Analyzing Australia’s Policy on Renewable Energy and Free Market

This report analyzes Australia's position on renewable energy, focusing on the economic arguments for and against government subsidies. It discusses a recent article where a politician advocates for a free market approach to energy generation, contrasting it with the current subsidy-driven system aimed at achieving clean energy targets. The report examines the economic principles of free markets and subsidies, highlighting the potential inefficiencies and costs associated with government intervention. It also touches upon political debates surrounding coal power and nationalization. The analysis recommends a balanced approach, suggesting that while renewable energy is crucial, government support should be limited to avoid market failures and high power bills for households. The report concludes by emphasizing the need for technological advancements in existing power plants to reduce costs and emissions, ensuring a steady and affordable power supply.

Running Head: AUSTRALIA’S STAND ON RENEWABLE ENERGY
Australia’s Stand On Renewable Energy
Name of the Student
Name of the University
Author note

1AUSTRALIA’S STAND ON RENEWABLE ENERGY
Table of Contents
Introduction......................................................................................................................................2
Brief story of the article...................................................................................................................2
Economic Analysis..........................................................................................................................3
Free market..................................................................................................................................3
Subsidy in the energy market......................................................................................................4
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

2AUSTRALIA’S STAND ON RENEWABLE ENERGY
Introduction
The source of resources that can be naturally replenished are known as the renewable
energy sources. In contrast to exhaustible energy sources renewable energy sources provides a
secure energy supply for future. Realizing the increasing pressure on energy demand, Australia
has shifted its attention from exhaustible sources to renewable ones. Some common form of
renewable energy sources used in Australia are solar power, hydroelectricity, bio mass, wind mill
and such others (Twidell and Weir 2015). In order to meet more and more demand with
renewable energy demand the government has set clean energy target and provide heavy
subsidies to the energy plants.
Brief story of the article
Power generation from renewable energy plants is costlier than that of any traditional
power plants. For this, government provide subsidies to the new generation power plants to curb
their cost. Josh Frydenberg, famous politician of Australia however stands against government
support in power generation. In a recently published article of a daily new paper ‘The
Australian’, he has claimed that power generation should be handled in a free market. In order to
meet the target of renewable energy Australian household on an average pays $60 a year. The
accumulated cost is estimated to lie between $20 bn and $30 by 2030 (theaustralian.com.au
2018).
The Turnbull government has declared that no subsidies will be paid to coal fired plants.
The energy minister repeated his warning against conservative policies arguing that such policies
are not consistent with right wing ideology. Any further intervention in the power market is thus
expected to lead to further inefficiencies in an already failed market (theguardian.com 2018).

3AUSTRALIA’S STAND ON RENEWABLE ENERGY
Frudenberg has made strong opposition to government assistance either in traditional or in
renewable energy market. Till now, there is a considerable political lobby regarding coal subsidy
to coal plants. Frydenberg however argued that both renewable and coal market should survive
in a free market. The free market battle between the two forms of energy will determine the
future of energy infrastructure (Hua, Oliphant and Hu 2016). Tony Abbott, the former prime
minister has suggested that government should forcefully acquire the Liddell coal power station
in New South Wales to expands it lifespan. This decision is however strongly criticized by Prime
minister Malcolm Turnbull. In the debate Mr. Abott was accused of adapting a socialist policy to
nationalize the means of production. In the mentioned article, Frydenberg has suggested that the
future of energy infrastructure cannot be secured either with a war or with socialist policy like of
nationalization.
Today’s decisions are mostly taken on ideology rather on technology or engineering. The
energy policy in future should be determined keeping in mind the interest of public rather than
political or social ideology. The existing power plants still have an average life of 27 years
(theaustralian.com.au 2018). Therefore, the fossils fuel though cannot be used for lifetime but at
present the plants have capacity to generate sufficient energy to meet national demand.
Economic Analysis
Free market
Free market in economics is defined as an ideal form of market where market price and
quantity are determined by the interaction of the forces of demand and supply. The function of
supply, demand and prices lead to an efficient allocation of resources (Goodwin et al. 2015). Ant
form of regulation in the free market result in inefficiency by distorting price and quantity.

