A Guide to Energy Efficiency and Decarbonisation Incentives in Australia

Australia’s federal government and several state governments have developed sophisticated policy mechanisms designed to encourage the implementation of projects that achieve one or more of the following outcomes: improved energy efficiency, electrification, peak demand reduction, renewable energy deployment, and emissions reduction.

All programs discussed in this article are driven, at least in part, by obligations placed on energy retailers and, in some cases, large emitters to reduce energy consumption, deploy renewable energy and storage systems, and in some cases reduce peak electricity demand.

Depending on the specific program, calculation methods and units of abatement measurement vary. However, by and large, implementations under these programs are intended to improve the affordability, sustainability and reliability of energy use, while contributing to broader state and national emissions reduction targets.

The obligations placed on mandatory participants typically require energy retailers to achieve energy savings in the market equivalent to a regulated percentage of electricity sales, or require liable companies with emissions baselines to remain below those baselines.

In practice, it is neither practical for energy retailers to implement energy projects themselves, nor efficient for companies with emissions baselines to reactively deliver projects simply to remain below those limits. Instead, most policy frameworks recognise intermediary ‘agents’ that deliver—or facilitate the delivery of—energy and emissions reduction projects in the market.

The energy or emissions ‘credits’ achieved from these projects can then be sold to obligated parties, who surrender them to meet their obligations.

What these policy frameworks therefore have in common are robust and repeatable methodologies used to determine the energy and emissions savings resulting from eligible upgrades. The intermediary agents are typically accredited under the relevant programs, having demonstrated their ability to verify savings in accordance with the program’s rules and methodologies.

In essence, these programs rely on intermediary agents who aggregate energy savings and sell the ‘right’ to those savings to energy retailers or large emitters. Two broad delivery mechanisms are used:

1. Direct engagement, where agents deliver an agreed quantity of savings directly to the liable party. We will call these direct-delivery programs.

2. Certificate markets, where agents operate independently of liable parties and generate certificates representing a defined quantity of energy savings, peak demand reduction, renewable energy generation or emissions reduction. These certificates are then sold through environmental markets, often with the assistance of brokers. We will call these certificate-based programs.

Regardless of their structure, these programs provide meaningful financial incentives by monetising verified energy savings, peak demand reductions, renewable capacity deployment or greenhouse gas emissions reductions and returning the value of these savings to project participants.

EC Focus operates exclusively in certificate-based incentive programs as described under mechanism 2 above.

The remainder of this article provides an overview of the key programs operating across Australia and explains how projects can access incentives through different certificate-generation pathways.

Energy Incentive Programs in Australia

The most significant programs as follows.

Certificate-based programs:

• Energy Savings Scheme (ESS) – New South Wales

• Peak Demand Reduction Scheme (PDRS) – New South Wales

• Victorian Energy Upgrades (VEU) – Victoria

• Renewable Energy Target (RET) – National

• Australian Carbon Credit Unit (ACCU) Scheme – National

Direct-delivery programs:

• Retailer Energy Productivity Scheme (REPS) – South Australia

• Energy Efficiency Improvement Scheme (EEIS) – ACT

While these programs may differ in structure and objectives, they share a common goal: to accelerate energy efficiency and emissions reduction by creating financial value for verified outcomes.

EC Focus is deeply involved in the certificate-based programs, which are the focus of the remainder of this article.

Key Certificate Programs

NSW Energy Savings Scheme (ESS)

The Energy Savings Scheme (ESS) is a core component of the NSW Energy Security Safeguard and is one of the largest energy efficiency certificate programs in Australia.

The ESS generates Energy Savings Certificates (ESCs) for projects that reduce the consumption of an eligible fuel - typically electricity or natural gas, but also other fuels such as LPG and diesel. Certificates can also be created where projects switch from one fuel to another and achieve a net reduction in non-renewable primary energy consumption. A common example is the replacement of gas-fired heaters with electric heat pumps.

The scheme supports upgrades across the commercial, industrial and residential sectors and is legislated to operate until 2050, providing a reasonable degree of long-term policy certainty.

Eligible projects range from common, repeatable equipment upgrades using the program’s ‘deemed’ methods, through to large bespoke commercial and industrial optimisation initiatives using the program’s ‘project-based’ methods.

The NSW ESS is currently undergoing public consultation relating to proposed rule changes and longer-term reform options. Stay in touch with us to receive updates on forthcoming changes.

Peak Demand Reduction Scheme (PDRS)

The Peak Demand Reduction Scheme (PDRS) is another core component of the NSW Energy Security Safeguard and complements the ESS by specifically targeting reductions in electricity demand during peak periods, particularly during summer.

Projects that reduce peak demand generate Peak Reduction Certificates (PRCs).

In some cases, projects may generate both ESCs and PRCs, allowing incentives to be stacked where scheme rules permit.

The PDRS currently contains only prescriptive ‘deemed’ activities. Unlike the ESS, there is currently no M&V-type pathway for bespoke peak demand reduction projects.

Like the ESS, the PDRS is currently undergoing public consultation relating to proposed rule changes and longer-term reform options. Contact us to get the latest.

