Subsidies in Solar Energy

The paper discusses the subsidies provided by the government for solar energy in Australia and Japan. It highlights the positive and negative aspects of using solar energy and the advantages and disadvantages of subsidies. The research suggests that the government has spent a lot in subsidizing solar energy for both countries. The paper also discusses the comparative advantage theory related to trade and the opportunity cost of producing renewable energy in both countries.

Running head: SUBSIDIES IN SOLAR ENERGY
Subsidies in solar energy
Name of the Student
Name of the University
Author note

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SUBSIDIES IN SOLAR ENERGY
Executive Summary
The paper states focus on how the government subsidizes the solar energy in both Australia
and Japan. As solar energy produces minimum amount of pollution and is also one of the
cheapest sources of producing energy, therefore the government usually subsidizes it. The
first section consists of the introduction which states the different kinds of subsidies and
grants provided by the government in order to promote the use of solar energy. The second
part of the paper states the different positive and negative approach towards subsidizing the
solar power. It also states the advantages and disadvantages of using solar power. Lastly, the
third section which concludes by providing research which suggests that the government have
spent a lot in subsidizing the solar energy for both the countries.

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Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Conclusion:................................................................................................................................7
Reference List............................................................................................................................8

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Introduction:
The industry of renewable energy in Australia is growing significantly, as its
contribution to the total energy production is increasing over the year. The industry has
produced 15% of the country’s total energy production during 2015-16 and the amount is
significantly over the year (Energy.gov.au. 2018). There is a presence of both fiscal and
regulatory influence of all the levels of government in the energy policy of Australia (Sahu
2015). Different types of grants and financial incentives are provided to the renewable energy
systems of Australia. On the other hand, Japan, which is one of the leading producers of
photovoltaics, is provided of subsidies along with feed in tariff by the government.
Discussion:
There are several positive and negative aspects of using solar energy. According to
the Solar Energy Research and Development of Australia, it has been found that solar energy
can produce sixty percent of on grid electricity of Australia (Sampaio and González 2017).
There is also absence of any kind of health risks for workers working in the solar sector. Most
of the environmental impact and health impact depends on the type of systems used.
However, manufacturing of photovoltaic materials is associated with high amount of health
risks. Companies like Mitsubishi and Toshiba are the leading manufacturers of solar energy
in Japan. The feed in tariff system introduced by the government in Japan guarantees increase
in investment in case of renewable energy (Poruschi, Ambrey and Smart 2018). The FIT
legislation of Japan has faced a huge number opposition from large number of politicians and
from the concerned industries. After the meltdown of the reactors at the power station of
Japan, the government had started generating maximum amount of electricity through the
renewable sources. According to the industry analysis made by The Australian, it suggests
that the small-scale technology certificates which provides incentives for installing solar

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rooftops was been subsidized for around $500 million. As the cost of subsidizing solar energy
increases, the government might face loss after a certain point of time (Sahu 2015). Providing
subsidies has many advantages like it can reduce deforestation and pollution. It can also
improve the standard of living. It also helps to save the environment. One of the main
negative aspects of providing subsidies on energy resources is there will be a heavy burden
on the finances of the government, there can also be increase in the trade deficit. Small
business of solar energy in Australia is also provided concessions on tax. There is also a
presence of ample amount of space which is required for installing large scale solar system
which sometimes can be energy intensive. Therefore, the amount of emission will depend
upon the technology used for production. However, in countries like Japan the government
support the development activities which are essential for producing solar power (Simpson
and Clifton 2016). As a result of climatic changes and reduction of support from public for
the nuclear power, the government focused highly on subsidizing the solar power. Large
amount of tariff cuts along with facing difficulty in securing connections of grid have made
government to develop more solar energy. According to the panel makers of Japan, they have
to reduce the cost to a great extent as there is a presence of huge competition from the
international market (Cherpet al. 2017).
The number of bankruptcies related to solar power has also increases in Japan in the
past few years. As there is only presence of limited availability of land, installing large scale
solar panels has also become a difficult task. The International Energy Agency of Japan is a
kind of subsidy scheme which helps in the in stalling of solar PV systems in the residential
sectors. The Australians even have to pay more than one billion for the roof top solar
installation which will also increase the power cost. The subsidy used in the solar energy also
have been reported to increase after the regulation. According to the reports of the Australian
Energy Market Commission, the prices of electricity will fall down as a result of using