4AUSTRALIA’S STAND ON RENEWABLE ENERGY
Figure 1: Free market equilibrium
(Source: Goodwin et al. 2015).
As depicted in figure 1, equilibrium in a free market is determined at the intersection of
market demand and market supply. At price above the equilibrium price P*, a surplus exists in
the market. Hence, price declines to balance the equilibrium. At price below P*, there is a supply
shortage that pulls the prices up. Because of efficient functioning of free market, Frydenbern has
suggested to leave the energy market free. Any form of regulation can distort price creating
additional burden on household
Subsidy in the energy market
Subsidy is the assistance provided by to government to encourage production of some
specific good. Subsidy reduces the effective cost to producers and aims to provide the good at a
lower cost. The government however has to stand to bear the additional cost of subsidy
(Friedman 2017)

5AUSTRALIA’S STAND ON RENEWABLE ENERGY
. The cost burden to the government ultimately shifts to the common people in form of a higher
tax.
Figure 2: Effect of subsidy
(Source: Goodwin et al. 2015).
As shown above, with a subsidy the price paid by buyers reduces to P1 from the
equilibrium level of Pe. The price received by the producer increases to D. The subsidy cost to
the government is shown by the shaded region. Household has to pay an additional tax to cover
the cost of subsidy. The household in Australia pays $60 to cover the subsidy cost for renewable
energy. This amount adds to electricity bill of household (Mey, Diesendorf and MacGill 2016).
The Energy Minister thus stands against the any form of regulation in the energy market
suggesting free market is the best for survival of any form of energy market.

6AUSTRALIA’S STAND ON RENEWABLE ENERGY
Recommendation
There is no doubt that an uninterrupted supply of energy requires alternative energy
sources to reduce the burden on exhaustible energy sources. The renewable energy plants are
though costlier and hence calls for government support but government assistance should be
provided up to a limited extent (Chapman, McLellan and Tezuka 2016). Too much intervention
leads to market failure where households end up at paying a high power bill. Therefore,
government should also focus on reducing cost of electricity.
Additionally, advanced technology should be adapted in existing power plants so that
cost as well as emission can be minimized.
Conclusion
Australia has focused to achieve a clean energy target by increasing its reliance on
renewable energy sources. In the process, government offers high subsidy to renewable power
plants. This policy however is criticized by energy minister Josh Frydenberg who has suggested
a free market policy to be the best of Australian energy sector. Both the traditional and
renewable energy plants should be left on a free market policy to secure energy infrastructure in
Australia. Additionally, focus should be given on reducing the burden of power bills to the
household. The efficient use of existing plants will help to ensure a steady power supply at a
relatively low cost.

7AUSTRALIA’S STAND ON RENEWABLE ENERGY
References
Chapman, A.J., McLellan, B. and Tezuka, T., 2016. Proposing an evaluation framework for
energy policy making incorporating equity: Applications in Australia. Energy Research & Social
Science, 21, pp.54-69.
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University Press.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Microeconomics in
context. Routledge.
Hua, Y., Oliphant, M. and Hu, E.J., 2016. Development of renewable energy in Australia and
China: A comparison of policies and status. Renewable Energy, 85, pp.1044-1051.
Mey, F., Diesendorf, M. and MacGill, I., 2016. Can local government play a greater role for
community renewable energy? A case study from Australia. Energy Research & Social
Science, 21, pp.33-43.
Murphy, K. (2018). Turnbull's national energy guarantee could have 'no meaningful emission
reduction'. [online] the Guardian. Available at:
https://www.theguardian.com/australia-news/2018/apr/18/turnbulls-national-energy-guarantee-
could-have-no-meaningful-emission-reduction [Accessed 18 Apr. 2018].
Theaustralian.com.au. (2018). The Australian. [online] Available at:
https://www.theaustralian.com.au/national-affairs/power-generation-a-matter-for-the-free-
market-frydenberg-argues/news-story/3e4f2a7d7e3a5edbe6d98d4c6623d330 [Accessed 18 Apr.
2018].
Twidell, J. and Weir, T., 2015. Renewable energy resources. Routledge.