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It doesn’t have to be this way: Australia’s energy crisis, America’s energy surplus | United States Studies Centre

Why is US energy so inexpensive? Why is its electricity more reliable and pricing more transparent than Australia’s? Why are its carbon emissions declining faster relative to Australia? In this report we answer those questions, clarifying what’s at stake if Australian policymakers do not change course.

Economic modelling in this report indicates what’s at stake. Because energy is a non-substitutable good, consumed by households and businesses alike, high energy costs reverberate through the entire economy. A 25 per cent increase in electricity generation prices and domestic gas prices costs more than 33,000 Australian jobs and 1.15 per cent of GDP. The modelling may underestimate the actual impact of significant price increases.

Recent media and political commentary focuses on energy costs for Australian households. But for a globalised economy like Australia’s — with relatively high labour costs — high energy costs pose an immediate and dire threat to businesses that consume large quantities of energy, with manufacturing, chemicals, and steel among the sectors at most risk. Investments in these sectors is unattractive absent certainty about the costs of energy. Case study evidence indicates that some firms will cease operations altogether if they cannot secure economically viable gas prices for 2019 and beyond.

A key lesson of the US energy revolution for Australia is that resource abundance will only get the economy so far. Increasing energy supply is not enough. Institutional arrangements and property rights, free markets, infrastructure development and regulatory and policy settings all play an important role. The architecture of Australian’s energy markets also require reform, if not transformation. Get the institutional and policy settings right, and the market will transform physical abundance into economic abundance and put downward pressure on energy prices and emissions.

Energy and gas prices in Australia and the United States
Based on 2017-18 data, there is only one US state with higher average household electricity prices than every Australian state and territory: Hawaii. Australian businesses fare no better. Forty-four US states have lower average industrial electricity prices than the Australian average.

Yet electricity prices are only part of the story. Queensland households pay more for gas than any US state, while households in South Australia, Tasmania, New South Wales and Victoria pay more for gas than 48 US states.

An essential and irreplaceable input to many types of manufacturing, natural gas is now more than twice as expensive for Australian manufacturers as it is for their counterparts in the US state of Louisiana. And compared to 10 years ago, in nominal terms natural gas is now 177 per cent more expensive for a Melbourne-based manufacturer and 41 per cent cheaper for a New York-based manufacturer.3

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It doesn’t have to be this way: Australia’s energy crisis, America’s energy surplus — United States Studies Centre.

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