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Australia Eco

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Submitted By victor12345
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Introduction
Environmental problem is one of the most concerns in 21st century. Australia has a great responsibility to reduce greenhouse emission as a global stakeholder. This report demonstrated the economic theory behind reducing carbon emissions and potential economic issues. First, a brief overview of Australia’s per capita carbon emissions is given, followed by explaining the relevant economic theory that underlies polices. Last but not least, an analysis of the potential economic issues is discussed.

Australia’s emissions profile
From the report, The Garnaut Climate Change Review, Garnaut (2008)pointed out that, Australia’s per capita carbon gas emissions are the highest of any OECD country and even are among the highest in the world. Statistic shows emissions were 28.1 tones carbon dioxide equivalent (CO2-e) per person in 2008. To be specific, Australia’s per capita emissions are nearly twice the OECD average and more than four times the world average.

Economic theory and government policy
A range of policies were introduced by government to achieve target reductions in carbon emissions sit. In order to ensure that 20 percent of Australia’s electricity supply comes from renewable sources by 2020, first the government launched a carbon market in Australian through carbon pricing mechanism and full emission trading scheme, followed by encourage expansion of renewable energy sources. The economic theory involved is that the goods and services produced by the government as a proportion of total production in the economy, such as solar PV panels manufacturing will enhance the gross domestic product and creates more employment for the society. Government has the economic intervention bases to establish the rule of law and enforcing competition, by which to protect environment for public good.

Potential economic issues of current solar PV subsidy
The aim is to balance margin benefit with margin cost to the society, thus from the expansion of renewable energy sources is maximized. However this project raised a series of problems as well. Government externalities definitely lead to a divergence between private benefits and social benefits, moreover private costs and social costs. That is, traditional energy companies will suffer from government policy. As greenhouse emission price introduced, there is an extra cost for companies to consider. According to market rules, when cost rise, supply will decrease from this way, government reduced carbon emission. Meanwhile, traditional pollution energy companies’ interest damaged. There is a strong conflict between private benefits and social benefits. What is more, with a higher product cost, energy supply companies are not willing to produce more products this leads to a deadweight loss in terms of macroeconomic. Goods and service are not processed under producers’ full productivity and result in market inefficiency. This cause a trade-off between environmental protection and market efficiency.
The Coase Theorem suggests another area need to consider. In practice, government pricing and taxing the greenhouse gas emission and offering subsidies and discount for using PV panel. The Coase Theorem problems are that if there is still an economic benefit, greenhouse gas polluters are seems to continue emission production, even though there is an extra cost applied. The optimal decision is to continue greenhouse gas emission up to the point where the marginal benefit from that activity is equal to the marginal cost. Nevertheless, traditional pollution resource is a mature market for many years; PV panels may find it difficult to compete. Because always with discount and subsidies, an installation fee still exists for customers. People are getting used to the old way and it depends on individuals preferences.
It is need to mention that market failure may be a considerable potential issue for PV panel subsidies. Many causes contribute to market failure results. The main factor main is incomplete property rights of PV panels or the difficulties encountered of enforcing property rights in certain situations such as high transaction costs. As discussed above, people are usually afraid about changes of externalities. Currently, Australia government is using different approaches to address this problem. Command and control approach was implementing as the approval of Environmental Protection Act. In other words, government enforces the laws of the country, particularly with respect to protecting environment and enforcing contracts that limit the emission of greenhouse gas. And it is essential for economic activities which mean a strong correlation between rule of law and PV panel sales growth. A carbon pricing mechanism in July 2012 and a transition to a full emission trading scheme are on schedule to implement. It is common know as a carbon tax. The other effective ways are market-based approaches, such as price based instruments and quantity based instruments. Taxes on carbon emission and subsidies on PV panel installment give new green source energy a significant advantage over traditional polluting energy. And Emission trading scheme is quantity based, polluter need to pay every tone carbon dioxide emission, and PV panel user will receive subsidy bonus by the quantity of solar energy they generated. In Brisbane, this translates into a maximum subsidy on an eligible system of $3,720 (Australian Government, 2012, February, 23). By exerting the rule of law, Entrepreneurs will not risk investing in PV panel, and their property is protected by law.
Furthermore, in practice government will face challenge to determine the amount of what quantity to supply the new green resource market. Green energy is a new generation clean energy, finally it will take place of traditional polluting energy, and it takes a long term to accomplish this huge target. Consumer preferences are not revealed in the real market. Besides marketing methods, Cost-benefit analysis and political process need to be done in purpose of determining supply.

Conclusion
Australia’s per capita carbon gas emissions are the highest of any OECD country. Government launched a carbon market in Australian and encouraging expansion of renewable energy sources. A range of economic theories are involved, such as rule of law, externality. And the potential economic issues are it may leads to a market failure, the impact on the negative externality that is being targeted can be uncertain.
References

Australian Government. (2012, February, 23). Renewable Energy Target. Retrieved from http://www.climatechange.gov.au/en/government/initiatives/renewable-target.aspx

Queensland Government, Office of Clean Energy. (2011, May, 11). Solar Bonus Scheme. Retrieved from http://www.cleanenergy.qld.gov.au/demand-side/solar-bonus-scheme.htm?utm_source=CLEANEENERGY&utm_medium=301&utm_campaign=redirection

Arup, T., & Coorey, P. (2011, May 05). Combet ends solar panel subsidies early. Sydney Morning Herald. Retrieved from. http://search.proquest.com/docview/865623682?accountid=13380

Blankers, A. (2011). We’re set to hit our renewable energy targets – now let’s aim higher. The Conversation. Retrieved from http://theconversation.edu.au/were-set-to-hit-our-renewable-energy-targets-now-lets-aim-higher-4608

Crooks, E. (2011, Dec 17). Solon latest victim of solar panel glut and subsidy cuts. Financial Times. Retrieved from http://search.proquest.com/docview/911541489?accountid=13380

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