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.
ACIL Tasman, 2011. Briefing Note: Clean Energy Future Package – High level impacts on Victorian energy markets. Victorian Department of Primary Industry, p.9.
Australian Government, 2011. Strong Growth, Low Pollution: Modelling a Carbon Price. Table 5.6, p.93.
Andersen, T. and McKibbin, K., 1997. Reducing Coal Subsidies and Trade Barriers: Their Contribution to Greenhouse Gas Abatement, Seminar Paper 97-07, Centre for International Economic Studies, University of Adelaide, Australia.
Anderson, P., 1995. The Political Economy of Coal Subsidies in Europe, in Energy Policy. Journal of Energy, 23 (6), pp. 2-6.
Burniaux, J. M., Martin, J. P. and Oliveira-Martins, J., 1992. The Effect of Existing Distortions in Energy Markets on the Costs of Policies to Reduce CO2 Emissions: Evidence from GREEN, OECD Economic Studies No. 19.
Crickey.com, 2011. Viewed from< Http//www.crikey.com.au/2011/07/15/> > (Accessed on 28th August 2011).
De Nocker, S. and Linarez, P., 1999. Energy Source (online). Available at:
Larsen, P. & Shah, T., 1992. World Energy Subsidies and Global Carbon Emissions. London: World Bank Research Paper 1002.
Larsen, P. & Shah, T., 1995. World Fossil Fuel Subsidies and Global Carbon Emissions. In Bovenberg and Cnossen (Eds), Public Economics and the Environment in an Imperfect World. London: World Bank Research Paper 1002.
Markandya, T. & Halsnaes, G., 2002. Climate Change and Sustainable Development. London: Earthscan.