Improving Productivity & Competitiveness – Energy

Australia’s economic productivity has been declining for some years now, corroborated by our poor rankings on both the recent global energy productivity Index  and the global competitiveness report that placed us 36th and 22nd respectively.   The RBA in a recent report outlined that our productivity (as multifactor productivity (MFP)) has been declining over the past decade and even experienced negative growth in most years since 2005.

We also find ourselves behind other top countries when it comes to innovation and business sophistication, two critical drivers for advanced economies.

Similarly, Victoria is facing significant, perhaps unprecedented, change and challenges with respect to our productivity (incl energy productivity) and competiveness.  There is continued economic uncertainty, aging energy assets, a dwindling manufacturing sector and increased competition and environmental pressures.   These challenges are impacting on the productivity and competitiveness of Victorian industries.

A number of reports and articles from Climate Works and A2SE have outlined the need to improve our energy productivity and the growing role of energy in improving competitiveness.   We have outlined a couple of points below to explore further (over the next few months) as Victoria transitions towards a more efficient and productive economy.

Findings solutions to the energy challenges facing Victoria should not just depend on energy policy instruments, a comprehensive integrated response is required and it must be done in a way that supports continued competitiveness and economic growth.   This means that any successful approach should be contained within a comprehensive economic framework.  So that all feasible options can be balanced and traded off, that barriers and opportunities for making various choices becomes apparent and to ensure economy wide linkages are better understood.

Improving innovative capacity in Victoria is integral to achieving the high levels of productivity (incl energy productivity) necessary to achieve and sustain overall competitiveness.  Building innovative capacity in Victoria, will help to turn ideas into tangible value add products and services.  The RBA also indicated that one of the One of the driving factors responsible for promoting productivity growth within an economy is innovation. We see this transformation occurring in other countries such as South Korea, Singapore, Israel, Germany and others who have developed a whole of government integrated approach to improve the infrastructure, support systems and networks to help organisations and technologies innovative and grow.  Examples include the Tech City in the UK, the Singapore Government’s Cleantech program, promotion by South Korea of the joint research and development programs between state and corporates ( e.g. Green New Deal) and others.

The recent Australian Innovation System Report (2014), released by the Office of the Chief Economist at the Department of Industry and Science indicates that innovation is a key factor in growing a competitive business across all sectors and sizes.

In Victoria, abating energy growth demand and reducing carbon emissions can be achieved by driving innovation in public policies and business models .  While organisations continue to innovate in Victoria, they continue to face information and incentive barriers and market failures restricting opportunities from being developed today.

Over the next few months, we will spend some time outlining our thoughts on what Victoria can do to develop an innovative culture.

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