forming a key pillar of the social licence for the energy transition. 

    Tradespeople have also long been accustomed to replacing appliances such as heaters like-for-like, and do not necessarily understand other considerations such as the comparative running costs. Installing an electric appliance as opposed to a gas one will also often require different qualifications. If tradespeople are not compliant with their regulatory obligations, and consumers who are understandably rushing to replace a broken-down appliance are not familiar with requirements or have a preference for replacing like-for-like, households risk being locked into a new gas appliance for many years.  

    VCOSS recommends the Victorian Government establish strong compliance and enforcement measures to ensure that new requirements are credible. This should include empowering regulators to carry out their crucial monitoring and enforcement role, but also the preventive role regulators play in the provision of guidance and resources that support compliance. 

    Additionally, workforces will need to be adequately trained to carry out new tasks and work as trusted voices for consumers, as the Victorian Government has recognised in its consultation and development of an Energy Jobs Plan for the state. VCOSS commends the Victorian Government on its existing efforts to upskill plumbers to install hot water heat pump systems. These efforts must continue to ensure tradespeople are skilled to deliver electrification across Victoria. 

    To aid the electrification process, the Victorian Government should proactively build awareness of electrification among the community through outreach, partnering with the community sector to do so. This will have the added benefit of building social licence for the transition.  

    .

    Eventually, the Victorian Government should step in to decommission the gas network 

    The Victorian Government should:

    • Make clear plans for the full decommissioning of the gas network, including 
      a) Setting an end date for gas in the home; 
      b) Creating schemes to transition whole neighbourhoods off gas together; and
      c) Eventually, bring gas infrastructure into public ownership to facilitate a safe and equitable retirement of networks. 

    According to the Building Electrification Regulatory Impact Statement, the large changes to usage of fossil gas infrastructure implicit in electrification regulations will require, “careful consideration… [of] how this transition is managed to ensure Victoria’s stringent energy safety and reliability standards are maintained, and the ongoing costs of network operation are shared fairly and affordably between gas users and gas networks.”33 VCOSS is in complete agreement, and we are keen to ensure that high costs and other harms do not fall on communities already experiencing disadvantage. 

    Gas is yesterday’s fuel. It is expensive and harmful. Eventually it will have to be removed from homes once and for all if Victoria is to achieve its ambitious climate commitments. The logical end point of electrification policy is the elimination of the need for infrastructure supplying gas to homes. That infrastructure, currently held by private companies, will need to be decommissioned gradually and carefully. To that end, and to avoid unnecessary harms associated with spiralling costs to customers still on the network, governments will inevitably have to step in to control and plan the drawdown of fossil gas infrastructure.  

    Even in the absence of government policy, it may be that a considerable number of financially well-off customers remove their gas connections due to cost, health, or climate concerns. But without policy to guide this process it will be unplanned and financially harmful to those left on the network. This is often referred to as a “death spiral.” The harms from a death spiral would fall primarily on vulnerable households who have faced structural barriers to participating in electrification. 

    Already, there are signs of a piecemeal draw down.  

    As gas network companies see their customer base decline, they are seeking to use accelerated depreciation to secure extra profits on their way out the door. This is after network operators have already made huge supernormal profits: an investigation by IEEFA found that between 2014 and 2022, gas networks recovered $1.8 billion above their regulated profit allowance.34 

    Accelerated depreciation is no solution, as it protects private profit and shifts the risk onto consumers. But in the absence of government policy to plan the draw down, it is the only tool currently in use to respond to declining usage. 

    In future rounds of reform, the Victorian Government needs to make clear plans for this process. Future measures could include:  

    • Declaring an end date for gas consumption in homes. 
    • Schemes to get whole neighbourhoods off gas together. 
    • Eventual acquisition by government of gas networks and a planned retirement of remaining infrastructure. 

    The Australian Capital Territory has already set a target of 2045 for the end of gas usage in the home. The Building Electrification Regulatory Impact Statement states that under Options 2 and 4, all gas use would be phased out around 2039.35 It therefore stands to reason that setting an end goal for gas around 2045-2050 is feasible even if gas cooktops are excluded from regulatory requirements in the next five years. 

    Getting a whole community off gas has been demonstrated successfully in Esperance, Western Australia, and a similar project is currently being piloted in Morwell, Victoria. Federal Minister for Climate Change and Energy Chris Bowen has recently tasked the Australian Renewable Energy Agency with funding for community electrification demonstration projects across the country, building on a $5.4 million pilot in Wollongong. To ease costs of such schemes, older portions of the network in need of upgrading could be targeted. Areas at the end of long pipelines would also be suitable. These projects should start in communities facing higher levels of disadvantage, who would benefit most. 

    Taking public ownership of gas network infrastructure may be the only realistic policy avenue for the final decommissioning of infrastructure. Private markets cannot be expected to facilitate their own dismantling, certainly not in a manner that shares costs equitably. 

    The United Kingdom’s Regulatory Assistance Project examined options for drawing down gas infrastructure in the UK and concluded that nationalisation would ease the costs of the transition on vulnerable cohorts, as it removes the profit motive from network operation and avoid risks falling on consumers. 36  

    The transfer of network ownership to public hands need not occur in one huge transference. Already, gas networks are divided geographically between different companies. As each segment approaches a tipping point towards a death spiral, and as other schemes retiring whole neighbourhood connections take effect, Government could take ownership piece by piece over time.  

    In other states, many governments retain ownership of electricity network infrastructure, as Victoria does with water infrastructure. The revival of the State Electricity Commission as a public company could also form the first step in this process. And, in the context of long-standing public dissatisfaction with privatised energy, it is reasonable to expect that taking public control of gas infrastructure to ensure an equitable retirement would receive enthusiastic support from Victorians. 

    In considering the issue of network decommissioning, the Grattan Institute describes governments as potential brokers of a “grand bargain” between consumers, businesses, and taxpayers to cover the cost of the draw down of the gas network. 37 VCOSS concurs, and we recommend that the Victorian Government’s ambitious building electrification strategy form the first step in a well-planned journey towards equitable retiring of fossil gas in the home. 

    VCOSS acknowledges the Traditional Owners of Country, and we pay respect to Elders and Ancestors. Our business is conducted on sovereign, unceded Aboriginal land. The VCOSS offices are located on Wurundjeri Woiwurrung land in central Naarm.