GOVERNMENT POLICY

Renewable Energy Investment

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What Has Happened?

In response to the recession and rising levels of unemployment, the Victorian government is intending to fund the construction of 600 megawatts of renewable energy capacity (sufficient to provide electricity to approximately 150,000 homes), with funding support from private investors.

This strategy effectively kills two birds with one stone – not only will it provide employment to the struggling construction industry that has seen rising unemployment, but it will also assist Australia in meeting its environmental obligations and targets.

In effect, this strategy is, in the long-term, more beneficial than discretionary measures such as Jobkeeper (which only benefits the current generation whilst placing a larger tax burden on future generations), because renewable energy provides benefits such as increased electricity supply, lower energy prices and assisting in reducing emissions.

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The government support for private investors in renewable energy is expected to contribute to GDP  by increasing both investment (I) and government expenditure (G):

GDP=AD=C+I+G+(X-M)

This will provide a means with which to stimulate economic growth whilst ensuring that the Victorian government does not entirely fund the project, thus mitigating increases in public debt and the primary budget deficit.  When viewed on an aggregate supply-demand plot, the aggregate demand curve shifts outwards (in this case from AD1 to AD2), thus leading to an increase in the aggregate price level from P1 to P2 and an increase in aggregate quantity (GDP) from Q1 to Q2.


Figure 1: AD and AS Curve

Additionally, the demand for employment in the construction industry will increase, thus offsetting cyclical unemployment that has resulted from reduced demand for new dwellings and capital construction induced by the pandemic. By reducing unemployment levels (albeit marginally), Federal government expenditure on Jobseeker and other unemployment benefits will decrease, thus improving the primary budget balance.

By increasing the proportion of Australia’s electricity sourced from renewable sources, Australia will reduce its reliance on fossil fuels and thus reduce its level of carbon dioxide emissions.

As a nation, Australia has the second-highest level of per-capita emissions after the United States (when excluding emissions associated with petroleum production). In fact, countries such as France and United Kingdom, which enjoy similar levels of development, have per-capita carbon emissions approximately one-third that of Australia. This indicates the potential to reduce carbon emissions by shifting toward renewable sources without compromising quality of life.

The proposed 600 MW of increased capacity is adequate to supply electricity to approximately 400,000 people, and will reduce Australia’s per-capita carbon-dioxide emissions by approximately 1.5% once established. Thus, while the project is significant in reducing the carbon footprint of Australians, further investment is required for Australia to reach its goal of reducing total emissions by 26-28% on 2005 levels by 2030 as outlined by the Emissions Reduction Target. Considering population growth, this is equivalent to over halving per-capita emissions, indicating the requirement for continued investment in renewable energy, since per-capita emissions have so far fallen just 19% since 2005. Without this continued investment, Australia is unlikely to achieve this target.

The NGO ClimateWorks estimates that to meet the goals of the Paris Agreement and limit the rise in global temperatures to 1.5oC, Australia will need 79% of its energy to come from renewable sources by 2030. However, with current projections, Australia will obtain around 50% of its electricity from renewable sources by 2030, up from around 25% now.

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