Regulatory and financial framework for renewable energy in Australia and Japan

The industry of renewable energy in Australia is growing significantly, as its contribution to the total energy production is increasing over the year. The industry has produced 15% of the country’s total energy production during 2015-16 and the amount is significantly over the year (Energy.gov.au. 2018). There is a presence of both fiscal and regulatory influence of all the levels of government in the energy policy of Australia (Sahu 2015). Different types of grants and financial incentives are provided to the renewable energy systems of Australia. On the other hand, Japan, which is one of the leading producers of photovoltaics, is provided of subsidies along with feed in tariff by the government.

There are several positive and negative aspects of using solar energy. According to the Solar Energy Research and Development of Australia, it has been found that solar energy can produce sixty percent of on grid electricity of Australia (Sampaio and González 2017). There is also absence of any kind of health risks for workers working in the solar sector. Most of the environmental impact and health impact depends on the type of systems used. However, manufacturing of photovoltaic materials is associated with high amount of health risks. Companies like Mitsubishi and Toshiba are the leading manufacturers of solar energy in Japan. The feed in tariff system introduced by the government in Japan guarantees increase in investment in case of renewable energy (Poruschi, Ambrey and Smart 2018). The FIT legislation of Japan has faced a huge number opposition from large number of politicians and from the concerned industries. After the meltdown of the reactors at the power station of Japan, the government had started generating maximum amount of electricity through the renewable sources. According to the industry analysis made by The Australian, it suggests that the small-scale technology certificates which provides incentives for installing solar rooftops was been subsidized for around $500 million. As the cost of subsidizing solar energy increases, the government might face loss after a certain point of time (Sahu 2015). Providing subsidies has many advantages like it can reduce deforestation and pollution. It can also improve the standard of living. It also helps to save the environment. One of the main negative aspects of providing subsidies on energy resources is there will be a heavy burden on the finances of the government, there can also be increase in the trade deficit. Small business of solar energy in Australia is also provided concessions on tax. There is also a presence of ample amount of space which is required for installing large scale solar system which sometimes can be energy intensive. Therefore, the amount of emission will depend upon the technology used for production. However, in countries like Japan the government support the development activities which are essential for producing solar power (Simpson and Clifton 2016). As a result of climatic changes and reduction of support from public for the nuclear power, the government focused highly on subsidizing the solar power. Large amount of tariff cuts along with facing difficulty in securing connections of grid have made government to develop more solar energy. According to the panel makers of Japan, they have to reduce the cost to a great extent as there is a presence of huge competition from the international market (Cherpet al. 2017).

Positive and negative aspects of using solar energy

The number of bankruptcies related to solar power has also increases in Japan in the past few years. As there is only presence of limited availability of land, installing large scale solar panels has also become a difficult task. The International Energy Agency of Japan is a kind of subsidy scheme which helps in the in stalling of solar PV systems in the residential sectors. The Australians even have to pay more than one billion for the roof top solar installation which will also increase the power cost. The subsidy used in the solar energy also have been reported to increase after the regulation. According to the reports of the Australian Energy Market Commission, the prices of electricity will fall down as a result of using renewable energy (Kabiret al 2018). There is a huge trend of commercialisation of renewable energy in Australia. There is also a huge increase in the installation of PV in Australia. There is always a huge advantage in using solar energy like it can reduce the cost of electricity, there is also no requirement of high maintenance and they are absolutely environment friendly. However, installing of solar panels also requires huge space and sometimes it can also be quite expensive.

The gravity model of the international trade aims to focus to find out the amount of interaction between two places.  The amount of interaction between the two cities is directly related to the size of the cities. The distance between Australia and Japan is around 6,848km. The bilateral trade of Australia is directly affected by the per capita gross domestic product, by the size of the economy and negatively related to the distance between the trading partner, Japan. The most common language spoken in both the countries is English. The greater the distance between the countries, thereby reducing the gains from trade. However, there are no common borders between Australia and Japan as they too far away from each other. Australians mainly trade coal, iron ore and wool to Japan. The Ricardian model which consists of the international trade explains the comparative advantage difference across the nations. The Ricardian model also assumes that all the factors are very similar cross the countries. The Japan Australia Economic Partnership Agreement provides access for Australia’s exporters.  The pattern of international trade is estimated with the help of gravity model (Huaet al. 2016). In this context, comparative advantage theory related to trade is used. According to this theory, a country produces particular product in which it has lower opportunity costs compare to other countries and this further helps the economy to trade this with other countries, which experience higher opportunity cost to product the product (French 2017). A study suggests that the natural resources, location and manufacturing bases are the main advantages for developing renewable resources in Australia. In this way there is a significant presence of comparative advantage which the renewable energy has in Australia. The opportunity cost is the infrastructure of energy which is present currently like using of fossil fuels. The power station of Japan named, as Solar Ark, which was built in 2002, is one of the largest solar buildings around the world (Yu, Popiolek and Geoffron 2016). The study also shows that usage of renewable resources also helps in reducing emissions. The opportunity cost is also called an alternative cost which suggests that the benefits people misses out while choosing an alternative over the other. It is therefore the value of something that is given up in order to gain something. As every thing can be put for some alternative uses there is a relation to opportunity cost.

Gravity model of international trade and comparative advantage theory

 

Fig: 1 Proportion of solar energy used by Australian household

(Source:Energy.gov.au. 2018).

Calculating opportunity cost with an example

Cost of renewable energy in Australia in USD=$262.5 ($360 AUD for 320w solar panel) (Solaronline.com.au 2018)

Cost of renewable energy in Japan in USD= $295

Cost of non- renewable energy in Australia=$1.51 USD per dollar  (GlobalPetrolPrices.com 2018)

Cost of non-renewable energy in Japan=1.35 USD per dollar

	AUSTRALIA	JAPAN
RENEWABLE ENERY	$262.5/$295 = 0.88	$295/$262.5= 1.12
NONRENEWABLE ENERGY	$1.51/$1.35= 1.12	$1.35/$1.51= 0.89

Opportunity cost of Australia for producing renewable energy = 0.88

Opportunity cost of Japan for producing renewable energy= 0.89

According to the above calculation, Japan has comparative advantage to produce renewable energy while Australia has comparative advantage to produce non-renewable energy. As a result, Australia can produce more non-renewable energy to export overseas while it imports renewable energy from Japan.

Conclusion:

Therefore, it can be said that the government have done enough in subsidizing solar energy in both Australia and Japan. The cost of subsidizing solar power is also quite high. The Australian federal government have also introduced Mandatory Renewable Energy Target with a scheme in order to run until 2020. The solar and the wind energy sources of Australia will receive subsidies from the government of around $2.8 billion a year so that it reaches the renewable energy target. The research also shows that Japan ranks second in the growth of photovoltaics. The government therefore have done enough for expanding solar power by providing enough subsidies for both the countries.

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