Economic Self-Harm or a Pro-Human Future: The Case of Australia

“Cheap energy, natural resources, and high-skilled labour are the foundations that ensured our success. But now with high energy costs, unsustainable dependencies, and a declining birth rate, our nations have a choice to make: to relay the foundations of our prosperity, or choose deindustrialisation and economic disarmament.”

In this paper, Gerard Holland and Gene Tunny argue that energy is the lifeblood of our civilisation, and that failing to provide affordable energy hits the poorest hardest. The paper focuses specifically on the case of Australia and how rising energy costs have had profound implications for the poorest households and the viability of businesses.

Read the Paper

Summary of Research Paper

Australia’s energy landscape presents a compelling study for nations grappling with the dual challenges of energy transition and economic resilience. With vast reserves of coal, gas, uranium, and renewable resources such as solar and wind, Australia should be at the forefront of delivering low cost, reliable energy solutions. However, this resource-rich nation has moved from benefiting from some of the cheapest energy in the world to grappling with some of the most expensive. 

Australia has experienced a significant increase in energy costs over the past two decades. Between 2007 and 2024, real electricity prices rose by 65%, and gas prices increased by 67%, dramatically impacting households and businesses. 59.4% of this escalation occurred in the last decade, coinciding with a significant shift in the energy mix. During this period, renewable energy’s share of electricity generation expanded from 8% to 34%, reflecting a rapid transition with substantial cost implications. 

Economic Impacts 

The sustained rise in energy prices has had severe economic repercussions: 

• GDP Decline: Real electricity and gas price increases of 60–70% since the late 2000s suggest a potential GDP reduction of 3%, equivalent to $81 billion in 2024–25. 

• Household Living Standards: Higher energy costs have led to a 2.4% decline in household living standards, solely attributable to increased energy prices. This corresponds to an annual reduction of $3,400 per household, based on an average gross income of $142,000. These impacts disproportionately affect low-income families, exacerbating inequality. 

Policy Pathways and Trade-offs 

Australia faces critical energy policy decisions, with each potential pathway carrying distinct costs, benefits, and trade-offs. To assess the nation’s energy future, we analysed the full system cost of four scenarios: 

1. No Net Zero Scenario: 

• Overview: Ultra-supercritical coal at the mine mouth is the most cost-effective technology for 24-hour reliable supply. 

• Investment: Requires the lowest capital expenditure of $103 billion. 

• Impact: Wholesale electricity prices range from $50–$100/MWh, with retail prices potentially decreasing by up to 25%, offering significant short-term economic relief. 

1. Technology-Neutral Pathway: 

• Overview: Incorporates nuclear energy to balance environmental goals with affordability and reliability. 

• Investment: Requires $163 billion in capital investment. 

• Impact: Wholesale prices are projected at $100–$150/MWh, with retail prices varying from a 4% decrease to a 35% increase. While upfront costs are higher, nuclear energy provides a stable, low-emission energy source. 

1. Current Policy Pathway: 

• Overview: Favors offshore wind, solar, and battery energy storage systems (BESS). 

• Investment: Requires $261 billion in total investment ($198 billion in CapEx and $30/MWh in transmission costs). 

• Impact: Retail prices are expected to rise by 30–69%, with wholesale prices ranging from $150–$200/MWh. GDP could decline by an additional 1.44–3.31%. This pathway risks failing to achieve net-zero goals while undermining energy security. 

1. 100% Renewable Grid: 

• Overview: The most ambitious scenario envisions a fully renewable grid. 

• Investment: Demands $332 billion in investment ($255 billion in CapEx and $77 billion in transmission costs). 

• Impact: Retail electricity prices could rise by up to 69%, with significant concerns about energy reliability and long-term feasibility. 

Conclusion 

Australia stands at a critical juncture in energy policy, facing the challenge of balancing affordability, reliability, and sustainability. Current policies centred on renewables have driven up costs and raised concerns about energy security and economic resilience. Bold, technology-neutral approaches—such as incorporating nuclear power and advanced coal technologies—can align environmental goals with economic priorities. 

Prioritising reliable, cost-effective energy solutions over ideological preferences is essential to safeguarding Australia’s prosperity, protecting household well-being, and ensuring energy security for the long term. These decisions represent not just an economic imperative but a defining moment for the nation’s future.