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renewable energy (Kabiret al 2018). There is a huge trend of commercialisation of renewable
energy in Australia. There is also a huge increase in the installation of PV in Australia. There
is always a huge advantage in using solar energy like it can reduce the cost of electricity,
there is also no requirement of high maintenance and they are absolutely environment
friendly. However, installing of solar panels also requires huge space and sometimes it can
also be quite expensive.
The gravity model of the international trade aims to focus to find out the amount of
interaction between two places. The amount of interaction between the two cities is directly
related to the size of the cities. The distance between Australia and Japan is around 6,848km.
The bilateral trade of Australia is directly affected by the per capita gross domestic product,
by the size of the economy and negatively related to the distance between the trading partner,
Japan. The most common language spoken in both the countries is English. The greater the
distance between the countries, thereby reducing the gains from trade. However, there are no
common borders between Australia and Japan as they too far away from each other.
Australians mainly trade coal, iron ore and wool to Japan. The Ricardian model which
consists of the international trade explains the comparative advantage difference across the
nations. The Ricardian model also assumes that all the factors are very similar cross the
countries. The Japan Australia Economic Partnership Agreement provides access for
Australia’s exporters. The pattern of international trade is estimated with the help of gravity
model (Huaet al. 2016). In this context, comparative advantage theory related to trade is used.
According to this theory, a country produces particular product in which it has lower
opportunity costs compare to other countries and this further helps the economy to trade this
with other countries, which experience higher opportunity cost to product the product (French
2017). A study suggests that the natural resources, location and manufacturing bases are the
main advantages for developing renewable resources in Australia. In this way there is a

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significant presence of comparative advantage which the renewable energy has in Australia.
The opportunity cost is the infrastructure of energy which is present currently like using of
fossil fuels. The power station of Japan named, as Solar Ark, which was built in 2002, is one
of the largest solar buildings around the world (Yu, Popiolek and Geoffron 2016). The study
also shows that usage of renewable resources also helps in reducing emissions. The
opportunity cost is also called an alternative cost which suggests that the benefits people
misses out while choosing an alternative over the other. It is therefore the value of something
that is given up in order to gain something. As every thing can be put for some alternative
uses there is a relation to opportunity cost.
Fig: 1 Proportion of solar energy used by Australian household
(Source:Energy.gov.au. 2018).
Calculating opportunity cost with an example
Cost of renewable energy in Australia in USD=$262.5 ($360 AUD for 320w solar
panel) (Solaronline.com.au 2018)
Cost of renewable energy in Japan in USD= $295

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Cost of non- renewable energy in Australia=$1.51 USD per dollar
(GlobalPetrolPrices.com 2018)
Cost of non-renewable energy in Japan=1.35 USD per dollar
AUSTRALIA JAPAN
RENEWABLE ENERY $262.5/$295 = 0.88 $295/$262.5= 1.12
NONRENEWABLE
ENERGY
$1.51/$1.35= 1.12 $1.35/$1.51= 0.89
Opportunity cost of Australia for producing renewable energy = 0.88
Opportunity cost of Japan for producing renewable energy= 0.89
According to the above calculation, Japan has comparative advantage to produce
renewable energy while Australia has comparative advantage to produce non-renewable
energy. As a result, Australia can produce more non-renewable energy to export overseas
while it imports renewable energy from Japan.
Conclusion:
Therefore, it can be said that the government have done enough in subsidizing solar
energy in both Australia and Japan. The cost of subsidizing solar power is also quite high.
The Australian federal government have also introduced Mandatory Renewable Energy
Target with a scheme in order to run until 2020. The solar and the wind energy sources of
Australia will receive subsidies from the government of around $2.8 billion a year so that it
reaches the renewable energy target. The research also shows that Japan ranks second in the

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growth of photovoltaics. The government therefore have done enough for expanding solar
power by providing enough subsidies for both the countries.

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Reference List
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of impacts, successes and failures in the Australian case. Renewable energy, 86, pp.1265-
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Cherp, A., Vinichenko, V., Jewell, J., Suzuki, M. and Antal, M., 2017. Comparing electricity
transitions: A historical analysis of nuclear, wind and solar power in Germany and Japan.
Energy Policy, 101, pp.612-628.
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https://www.energy.gov.au/sites/g/files/net3411/f/energy-update-report-2017.pdf [Accessed
17 Aug. 2018].
French, S., 2017. Revealed comparative advantage: What is it good for?. Journal of
International Economics, 106, pp.83-103.
GlobalPetrpPrices.com (2018). Gasoline prices around the world, 20-Aug-2018 |
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China: A comparison of policies and status. Renewable Energy, 85, pp.1044-1051.
Kabir, E., Kumar, P., Kumar, S., Adelodun, A.A. and Kim, K.H., 2018. Solar energy:
Potential and future prospects. Renewable and Sustainable Energy Reviews, 82, pp.894-900.
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Poruschi, L., Ambrey, C.L. and Smart, J.C., 2018. Revisiting feed-in tariffs in Australia: A
review. Renewable and Sustainable Energy Reviews, 82, pp.260-270.

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Sahu, B.K., 2015. A study on global solar PV energy developments and policies with special
focus on the top ten solar PV power producing countries. Renewable and Sustainable Energy
Reviews, 43, pp.621-634.
Sampaio, P.G.V. and González, M.O.A., 2017. Photovoltaic solar energy: Conceptual
framework. Renewable and Sustainable Energy Reviews, 74, pp.590-601.
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Zhang, H., Zheng, Y., Ozturk, U.A. and Li, S., 2016. The impact of subsidies on
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