Economics for Business: Implications of Renewable Energy in Australia

The report discusses the dynamics in the renewable energy sector in Australia and the implications of shifting from non-renewable energy resources to renewable energy. It explains the economic concepts of externalities, cost of production and economies of scale and highlights the positive and negative implications of renewable energy usage. The report concludes by asserting the need to maintain a balance between the views and optimally addressing the trade-off arising in the economy due to this issue.

Running head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Essence of the Article.................................................................................................................2
Economic Interpretation of the situation....................................................................................3
Conclusion..................................................................................................................................7
References..................................................................................................................................9

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Introduction
The global economic scenario experiences considerable fluctuations and dynamics
with time owing to the changes in the economic patterns of different countries at different
periods. The economies of the countries experience considerable fluctuations due to changes
in the various endogenous as well as exogenous factors. While the endogenous factors
comprise of the internal attributes of an economy, the exogenous factors refer to the factors
which usually occur outside the concerned economy but have considerable implications on
the performance of the economic attributes of the country into consideration (Holland 2018).
Keeping this into consideration, the concerned report tries to study the dynamics in
the renewable energy sector in one of the predominant economies in the contemporary global
scenario, the economy of Australia (Clémençon 2016). Given the fact that it is one of the
primary concerns of the government of the country, to reduce the level of carbon emissions,
as per their target, set in the Paris Climate Agreement (2016), the country has been
increasingly focussing on the development of renewable energy plants to achieve lower
emission targets.
However, theses actions are seen to have both positive as well as negative
implications on the different aspects of the economy of the country, thereby giving rise to
substantial debate regarding the trade off which the country is experiencing in its process of
shifting from non-renewable energy resources to renewable energy. The report tries to
discuss the economic implications of the same, with reference to the article by Eryk
Bagshaw, named “Australia's energy operator proposes 'fast change' scenario to cut
emissions by 52 per cent by 2030” (Source: Bagshaw 2018).

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Essence of the Article
As can be seen from the assertions of the concerned article, the Australian Energy
Market Operator has proposed a plan of reducing the greenhouse gas emissions by twice the
amount proposed by the government, by aiming to cut the same by 52% by 2030, in order to
meet the promises made by the country in the Paris Climate Agreement. The Operator aims to
achieve this “Fast Change” by accelerating investment in the arenas of development of
renewable energy plants (Shafiullah et al. 2012). However, this radical plan of the Operator is
expected to face contradictions in terms of the policy framework of the existent government,
which is not that rigid and which has provisions to increase the baselines of the emissions as
per the need of the situations and requirement for the sustenance of the businesses.
The main modus operandi which has been proposed to achieve this target, is by
setting up several new renewable energy zones in the country in order to attain economies of
scale and cost effectiveness in the production of the same. According to the article, the
proposal of seven new zones for renewable energy zones is expected to meet resistance,
especially from those officials who are against provision of subsidies to renewable energy
production activities (Martin and Rice 2012). However, the operator also highlights the
increasing threats of a major share of the coal plants reaching the end of their operating life
by 2040, thereby indicating towards the increasing needs for consolidating investment in the
renewable energy sector.
Economic Interpretation of the situation
The situation regarding the stand of the Australian economy regarding the renewable
energy resources and the debate arising in this aspect in the country can be explained with the
help of the economic concepts of externalities, cost of production and economies of scale.
Given the situation of increasing concern of global emission of greenhouse gases, it has been
of utmost importance for all the economies to reduce their share of emission in the global

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context. Keeping this into consideration, Australia has set up its Renewable Energy Target to
ensure that by 2020, at least 33,000 Gigawatt-hour of the electricity of the country comes
from renewable sources.
Figure 1: Greenhouse gas emission trajectory of Australia
(Source: Bagshaw 2018)
The target of increasing the renewable energy resources is expected to have several positive
implications, which can be explained as follows:
a) Stability of energy in price- This benefit of renewable energy usage can be explained with
the help of the economic concept of economies of scale, which asserts that though the initial
cost of production of such energy can be high due to high set-up costs and fixed costs,
however, with time and with the increase in the production of the same, the cost of
production is expected to decrease, thereby giving rise to increasing returns to scale (Byrnes
et al. 2013). This can be shown with the help of the following figure:

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Figure 2: Economies of scale due to decrease in cost of production
(Source: As created by the author)
b) Continuous and reliable source of energy- These energy resources have lesser scope of
depletion and are expected to be more reliable.
c) Job creation- The increase in the production of the renewable energies is expected to
create larger economic activities thereby increasing the scopes of employments in the
economy. This in turn is expected to increase the economic welfare, thereby increasing the
aggregate demand in the economy, which in turn is expected to induce greater productivity
and economic prosperity (Baumol and Blinder 2015).

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Figure 3: Increase in Aggregate Demand leads to increase in Real GDP
(Source: As created by the author)
In spite of the possible positive implications of renewable resources, there still
remains considerable debate regarding the same, due to the following issues:
a) Initial increased cost- The shift to the renewable resources, is initially increasing the cost
of electricity and other objects of daily consumption which is faced by the residents of the
country.

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Figure 4: Increase in electricity prices in Australia in the last few years
(Source: Morton, 2018)
This in turn is expected to increase the overall cost of consumption as well as
production as electricity is required in all types of industries (Byrnes et al. 2013). This is
expected to increase the overall cost of living at least for the short run. This is an example of
negative externality of shift towards the renewable sources of energy.
c) Investment scepticism- There exists considerable scepticism among the investors
regarding the prospects and sustainability of the renewable energy plants, which in turn
makes it difficult to cumulate investment in this sector thereby making it difficult for the
country to shift radically (Baumol and Blinder 2015).
Conclusion
From the above discussion it can be asserted that in the recent period, Australia is
increasingly and enthusiastically heading towards a shift from the non-renewable fuel to
renewable sources of energy, owing to the country’s commitment. However, though almost

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all agree unanimously to the stand of the country to move towards renewable sources, some
are against the radical ways of change as proposed by others and both have their views
supported by economic conceptual frameworks and theories. Maintaining a balance between
the views and optimally addressing the trade off arising in the economy due to this issue.

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References
Bagshaw, E. (2018). Australia's energy operator proposes 'fast change' scenario to cut
emissions by 52 per cent by 2030. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/politics/federal/australias-energy-operator-proposes-fast-change-
scenario-to-cut-emissions-by-52-per-cent-by-2030-20180123-h0mp6x.html [Accessed 10
Apr. 2018].
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Byrnes, L., Brown, C., Foster, J. and Wagner, L.D., 2013. Australian renewable energy
policy: Barriers and challenges. Renewable Energy, 60, pp.711-721.
Clémençon, R., 2016. The two sides of the Paris climate agreement: Dismal failure or historic
breakthrough?.
Holland, J.H., 2018. The global economy as an adaptive process. In The economy as an
evolving complex system (pp. 117-124). CRC Press.
Martin, N.J. and Rice, J.L., 2012. Developing renewable energy supply in Queensland,
Australia: A study of the barriers, targets, policies and actions. Renewable Energy, 44,
pp.119-127.
Morton, A. (2018). Energy crisis: Wholesale power prices have doubled since the carbon tax
was axed. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/politics/federal/energy-crisis-wholesale-power-prices-have-
doubled-since-the-carbon-tax-was-axed-20170308-gutf8t.html [Accessed 10 Apr. 2018].

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Shafiullah, G.M., Amanullah, M.T.O., Ali, A.S., Jarvis, D. and Wolfs, P., 2012. Prospects of
renewable energy–a feasibility study in the Australian context. Renewable Energy, 39(1),
pp.183-197.