Victorian Energy Upgrades (VEU)

The Victorian Energy Upgrades (VEU) program is Victoria’s energy certificate scheme and is also one of the largest energy efficiency programs in Australia.

Projects generate Victorian Energy Efficiency Certificates (VEECs) for installing eligible energy-efficient products or services.

Eligible projects range from common repeatable upgrades delivered through ‘prescribed’ activities, through to large bespoke commercial and industrial optimisation projects using the program’s ‘project-based’ methods.

The VEET Act was amended in 2025 to extend the VEU program to the end of 2045.

The Victorian Government has commenced a strategic review of the VEU program aimed at ensuring it remains fit for purpose and continues to support the government’s policy objectives relating to electrification, energy affordability, emissions reduction and system reliability.

Renewable Energy Target (RET)

The Renewable Energy Target (RET) supports the deployment of renewable energy systems across Australia. It operates through two mechanisms:

1) Small-scale Renewable Energy Scheme (SRES)

The SRES generates Small-scale Technology Certificates (STCs) for eligible renewable energy systems including rooftop solar generation systems up to 100 kW, solar water heaters and air-source heat pumps.

Under the Cheaper Home Batteries Program, STCs may also be generated for eligible battery energy storage systems (BESS).

2) Large-scale Renewable Energy Target (LRET)

The LRET generates Large-scale Generation Certificates (LGCs) for accredited renewable generation projects including rooftop solar systems larger than 100 kW and utility-scale renewable energy projects.

The RET scheme—including both the SRES and LRET—is scheduled to conclude on 31 December 2030. Industry discussions have begun regarding the potential extension or expansion of the SRES beyond this date, although no formal policy proposals have yet been adopted.

ACCU Scheme

The ACCU Scheme is a national program that generates Australian Carbon Credit Units (ACCUs)for projects that avoid or remove greenhouse gas emissions.

Each Australian Carbon Credit Unit (ACCU) represents one tonne of CO₂-e abated, calculated in accordance with the relevant methodology determination.

The scheme includes methodologies covering projects across agriculture, energy efficiency, landfill and waste, mining, oil and gas, and vegetation.

While the ACCU Scheme can apply to a wide range of emissions reduction activities, participation is generally suited to larger projects with substantial and ongoing emissions reductions.

Projects must be registered under an approved method and enter a crediting period—typically seven years—during which emissions reductions are monitored, reported and periodically audited.

The scheme therefore requires detailed project documentation, independent audits and periodic credit issuance. As a result, projects typically need to generate significant annual emissions abatement in order to justify the administrative effort and compliance costs associated with participation.

ACCUs may be surrendered to offset emissions and can therefore be sold to organisations seeking to meet voluntary or compliance emissions targets.

Eligible Activity Pathways

Most certificate schemes provide two primary pathways for generating incentives.

‘Deemed’ or ‘Prescribed’ Activities

These activities use pre-determined savings factors to calculate energy savings for upgrades with predictable performance.

Because savings do not need to be measured individually, these activities are:

• scalable

• lower cost to deliver

• suitable for smaller projects

Common examples include:

• LED lighting upgrades

• air conditioners

• heat pump water heaters

• refrigeration equipment

• pool pumps

• rooftop solar

Project-Based Activities (PBA)

The term Project-Based Activities (PBA) is most used within the VEU, but we use it here to describe any pathway that relies - fully or partly - on measured energy performance rather than predefined savings factors.

This pathway applies to complex or bespoke projects where energy savings must be determined using measured and modelled energy performance.

Typical projects include:

• central plant upgrades and optimisation

• boiler and steam system upgrades

• compressed air system optimisation

• electrification of thermal processes

• building and process automation upgrades

Because these approaches require measurement of energy consumption and other relevant variables both before and after project implementation, each project requires a bespoke analytical approach.

It can therefore take 12–18 months after project completion to fully verify energy savings and generate certificates.

However, these projects typically deliver much larger energy and emissions reductions, and therefore generate significantly larger incentives.

While there is substantial overlap in the methodologies used across programs, important differences exist between how each scheme implements its project-based pathways. These differences will be explored in a future article.

Incentive Stacking

In some cases, projects may qualify for incentives from multiple programs.

For example:

• ESS projects may also generate PRCs under the PDRS

• certain upgrades may qualify for both ESS or VEU certificates and RET incentives

Understanding where stacking is permitted is essential to maximising total incentive value while remaining compliant with program rules.

How EC Focus Supports Energy Upgrade Projects

EC Focus supports organisations across Australia in identifying eligible upgrade activities and generating certificates that monetise reductions in fossil energy consumption, peak electricity demand and greenhouse gas emissions.

Our capabilities include:

• energy and emissions reduction project identification

• project feasibility assessments

• energy savings calculations

• accessing deemed activity incentives

• accessing project-based incentives

• incentive stacking where permissible

By combining engineering expertise with deep knowledge of certificate markets, EC Focus helps organisations unlock financial incentives while accelerating cost savings and decarbonisation outcomes. Get in contact with our team to discuss your project!