Modelling Australia's energy crisis

The US Studies Centre at the University of Sydney recently released a report comparing Australia's recent experience with rising energy (gas and electricity) costs to the US where costs have fallen. The report, authored by Alex Robson presents an important contrast across the two countries, noting some of the key differences that have driven the divergent energy price paths.

We were pleased to undertake computable general equilibrium (CGE) modelling to estimate the economy-wide impacts of higher energy prices in Australia. Our modelling showed that a permanent 10 per cent increase in both domestic gas and wholesale generation prices would likely lead to a permanent reduction in GDP by 0.46 per cent, equal to an annual economic loss of A$8.5 billion.

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 and a 27 per cent decline in the output of Australia's chemical, rubber and plastic industries.

The report rightly concludes that if Australia wants to reduce energy prices and carbon emissions while maintaining reliability, it should increase the supply of cheap domestic gas.

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