Emission Trading System in Australia Essay Example | Topics and Well Written Essays - 500 words

Emission Trading System in Australia - Essay Example This paper explores the Emission Trading System in Australia and its annihilation with focus placed on three economic variables (demand, supply, and government regulations). The price control (EMS elimination) was introduced with the view to lower the amount spent on environmental protection significantly by 2020. However, this process develops differently in the short run and in the long run. Elimination of the EMS in Australia will lead to reduced investment in the Australian market especially for manufacturing companies. Increase in government regulations encumbers economic growth because it makes the economy rigid and costly to invest in. The cost of investment in the Australian market generates two dissimilar effects on the economy. First, it increases the cost of investment in the country and the cost of environmental control within the country. The gridlocked EMS would lower the cost of carbon by $20 to $25 per ton (Davis & Taylor, 2011, p.1). This cost shifts to the investors, which raises operational costs. Second, it increases the price of manufactured commodities in the country. Increased investments (loanable funds) from LF0 to LF1 increases the supply of commodities showed through the curve SLF. The reverse is true when investment levels reduce irrespective of the reasons for the reduction. Reduction in investment can also arise from decreased profit margins due to increase in the operational costs for businesses operating within the country. The situation in Australia, with eradication of EMS, produces a combination of both factors working against increased investments in production companies in the country. However, the government regulation to switch to renewable sources of energy as an alternative to carbon emitting sources will reverse the situation (Wang & Blackmore, 2012, p.4389). The initial cost for the companies will definitely be high