Economic Assignment: Evaluating Energy Policy in Australia

This report provides a critical evaluation of Australia's energy policy, focusing on the impact of government interventions and market dynamics. It begins with an introduction to the energy policy framework, highlighting the significance of the energy sector in Australia's economy. The report then delves into the core issues, discussing supply shortages, the closure of power plants, and the influence of subsidized plants on energy prices. Economic theories, such as supply and demand, are used to explain the energy crisis. The analysis includes a figure illustrating the effect of supply reduction in the energy market. The report further examines the role of renewable energy, particularly wind power, and the consequences of subsidy policies. It critiques the interventionist approach and its adverse effects on the energy market. The report concludes with recommendations for a stable energy supply, including the need for efficient production plants, the adoption of advanced technologies, and encouragement of new power plants while considering emission reduction targets and environmental sustainability. The paper emphasizes the need for a comprehensive and long-term approach to energy policy in Australia.

Running head: ECONOMIC ASSIGNMENT
Energy Policy in Australia
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction................................................................................................................................2
Essence of the story....................................................................................................................2
Economic theories......................................................................................................................3
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................7

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Introduction
The energy policy framework in Australia involves considerable fiscal policy
influence. The energy policy of federal government is designed to give extensive support to
source of energies such as natural gas, coal mining, and fossil fuels. Australian energy sector
has paramount importance in earning of foreign exchange through its contribution to export.
Revenue of the government is largely subjected to earnings from this vital sector. Despite
giving priority to this sector, some factor causes a disrupted electricity supply and high
energy. Therefore, stability in the energy sector needs a proper long-term policy design.
Malcolm Turnbull, Prime minister of Australia concerns with blackout recorded in the last
year and announces future energy policy.
Essence of the story
In the article published on ‘The Australian’, Prime minister gives assurance to for a
stable energy supply in the state. Daily life in Australia are disturbed with high electricity
price and still getting irregular service. One reason of high price is the shortage in power
supply. Many of the power plants in Australia had closed in the last few years reducing the
power supply. The subsidized plants take advantage of the situation and raise the price. Still
they are unable to meet the power demand. All these cumulatively result in inefficiency in the
energy market. Hence, Turnbull criticizes government interventionist policy of giving
subsidy to power plants in certain regions (Theaustralian.com.au. 2017)
In the new policy framework, government officials are directed to make a detailed
analysis of the energy in Australia. The analysis includes existing supply sources as well new
sources, the prices prevailing in the market and information regarding the power production
technology. Based on these information short run measures will be taken in line with the

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demand for power for domestic as well as industrial use. Short-term measures prepare the
base for long term policy (Farzaneh, Doll and de Oliveira 2016). Without designing short-
term policy goals, no effective long-term policy can be designed. Detailed energy policy is
designed after discussion with local retailer as mentioned by Turnbull in the report. Another
major step towards long-term energy policy is taken in terms of analysing the shortage of
base load power. Energy market operator reports in this matter. Government also realizes the
need for huge investment for a secure energy supply (Foran et al. 2017). Therefore,
investment friendly environment are designed to attract private investors to compliment
public investment in this field.
Economic theories
The energy crisis in Australia can be explained with simple theory of supply shortage.
In the free market interaction of supply and demand forces determines the price and quantity
in the market. Now, if for some reason there is a reduction in market supply then market
supply curve will shift leftward (Bumas 2015). With no change in demand condition, the
new equilibrium is obtained at the intersection point of shifted supply curve and old demand
curve. In the new equilibrium price, a small quantity is supplied at a high price. This is
explained in the figure given below

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Figure 1: Effect of supply reduction in the energy market
(Source: As created by the Author)
The figure above shows the effect of a supply reduction in the energy market. A
leftward shift of the supply curve from SS to S1S1 increases market prices from P to P1
while reduces its supply from Q to Q1.
The need for securing a stable energy supply has become a major concern following
state wide blackout recorded in the month of September in 2016 (Chapman, McLellan and
Tezuka 2016). The supply shortage experienced in Australia is resulted from a number a
factors. Wind power is a major swource of renewable energy in Australia. The power plants
in South Australia hat runs wit winf power are heavily subsidized. When government offers
subsidy it benefits the producers in terms of a declining effective cost of production. The
subsidy policy is expected to reduce energy price while transforming the subsidized plants as
major energy suppliers. However, the opposite result comes out. In the phase of closure of
some of the existing energy plants, few large plants become powerful (Hua, Oliphant and Hu

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2016). In this time, owner of some powerful gas forcefully restrain their supply to create an
energy crisis in the state and increase power price.
This gives the large gas suppliers and the subsidized plants enough market power to
control the energy market (Council, 2015). The failure of interventionist policy target reflects
the adverse consequences of uncoordinated state policy.
Recommendation
A stable energy supply is the priority of every nation. The policy announced by
Turnbull is expected to solve the supply side problems of the energy market. However, other
aspects need to be considered while designing energy policy. To fill the supply gap,
increasing power production is necessary. In doing so focus should be given on an efficient
production plant. Advanced techno logy should be adapted in the old plants so that emission
can be minimized. The target of Australia is to reduce emission to a level of 26-28% of that
in 2005 in the upcoming years (Devine-Wright 2014). Setting only targets is of no use.
Installation of low emission technology is the o0nly way to reduce emission.
To provide a power supply government should encourage opening of new power
plants. The new power plants will supplement the existing plants. In the initial years
government may provide support to the new plants if needed without violating free market
efficiency. Proper storage of energy is required so that it can be supplied at times of crisis.
Conclusion
The paper has made a critical evaluation of existing and future energy policy in
Australia. The subsidy given to power plants under Renewable Energy target mission fails to
ensure flawless power supply. Rather it increases people’s suffering as they face a high price
in the energy market. The Prime minister has given attention to the ongoing energy crisis and

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tried to mitigate energy problems in the state. Long-term policy goal has been set with
effective short-term measures. The policy suggestion has been made for further improvement
in power supply while keeping in mind the target of least emission and environment
sustainability aspect.

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References
Bumas, L.O., 2015. Intermediate Microeconomics: Neoclassical and factually-oriented
models. Routledge.
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.
Council, C.E., 2015. Clean energy Australia report 2014.
Devine-Wright, P. ed., 2014. Renewable Energy and the Public: from NIMBY to
Participation. Routledge.
Farzaneh, H., Doll, C.N. and de Oliveira, J.A.P., 2016. An integrated supply-demand model
for the optimization of energy flow in the urban system. Journal of Cleaner Production, 114,
pp.269-285.
Foran, T., Fleming, D., Spandonide, B., Williams, R. and Race, D., 2017. Understanding
energy-related regimes: A participatory approach from central Australia. Energy Policy, 91,
pp.315-324.
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.
Theaustralian.com.au. (2017). Turnbull works on long-term energy policy. [online] Available
at: http://www.theaustralian.com.au/news/latest-news/turnbull-works-on-longterm-energy-
policy/news-story/28110d4d8114c95f2a1929c85f6a42d4 [Accessed 18 Aug. 2017].