Essays on Applied Analysis of the Carbon Price Mechanism in Australia Case Study

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The paper "Applied Analysis of the Carbon Price Mechanism in Australia" is a perfect example of a macro & microeconomics case study.   Due to the changing world climate and adverse climatical conditions in the Australian continent, the government adopted a policy for clean energy. This policy will significantly cut pollution and drive investments hence ensuring Australia’ s economic prosperity (Australian Government, 2011). Carbon price refers to the tariff charges by the government to all firms that release carbon emissions to the atmosphere. These tariffs are meant to discourage firms from utilizing energy sources that are harmful to the environment.

The carbon price will generate financial incentives that will flow through the economy. Households will be cushioned against price increases through tax cuts, higher family payments and increases in pensions and benefits to meet costs passed through by businesses. Although the households are cushioned against price increases, rational consumers will be forced to make rational decisions regarding their consumption patterns as occasioned by changes in prices due to the effect of the carbon prices. The idea here is that the consumer chooses a vector of goods to maximize utility subject to budget constraint.

The carbon price is meant to change Australia’ s electricity generation by encouraging investment in pure renewable energy like wind, solar power and natural gas which will enhance the utilization of cleaner energy as observed by Anderson (1995). This paper examines the effects of the carbon price reduction schemes on Australian households. The energy price increase due to the introduction of a carbon tax is likely to affect most households and businesses. This will lead to serious economic effects on the citizens since the tax levied on carbon emission will have far-reaching effects on goods and services which are reliant on fuel for their production. Households that are exposed to vulnerability from even small price increases in the cost of basic commodities should be shielded from price increases caused by carbon price mechanism.

References

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Australian Government, 2011. Strong Growth, Low Pollution: Modelling a Carbon Price. Table 5.6, p.93.

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Markandya, T. & Halsnaes, G., 2002. Climate Change and Sustainable Development. London: Earthscan.

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